MONTERREY, Mexico (Nov 04, 2011) — Fitch Ratings has affirmed Grupo Posadas S.A.B. de C.V.’s (Posadas) ratings as follows:
–Local currency Issuer Default Rating (IDR) at ‘B';
–Foreign currency IDR at ‘B';
–National scale rating at ‘BB+(mex)';
–USD200 million senior notes due 2015 at ‘B/RR4′;
–MXN2.25 billion Certificados Bursatiles issuance Posadas08 at ‘BB+(mex)’.
The Rating Outlook has been revised to Negative from Stable.
The affirmation and revision of the Rating Outlook to Negative reflect increased leverage(adjusted for leases), related to indebtedness exposure to the USD after derivatives and concerns regarding refinancing, particularly for the Certificados Bursatiles issuance due in April 2013. A depreciation of the MXN vs the USD beyond current levels which pressures liquidity, an inability to refinance the 2013 maturity in advance, or to reduce total adjusted debt to EBITDAR ratio below 6.0 times (x) can result in a negative rating action.
Posadas’ ratings are supported by the company’s solid business position, strong brand name and multiple hotel formats. Conversely, the ratings are tempered by increased leverage, and exposure to currency fluctuation which can pressure liquidity and 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 travelers of different income levels as well as tourists, diversifying its revenue base.
The company also benefits from diversification into other business segments, which reduces some exposure to its hotel business, such as management of loyalty programs and call centers. Hotel revenues and operations are primarily located in Mexico, which limits geographic diversification, and around 80% of rooms are in urban locations. The ratings also factor the industry’s high correlation to economic cycles, which negatively affects operating indicators in downturns.
The company has been able to turnaround operations in 2011 vis-a-vis 2010, mainly due to improved REVPAR in urban locations, as well as a slight improvement of REVPAR in coastal properties, which have compensated for soft cash flow in the vacation club segment. Improved REVPAR is the result of higher occupation levels in both urban and coastal locations. While average daily rates (ADR) have improved for urban locations, coastal locations ADRs continue under pressure.
For the 12 months ended Sept. 30, 2011, total adjusted debt to EBITDAR was 6.3x. As of Sept. 30, 2011, on-balance sheet debt reached MXN6.47 billion, a 10% increase from year-end 2010 levels, mostly driven by exchange rate changes. Approximately four-fifths of the debt is dollar-denominated and the remainder was in pesos. Short-term debt represented only one-eighth of total debt. In addition to that, the company had approximately MXN2.479 billion of off-balance sheet debt related to hotel leases.
The company’s liquidity position is manageable in the short term but refinancing risk increases as the 2013 maturity approaches. With maturities of MXN820 million over the next 12 months and cash balances as of Sept. 30, 2010 of MXN666 million, Posadas should be able to manage next year’s maturities in the absence of a devaluation of the MXN that results in higher margin call. Posadas’ next significant maturity is on April 2013 when MXN2.25 billion in Certificados Bursatiles is due. The ratings factor in that Posadas should refinance or pay off this maturity in advance. Failure to do so could pressure the ratings as time goes on.
Fitch believes Posadas’ cash levels, excluding cash needed for operations and credit facilities, allows it to cover margin calls. Since a moderate depreciation of the MXN would increase stress on liquidity and put greater pressure on financial indicators, the company’s liquidity is considerably exposed to larger currency fluctuations. Recently, and for that purpose, the company raised about MXN360 million in equity and debt (approximately MXN308 million and MXN52 million, respectively).
Going forward and absent any strategic initiatives Posadas might undertake, Fitch expects the firm to proceed with a gradual deleverage. On Sept. 26, 2011, Posadas announced that it is looking at strategic alternatives, which are not factored into the ratings. Once, and if, any of these alternatives materialize, Fitch will assess the impact to credit quality. Factors detrimental to credit quality would include deterioration of operating results and cash flow or additional indebtedness related to new projects or to cover contingencies that result in increased leverage. On the other hand, Fitch will view as positive to credit quality a strengthening of operating trends particularly in the vacation club segment, improvements in REVPAR that can lead to higher EBITDA and cash flow levels, as well as any non-recurring cash infusion which diminishes debt.
Additional information is available at ‘ www.fitchratings.com ‘. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
–‘Corporate Rating Methodology’, Aug. 12, 2011;
–‘Recovery Ratings and Notching Criteria for Nonfinancial Corporate Issuers’ – May. 12, 2011;
–‘National Ratings Criteria’, Jan. 19, 2011.
Applicable Criteria and Related Research:
National Ratings Criteria
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
Corporate Rating Methodology
SOURCE: Fitch Ratings