Fitch Rates Posadas' 2017 Senior Notes Reopening 'B+/RR3'

MONTERREY, Mexico--()--Fitch Ratings has assigned a 'B+/RR3'rating to Grupo Posadas S.A.B. de C.V.'s (Posadas) USD $50 million reopening of its senior unsecured notes due 2017. Proceeds from the reopening are expected to be used primarily to pay down existing debt and, to a lesser extent, for general corporate uses.

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.

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 as well as the sale of 11 hotels to the FibraHotel REIT for about USD $117 million. Going forward, Posadas' strategy will be mostly focused on operating and providing services to new hotels rather than acquiring additional 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.

This reopening does not unduly affect leverage. On a pro forma basis, excluding the recently divested South American operations, hotels sold to FibraHotel and one-time charges, Fitch estimates total adjusted debt to EBITDAR and total debt to EBITDA at 5.3 times (x) and 4.7x, respectively, from estimates of 5.1x and 4.4x before the reopening. Taking into account estimated cash levels, Fitch believes that net adjusted debt to EBITDAR and net debt to EBITDA will be about 3.9x and 2.9x, respectively.

Fitch currently rates Posadas as follows:

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

--Foreign currency IDR 'B';

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

--USD $300 million senior notes due 2017 'B+/RR3';

--USD $200 million senior notes due 2015 'B+/RR3';

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

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=693773

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Contacts

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

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Contacts

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