-- Mexican hotel operator Grupo Posadas’ liability management could significantly improve its capital structure and mitigate its liquidity risks.
-- Grupo Posadas is planning a debt repayment with the proceeds from about $270 million in assets sales. -- The company is also planning to refinance its outstanding debt through a proposed $225 million senior unsecured notes issuance due 2017.
-- We are assigning a ‘B’ issue-level rating and a recovery rating of ‘3’ to the proposed notes.
-- We’re keeping our ‘CCC+’ global scale and ‘mxB+’ national scale ratings on the company on CreditWatch with positive implications, and will resolve it once the tender offer is closed and the company completes its refinancing plan.
On Nov. 12, 2012, Standard & Poor’s Ratings Services assigned a ‘B’ issue-level rating to Grupo Posadas S.A.B. de C.V.’s (Posadas) proposed $225 million senior unsecured notes due 2017. At the same time, we keep our ‘CCC+’ global scale and ‘mxB+’ national scale ratings on the company on CreditWatch with positive implications, where we placed them on July 17, 2012.
Our CreditWatch listing on Posadas continues to reflect our expectation that the company’s liability management could significantly improve its capital structure and mitigate its liquidity risks. The CreditWatch listing also incorporates the company’s recent announcement to issue $225 million unsecured notes due 2017, which it will use to buy back its outstanding $200 million senior unsecured notes due 2015. The tender offer will expire on Nov. 29, 2012. Posadas requires acceptance from at least 50.1% of the bondholders under its 2015 notes to move forward with its refinancing plan, so the covenant that bars the use of proceeds from asset sales for debt repayments only (on a pari-passu basis) wouldn’t be violated.
Following the minimum required bondholder approval, the company would be able to repay the senior unsecured notes due 2015 and its peso-denominated debt due 2013. We expect that Posadas would also use the proceeds from the recent sale of its South American division to pay down debt under its refinancing plan. Following these actions, we believe the company’s refinancing risk will drop significantly.
As a result, we could revise our assessment of the company’s liquidity to “less than adequate” from “weak” and we believe that it will maintain and improve its market position in Mexico, which has been its main revenue driver. Taking into account the above scenario, we expect adjusted ratios to improve with a total debt to EBITDA of about 5.0x on average for the next two years, compared with 7.3x as of Sept. 30, 2012.
Recovery rating analysis
We rate Posadas’ current $200 million senior unsecured notes due 2015 ‘CCC+’ (the same as the corporate credit rating on the company). The recovery rating on these notes is ‘4’, indicating expectation of average (30%-50%) recovery in the event of a payment default. We’re assigning a ‘B’ rating to the company’s proposed $225 million notes due 2017 with a recovery rating of ‘3’, indicating expectation of meaningful (50%-70%) recovery in the event of a payment default (For the full recovery analysis, see Standard & Poor’s recovery report, to be published on RatingsDirect soon following this research update).
We will resolve our CreditWatch listing once the tender offer succeeds and the company pays down its local-currency denominated debt due 2013 and part or most of its debt due 2015. Following such action, we will raise the credit ratings to ‘B’ on global scale and to ‘mxBB+’ on national scale.
Related Criteria And Research
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Use of CreditWatch And Outlooks, Sept. 14, 2009 -- Key Credit Factors: Methodology And Assumptions On Risks In The Hotel And Lodging Industry, Aug. 11, 2009 -- Criteria Guidelines For Recovery Ratings On Global Industrials Issuers’ Speculative-Grade Debt, Aug. 10, 2009 -- Corporate Criteria: Analytical Methodology, published April 15, 2008
Grupo Posadas S.A.B. de C.V.
Senior Unsecured B
Recovery Rating 3
Ratings Still On Watch
Grupo Posadas S.A.B. de C.V.
Corporate Credit Rating
Global Scale CCC+/Watch Pos/--
Caval - Mexican Rating Scale mxB+/Watch Pos/--
Senior Unsecured CCC+/Watch Pos
Recovery Rating 4
Senior Unsecured mxB+/Watch Pos