MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has assigned a 'B+/RR3(EXP)' rating to the proposed senior notes for up to USD 350 million, maturing in the range of seven to 10 years, to be issued by Grupo Posadas, S.A.B. de C.V. (Posadas).
The 'RR3' Recovery Rating assigned to the proposed issuance indicates good recovery prospects given default. 'RR3' rated securities have characteristics consistent with securities historically recovering 51%-70% of current principal and related interest. The proceeds from the proposed notes will be used to refinance all or part of the notes due 2017, as well as the commercial paper issuance due November 2015.
Posadas' ratings are supported by the company's solid business position as a leading hotel chain in Mexico, strong brand equity and operating performance, as well as its multiple hotel formats. Conversely, the ratings are tempered by high leverage, as well as industry cyclicality. Posadas' presence in all major urban and coastal locations in Mexico, consistent product offering and 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.
KEY RATING DRIVERS
IMPROVEMENTS IN OPERATIONAL PERFORMANCE
Posadas has improved its operations over the last few quarters. RevPAR has improved, particularly in owned and leased hotels; this has mostly been driven by improved Average Daily Rate (ADR). Occupancy has remained stable, above 60%, although coastal locations have outperformed urban ones, both for managed, as well as owned and leased properties. Furthermore, vacation club sales have improved, as increased occupancy in coastal locations has improved cross-selling opportunities.
As of LTM March 31, 2015, EBITDA was MXN1,161 million. Cash from operations (CFO) generation for the period was MXN443 million and Fitch expects continued improvement due to continued strong operating performance in the vacation club segment, as well as the main hospitality business.
MODERATE CAPEX GROWTH STRATEGY
Going forward, Fitch believes Posadas' strategy will be centered mostly on managing hotels, as opposed to owning the properties. New openings should continue for all brands, mainly Fiesta Inn and One, mostly under managed and leased formats. This capex strategy for new openings, with only about 16% being spent by Grupo Posadas itself could support FCF generation, which is expected to be mildly positive over the short to medium term. From 2015 to 2017, Posadas plans to open 40 hotels with a total of 6,548 rooms.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer include:
--Adjusted debt to EBITDAR around 4.5x in the medium term;
--Consolidated EBITDA above MXN1 billion;
--Broadly stable KPIs in the short-to-medium term.
--Low capex growth strategy.
RATING SENSITIVITIES
Negative factors for credit quality could include any weakening of operating trends or decreases in RevPAR that could lead to lower EBITDA and cash flow levels, as well as cash outflows or incurring debt that results in adjusted debt-to-EBITDAR consistently higher than 5.0x.
Positive factors of the company's creditworthiness include stable EBITDA generation, consolidating gains in operating indicators, and a proven track record of stronger and stable credit metrics, such as adjusted debt-to-EBITDAR consistently below 4.5x.
LIQUIDITY
The company's liquidity position is manageable. The proposed issuance will allow for the refinancing of the USD50 million commercial paper maturity in November 2015, leaving only a remainder of the senior notes due 2017 as well as the proposed issuance as debt maturities. Cash balances as of March 31, 2014 are MXN1,043 million, Furthermore, the company's strategy considers signing committed secured credit lines of MXN550 million (MXN 200 million currently approved), to bring additional liquidity support.
FULL LIST OF RATING ACTIONS
Grupo Posadas, S.A.B. de C.V.
Fitch has assigned the following rating:
--USD350 million proposed senior notes at 'B+/RR3(EXP)'.
Date of Relevant Rating Committee: June 16, 2015
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 28 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Country-Specific Treatment of Recovery Ratings (pub. 28 Jun 2013)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710859
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 12 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867275
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=986622
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986622
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.