Fitch Downgrades LATAM Airlines Securitization to 'BB' from 'BB+'

CHICAGO--()--Fitch Ratings has downgraded the following rating assigned to the 2013-1 notes issued by Guanay Finance Limited, a special purpose vehicle incorporated in the Cayman Islands and sponsored by LATAM Airlines Group S.A. (LATAM):

--Series 2013-1 USD450 million senior secured fixed-rate notes to 'BB' from 'BB+'.

The Rating Outlook is Stable.

The issuance is backed by U.S. and Canadian dollar-denominated ticket receivables originated by LATAM. Purchased receivables result from airline ticket sales and cargo charges by LAN Airlines S.A. (LAN) under IATA code 045 that are purchased using a qualified credit, debit or charge card in the U.S. and Canada. Fitch's rating addresses the timely payment of interest and principal on a quarterly basis.

KEY RATING DRIVERS

The rating action follows Fitch's downgrade to LATAM's Issuer Default Rating (IDR) and reflects the following:

Credit Quality of the Originator: On April 1, 2015, Fitch downgraded LATAM's IDR to 'BB-'/Stable Outlook from 'BB'/Negative Outlook. Fitch also affirmed the GCA score of 'GC3' assigned to the operations of LATAM excluding TAM. The credit strength of the transaction is linked to the credit quality of LATAM.

Coverage Ratios Meet Expectations: The quarterly debt service coverage ratio (DSCR) averaged 4.1x in 2014, slightly above Fitch's expected quarterly DSCR of 3.78x. Fitch's DSCR considers maximum and quarterly debt service for the life of the transaction. Fitch's base case assumed no growth in purchased receivables.

Future Flow Debt Relative to Liabilities: The future flow issuance represents approximately 5.1% of LATAM's consolidated debt and 6.5% of unconsolidated debt (excluding TAM) as of December 2014. While these percentages are low relative to the balance sheet, the transaction is large relative to the company's total unsecured debt, as most of the company's debt relates to leases and secured debt.

Moderate Diversion Risk: While designated obligors have signed notice and consent agreements (N&Cs), the transaction is exposed to potential diversion risk. Cash flows could be diverted from the transaction by changing designated obligors or rerouting sales through a different IATA code. This risk limits differentiation of the issuance rating from the originator's IDR.

RATING SENSITIVITIES

The rating is sensitive to changes in the credit quality of LATAM. A downgrade of LATAM's 'BB-' IDR could lead to a downgrade of the notes. In addition, a contraction in LAN's North American gateway business that would result in a decline in DSCRs could lead to rating downgrades.

For more details on the transaction see Fitch's new issue report 'Guanay Finance Limited,' available at 'www.fitchratings.com'.

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

Applicable Criteria and Related Research:

--'Future Flow Securitization Rating Criteria' (June 9, 2014);

--'Global Structured Finance Rating Criteria' (March 31, 2015).

Applicable Criteria and Related Research:

Future Flow Securitization Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749768

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982421

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Contacts

Fitch Ratings
Primary Analyst
Gregory Lane, +1-312-606-2304
Director
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Cinthya Ortega, +1-312-606-2373
Director
or
Committee Chairperson
Greg Kabance, +1-312-368-2052
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Gregory Lane, +1-312-606-2304
Director
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Cinthya Ortega, +1-312-606-2373
Director
or
Committee Chairperson
Greg Kabance, +1-312-368-2052
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com