Fitch Revises Posadas' Outlook to Stable; Affirms Ratings at 'B'

MONTERREY, Mexico--()--Fitch Ratings has affirmed the 'B' foreign currency and local currency Issuer Default Ratings (IDR) of Grupo Posadas, S.A.B. de C.V. (Posadas), as well as the national scale rating at 'BB+(mex)'. The Rating Outlook has been revised to Stable from Negative.

The Outlook revision to Stable reflects lower leverage levels due to improved operational performance, reflected both in Key Performance Indicators (KPIs), as well as in higher sales in the vacation club segment. As a result, adjusted debt to EBITDAR has fallen to 5.1x as of March 31, 2015 on a last 12 months basis, and Fitch expects it to be generally below 5.0x going forward.

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. Currently, the company is working on different refinancing initiatives to extend the maturity of existing indebtedness, including USD 50 million of commercial paper in November 2015. 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 affirmed the following ratings:

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

--Foreign currency IDR at 'B'; Outlook Stable;

--National scale rating at 'BB+(mex)'; Outlook Stable;

--USD310 million senior notes due 2017 at 'B+/RR3'.

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=986576

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986576

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Miguel Guzman-Betancourt
Associate Director
+52 81 8399 9100
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes No. 2612, 8th floor.
Monterrey, Mexico 64920
or
Secondary Analyst
Sergio Rodriguez
Senior Director
+52 81 8399 9100
or
Committee Chairperson
Alberto Moreno
Senior Director
+52-81-8399-9100
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Miguel Guzman-Betancourt
Associate Director
+52 81 8399 9100
Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes No. 2612, 8th floor.
Monterrey, Mexico 64920
or
Secondary Analyst
Sergio Rodriguez
Senior Director
+52 81 8399 9100
or
Committee Chairperson
Alberto Moreno
Senior Director
+52-81-8399-9100
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com