Fitch Ratings has downgraded Grupo Posadas, S.A.B. de C.V.'s (Posadas) Issuer Default Ratings (IDRs) and debt ratings as follows:
--Foreign currency IDR to 'B+' from 'BB-';
--Local currency IDR to 'B+' from 'BB-';
--Senior notes due 2011 to 'B+/RR4' from 'BB-';
--National scale rating 'BBB+(mex)' from 'A-(mex)' including all 'Certificados Bursatiles' issuances.
The Rating Outlook remains Negative.
The downgrades are based on expectations of increased deterioration in operating performance and financial indicators derived from the current adverse economic environment and deepened by the negative effects on travel and tourism in Mexico resulting from the outbreak of the A-H1N1 virus. The Negative Outlook also reflects Fitch's view of a more difficult operating environment for the lodging industry during 2009.
While Fitch was already assuming a pessimistic operating environment for Posadas in 2009, reflected in declining operating trends during the past twelve months, the outbreak of the A-H1N1 virus will further aggravate the company's situation for the remainder of the year. Fitch expects a significant drop in revenues for the 2nd quarter of 2009 followed by a gradual recovery through the end of the year, as travel patterns to Mexico begin to normalize. Operating results for the 1st quarter of 2009 already reflected the weaker economic environment, with occupation levels going down to 52% from 59% in the same period in 2008 and revenue per available room (RevPAR) declining to Ps$634 during the 1st quarter of 2009 from Ps$682 in the 1st quarter of 2008 (figures for the 1st quarter of 2008 include the Holy Week vacation period, which in 2009 happened during the 2nd quarter).
While Posadas has been able to adjust and adapt its operations successfully during previous economic downturns, the current situation remains challenging.
The company's financial profile has also been affected negatively by the depreciation of the MXN against the USD, and increased indebtedness related to strengthening the company's liquidity position due to margin calls on derivative instruments. As of March 31, 2009, the ratio of total adjusted debt to EBITDAR for the last twelve months (LTM) was 4.0 times (x) compared to 3.2x for the same period in 2008, mainly as a result of higher debt levels. Fitch expects this ratio to increase to a range of approximately 4.3-4.6x by year-end 2009 as a result of a decline in EBITDA generation, with an expectation that debt levels remain relatively stable through the year. Further deterioration in these credit protection measures might prompt an additional rating action.
At March 31, 2009, Posadas' on-balance sheet debt reached US$396 million of which 94% was dollar-denominated and the remainder was in pesos. Short-term debt represented 22% of total debt. In addition to that, the company had approximately US$136 million of off-balance sheet debt related to hotel leases. The company's liquidity position is tight, as it held a cash balance at March 31, 2009 of US$44 million and maturities of US$87 million in the next twelve months, of which US$18.5 million of a maturing Certificado Bursatil were paid in May. Fitch believes Posadas' cash balances, excluding cash needed for operations, allow it to cover margin calls considering the current level of the MXN, but the company remains exposed to currency volatility which can translate into further margin calls. Additional depreciation of the MXN would increase stress on liquidity and put greater pressure on financial indicators.
Posadas' ratings also reflect the company's solid business position, strong brand name and multiple hotel formats. 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 as well as tourists. The company also benefits from diversification into other business segments, which reduces some exposure to its hotel business. Operations are primarily located in Mexico, which limits geographic diversification. The ratings also consider the industry's high correlation to economic cycles, which affects operating indicators negatively in downturns.
Grupo Posadas is the largest hotel operator in Mexico, with 109 hotels and 19,653 rooms across Mexico (85% of total rooms), Brazil (10%), United States (3%), Argentina (1%) and Chile (1%). Approximately 78% of rooms are in urban locations, with the remaining 22% in coastal destinations. The company manages different hotel formats (under a combination of owned, leased and managed properties) that include Aqua, Fiesta Americana Grand, Fiesta Americana, Fiesta Inn, One Hotels and Fiesta Americana Vacation Club in Mexico, and Caesar Park and Caesar Business in Brazil, Argentina and Chile. For the year ended Dec. 31, 2008 Posadas had US$514 million of revenues and US$114 million of EBITDA, considering year-end exchange rates.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
Contacts:
Fitch Ratings
Roberto Guerra Guajardo, +52 81 8399 9100, Monterrey,
Mexico
Sergio Rodriguez, CFA, +52 81 8399 9100, Monterrey, Mexico
Jose
Vertiz, 212-908-1641, New York
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com