Fitch Rates Posadas' Proposed USD$225 Million Senior Notes 'B+(exp)/RR3'

MONTERREY, Mexico--()--Fitch Ratings assigns a 'B+(exp)/RR3'rating to Grupo Posadas S.A.B. de C.V.'s (Posadas) proposed senior unsecured notes due 2017 for up to USD $225 million. The proposed notes' net proceeds will be applied to the purchase of the USD $200 million senior notes due 2015. The expected 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.

Posadas' ratings are supported by the company's solid business position, strong brand name and multiple hotel formats. Conversely, the ratings are tempered by a track record of 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 travelers of different income levels as well as tourists, diversifying its revenue base.

Posadas recently completed a successful divestiture of its South American hotel operation for USD $275 million. From the proceeds USD $245 million are available, mitigating refinancing concerns related to the MXN2.25 billion 'Certificados Bursatiles' issuance due April 2013. The divested South American operations accounted for approximately 19% of last year EBITDA and historically have accounted for approximately 14%. Excluding South American operations, a one-time charge related to a write-down of accounts receivable at the vacation club in the fourth quarter of 2011 and assuming proceeds from the divestiture are used to pay debt, total adjusted debt to EBITDAR and total debt to EBITDA should improve to 4.8 times (x) and 4.1x, respectively, from previous levels of above 6.0x.

Furthermore, cash flow contribution to consolidated EBITDA from the Vacation Club operation should increase in the short term as a result of the divestiture of South America; however, cash flow contribution from the hotel operations should become increasingly important in the medium term as new openings and key performance indicators approach levels registered prior to 2008. Going forward, Posadas' strategy will be centered on operating and providing services to hotels as opposed to owning the properties. New openings should continue for all brands, mainly Fiesta Inn and One, under managed and leased formats. This strategy of openings reduces capex and supports free cash flow generation.

Fitch currently rates Posadas as follows:

--Local currency Issuer Default Rating (IDR) 'B';

--Foreign currency IDR 'B';

--National scale rating 'BB+(mex)';

--USD200 million senior notes due 2015 'B+/RR3';

--MXN2.25 billion Certificados Bursatiles issuance 'Posadas08' due 2013 'BB+(mex)'.

The Rating Outlook is Stable.

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. 8, 2012);

--'Recovery Ratings and Notching Criteria for Non-financial Corporate Issuers' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686476

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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.

Contacts

Fitch Ratings
Primary Analyst
Miguel Guzman-Betancourt
Associate Director
Fitch Mexico S.A. de C.V.
+52 81 8399-9100
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Sergio Rodriguez, CFA
Senior Director
+52 81 8399-9100
or
Committee Chairperson
Alberto Moreno
Senior Director
+52 81 8399-9100
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Miguel Guzman-Betancourt
Associate Director
Fitch Mexico S.A. de C.V.
+52 81 8399-9100
Prol. Alfonso Reyes 2612
64920 Monterrey, Mexico
or
Secondary Analyst
Sergio Rodriguez, CFA
Senior Director
+52 81 8399-9100
or
Committee Chairperson
Alberto Moreno
Senior Director
+52 81 8399-9100
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com