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Fitch Affirms Invatlan's IDRs at 'B', Outlook Stable; Expects to Rate Sr Notes 'B(EXP)/RR4'
June 30, 2017 / 9:22 PM / 6 months ago

Fitch Affirms Invatlan's IDRs at 'B', Outlook Stable; Expects to Rate Sr Notes 'B(EXP)/RR4'

(The following statement was released by the rating agency) MONTERREY, June 30 (Fitch) Fitch Ratings has affirmed the Long- and Short-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of Inversiones Atlantida, S.A. y Subsidiarias (Invatlan) at 'B'/'B'. The Rating Outlook on the Long-Term ratings is Stable. Simultaneously, Fitch has assigned an expected Long-Term rating of 'B(EXP)/RR4' to Invatlan's proposed senior notes. The final rating is contingent upon the receipt of final documents conforming to the information already received. The proposed senior notes, up to USD150 million, will have a maturity of five years (due 2022) with semi-annual fixed-rate interest payments and the principal will be paid on the maturity day. KEY RATING DRIVERS IDRs and Senior Debt Ratings Invatlan's IDRs reflect the financial profile of its main subsidiaries, mainly Banco Atlantida (Atlantida), rated 'A+(hon)' on the national scale by Fitch, which has demonstrated sound financial performance through the economic cycle. The ratings also consider Invatlan's high operational integration with its operating subsidiaries, as well as the light restrictions on subsidiaries upstreaming liquidity to Invatlan. Invatlan's ratings also reflect the expected moderate levels of double leverage. Invatlan's creditworthiness is aligned with its main operating subsidiary, Atlantida, since its status as a pure holding company with low ability to generate profits in an unconsolidated basis creates a natural dependence on the dividend flows from its subsidiaries to meet its financial commitments. This is particularly relevant because of Invatlan's expected moderate levels of double leverage, defined as equity investments in subsidiaries plus the holding company's intangibles, divided by the holdco's common equity. Fitch expects Invatlan's double-leverage ratio to increase due to the holdco's future plans to issue USD150 million of debt, although in Fitch's view it will be maintained below 120%. According to Fitch's criteria, a double-leverage ratio of 120% or below indicates a manageable level of debt service costs, thus supporting the equalization of Invatlan's creditworthiness with that of Atlantida. The agency considers as positive for Invatlan that Honduran regulations do not establish restrictions to capital and liquidity fungibility. Thus, Invatlan's subsidiaries can pay dividends to their holdco or inject liquidity efficiently. Dividend flows from its subsidiaries are expected to be ample and more than sufficient to service the entity's debt issue. Atlantida is the second largest bank in the country by loans and the first by customer deposits, with an important position in the corporate lending market. Its ample footprint helps serve clients nationwide and provides a solid base for expanding the bank's operations. Atlantida's financial performance is highly sensitive to Honduras' operating environment. The bank's ratings consider the adequate quality of its loan portfolio, solid local franchise, good operating profitability, low funding cost, adequate liquidity and sound capitalization. The expected rating of 'B(EXP)' reflects that these are senior obligations of Invatlan that rank pari passu with other senior indebtedness, and therefore this rating is aligned with the company's Long-Term Foreign and Local Currency IDRs of 'B'. The recovery rating of 'RR4' assigned to Invatlan's senior debt issuance reflects the average expected recovery in case of the company liquidation. RATING SENSITIVITIES IDRs and Senior Debt Ratings Invatlan's creditworthiness will likely move in line with that of its main subsidiary, Atlantida. Although it is not Fitch's base case scenario, a downgrade could also take place due to a significant weakening of Atlantida's financial performance and company profile. This includes a deterioration of asset quality that negatively affects operating profitability and a significant weakening in the bank's capital position that leads to a reduction in dividend payments available to service Invatlan's debt. Also Invatlan's IDRs could be downgraded by one notch if the company's double-leverage ratio is sustained above 120%. Given their senior nature, these notes will typically be aligned with the company's IDRs, and the rating of the notes will mirror any potential change to Invatlan's IDRs. Fitch has affirmed the following ratings: --Long-Term Foreign and Local currency IDRs at 'B'; --Short-Term Foreign and Local currency IDRs at 'B'. The Rating Outlook is Stable. Fitch has assigned the following rating: --Five-year USD150 million senior notes at 'B(EXP)/RR4'. Contact: Primary Analyst Alejandro Tapia Director +52 818 399 9156 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes 2612, Edificio Connexity Piso 8 Col. Del Paseo Residencial 64920 Monterrey, N.L., Mexico Secondary Analyst Mario Hernandez Associate Director +503 2516 661 Committee Chairperson Alejandro Garcia, CFA Managing Director +1-212-908 9137 Summary of Financial Statement Adjustments - Pre-paid expenses were re-classified as intangibles and deducted from Tangible Equity due to low loss absorption capacity under stress. 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