October 23, 2013 / 9:01 PM / 4 years ago

Fitch Affirms Grupo Posadas' IDRs at 'B'; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, October 23 (Fitch) Fitch Ratings has affirmed the ratings of Grupo Posadas S.A.B. de C.V.'s (Posadas) as follows: --Local currency Issuer Default Rating (IDR) at 'B'; --Foreign currency IDR at 'B'; --National scale rating at 'BB+(mex)'; --USD275 million senior notes due 2017 at 'B+/RR3'; --USD83 million senior notes due 2015 at 'B+/RR3'. The Rating Outlook is Stable. Posadas' ratings are supported by the company's solid business position, strong brand name and multiple hotel formats. Conversely, the ratings are tempered by high leverage, as well as industry cyclicality. Posadas' presence in all major urban and coastal locations in Mexico, consistent product offering and quality brand image have resulted in occupancy levels that are above the industry average in Mexico. The use of multiple hotel formats allows the company to target domestic and international business travellers of different income levels as well as tourists, diversifying its revenue base. The Recovery Ratings are 'RR3', which indicates good recovery prospects given default. 'RR3' rated securities have characteristics consistent with securities historically recovering 51%-70% of current principal and related interest. Fitch expects Key Performance Indicators (KPIs) to remain broadly constant over the short term. The company has been able to turn around operations in 2012 and 2013, vis-a-vis previous years, mainly due to stable RevPAR in urban locations, as well as a marked improvement of RevPAR in coastal properties. Both are the result of higher occupancy levels, particularly in coastal locations. Average daily rates (ADR) have stayed generally constant over the medium term. Going forward, Fitch views Posadas' strategy to be centered mostly on managing hotels, as opposed to owning the properties. New openings should continue for all brands, mainly Fiesta Inn, and One, mostly under managed and leased formats. This strategy for new openings reduces capex somewhat and could support free cash flow generation, which is expected to be negative due to increased maintenance capex and vacation club developments. Last year, Posadas divested its South American hotel operation for USD$275 million, and earlier this year, it sold 14 of its hotels to the FibraHotel REIT for about MXN2 billion. The company's liquidity position is good. Posadas' next significant maturity is in January 2015 when about USD83 million in Senior Notes is due. Cash balances as of June 30, 2013 are MXN1.4 billion; however, most of that cash, the result of the sale of 14 hotels to FibraHotel, will likely be destined for capex. The ratings factor in that Posadas should refinance or pay off this maturity in advance. Failure to do so could pressure the ratings. The ratings reflect that adjusted gross leverage will trend downward towards 4.5x over the medium term. For the 12 months ended June 30, 2013, total adjusted debt to EBITDAR was 3.7x. Discounting one-time events, such as the sale of hotels to FibraHotel, total adjusted debt to EBITDAR should be about 5.0x. As of June 30, 2013, on-balance-sheet debt reached MXN4.5 billion, an 11% drop from year-end 2012 levels. In addition to that, the company had approximately MXN2 billion of off-balance-sheet debt related to hotel leases. RATING SENSITIVITIES Positive factors to the company's creditworthiness include stable EBITDA generation, consolidating gains in KPIs, and a proven track record of stronger and stable credit metrics, such as adjusted debt to EBITDAR consistently below 4.5x. Negative factors for credit quality could include any weakening of operating trends or decreases in RevPAR that could lead to lower EBITDA and cash flow levels, as well as incurring indebtedness that results in consistently higher leverage levels from current expectations. Contact Primary Analyst Miguel Guzman-Betancourt Associate Director Fitch Mexico S.A. de C.V. +52 81 8399-9100 Prol. Alfonso Reyes 2612, Monterrey, NL, MEXICO Secondary Analyst Sergio Rodriguez, CFA Senior Director +52 81 8399-9100 Committee Chairperson Alberto Moreno Senior Director +52 81 8399-9100 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (Aug. 5, 2013); --'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Nov. 13, 2012). --'National Ratings Criteria' (Jan. 19, 2011). Applicable Criteria and Related Research: National Ratings Criteria here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers here Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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