NEW YORK--()--Fitch Ratings has affirmed Grupo Senda Autotransporte, S.A., de C.V.'s (Grupo Senda) local and foreign currency Issuer Default Ratings (IDRs) and its USD150 million senior secured guaranteed notes due in 2015 at 'B-' and 'B-/RR4', respectively. The Rating Outlook for Grupo Senda has been revised to Positive from Stable.
The rating affirmation results from the positive trend in the company's operating performance coupled with an important business deleveraging during the last 12-month (LTM) period ended in March 2011.
The Positive Outlook incorporates the expectation that during the next 12-month period ending in December 2011 Grupo Senda will consolidate the positive operational trend reached during the LTM March 2011 period. Fitch expects the company will close 2011 with stable EBITDA margin at 22%, net leverage below 3.5 times (x), a cash position above MXN250 million, and short-term debt maturities below MXN350 million. The company's free cash flow (FCF) generation is anticipated to be neutral during 2011 as Grupo Senda should implement its MXN369 million 2011 capex without increasing current debt levels. The Positive Outlook also incorporates the view that the wave of violence affecting several Mexican states will not interrupt the expected positive trend in the company's operating results during 2011.
Grupo Senda's ratings reflect the company's leading market position in the highly competitive and fragmented intercity bus passenger transportation sector in Mexico, and limited financial flexibility resulting from its significant dependence on external liquidity to fund debt maturities. The 'B-/RR4' ratings on the company's public debt reflect average recovery prospects given default. The ratings also incorporate industry-related risks such as seasonal fluctuations in passengers, cyclicality risk affecting the personnel segment, and volatile fuel costs. Positively, the company benefits from the importance of bus transportation within Mexico that results from income constraints that limit the ability of many people to use more expensive alternative means of transportation, such as automobiles or airlines. Grupo Senda is exposed to foreign exchange risk, as 90% of its revenues are in Mexican pesos and approximately 70% of its debt is denominated in U.S. dollars.
Grupo Senda is expected to continue to benefit from the positive trend of the Mexican economy, which is expected to grow 4.2% and 4.0% during 2011 and 2012, respectively, after growing 5.5% during 2010, which should further improve its cash flow generation. Positive operating trends coupled with improving market conditions during 2010 helped lower the high refinancing risks faced by the company during late 2008 and the first half of 2009. Higher operating profits over the next several quarters should help to mitigate the company's still weak liquidity position.
Business Strategy with Focus on Route Rationalization and Price Increase Expected to Continue during 2011:
In mid-2009, Grupo Senda abandoned its business strategy of entering new geographic areas with discounted prices to attract passenger volume and began to re-focus on geographic areas in which the company has a leading market share. This strategy allowed it to help restore its fare structure to historical levels, and rationalize its route network, which resulted in improving operational results during the second half of 2009 and continued positive trend in operational performance during 2010. In the short term, the company expects to continue to focus on increasing its fares and improving its operating margins. The company expects to increase fares in the 9%-10% range during 2011. Increasing competition followed by the return to discounted-price practices as a key component of the company's business strategy to gain market share would likely result in a negative rating action.
Expected 2011 EBITDA Margin: 22%
Grupo Senda's cash flow generation, measured by EBITDA, was positive during the last 18 months ending in March 2011. For the year ending December 2010 and LTM March 2011, EBITDA totaled MXN766 million and MXN753 million, respectively. EBITDA levels in fiscal 2010 and LTM March 2011 were 45% and 43%, respectively, above EBITDA levels reached during fiscal 2009. EBITDA improvement was driven by tariff increases of approximately 17% in 2010 which resulted in EBITDA margins of 21.8% for the year. The ratings incorporate the view that Grupo Senda's EBITDA margin will remain stable at around 22% during 2011.
In addition to stronger fares, Grupo Senda launched new services in the personnel segment during 2010, which helped boost financial results. The company's operating margins per bus decreased from MXN9,000 in fourth quarter 2008 (4Q'08) to MXN-2,700, and MXN2,000 in 1Q'09 and 2Q'09, respectively, then grew to MXN31,700 and MXN32,900 during 3Q'09 and 4Q'09, respectively. The company's positive operating performance in 2010 resulted in operating margin per bus levels of MXN29,072, MXN38,061, MXN42,145, and MXN63,078 during 1Q'10, 2Q'10, 3Q'10, 4Q'10, respectively. During 1Q'11, the company's operating margin per bus was MXN26,605, 9.5% lower than the level reached in 1Q'10 primarily due to seasonality, as the Easter holiday in 2011 took place during the second quarter instead of the first, as occurred in 2010. The company's 2Q'11 EBITDA is expected to be around MXN250 million.
Liquidity Remains Weak:
Grupo Senda's cash position remains weak and continues to have a high dependency on third parties to cover its liquidity position as well as roll over short-term debt. The ratings incorporate the view that the company's liquidity position will not materially improve in the short-to-medium term. As of March 31, 2010, Grupo Senda had MXN207 million of consolidated cash and marketable securities and MXN443 million of short-term debt, including MXN119 million in used credit lines. The company's financial strategy is to continue rolling over its short-term debt, while trying to achieve a major refinancing, which would allow it to reduce the debt payments due in 2011 and 2012 of MXN255 million and MXN248 million, respectively.
Historically, the company's cash position has been low relative to short-term debt. The company's liquidity position, measured by the ratio of cash to short-term debt was 0.47x by the end of March 2011, versus 0.39x and 0.44x by the end of December 2009 and December 2008, respectively. By the end of March 2011, the company had unused committed credit lines for a total amount of MXN75 million, as an alternative source of liquidity.
2011 Leverage Expected to Remain Below 3.5x:
Grupo Senda's leverage has improved. Recent trends in leverage mirror the company's significant recovery in operations taking place during the LTM March 2011 period. Grupo Senda's leverage, measured by total net debt/EBITDA, declined from 5.2x as of Dec. 31, 2009 to 3.3x as of March 31, 2011. Fitch expects the company to manage its balance sheet with net-debt-to-EBITDA in the 3.0x-3.5x range during 2011.
By the end of March 2011, on-balance-sheet debt totaled MXN2,696 million (USD226 million), which primarily consists of corporate bonds (MXN1,788 million or USD150 million), financial leases (MXN733 million or USD61 million), and long-term facilities with local banks (MXN72 million or USD6 million). In addition, the company's off-balance-sheet debt is estimated at MXN225 million and annual rental expenses related with operating leases during LTM March 2011 totaled approximately MXN32 million. The company expects to reach lower rental expenses during 2011, at approximately MXN10 million for the year, as the company capitalized the majority of its bus operating leases during 1Q'11.
Factored into the ratings is the company's capacity to generate positive free cash flow (FCF) during 2010 and LTM March 2011 at levels of MXN250 million and MXN307 million. FCF calculation considers cash flow from operations after interest paid less capex and distributed dividends. During 2011, FCF is expected to be neutral as the company is planning a MXN369 million capex program to acquire 222 autobus units, which will be allocated in the passenger (190 units) and personnel (32 units) business segments. The ratings consider the view that this major increase in the company's fleet will bring incremental demand resulting in operating margins per bus at similar levels reached during 2010. The company's operating margin per bus during fiscal 2010 was MXN172,180. By the end of March 2011, Grupo Senda's fleet reached 2,509 units, made up of 1,183 units and 1,326 units in the company's passenger and personnel segments, respectively.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2010);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Liquidity Considerations for Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666
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