TEXT - Fitch rates Grupo Posadas S.A.B. de C.V.
Nov 9 - 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.
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