MONTERREY, Mexico - (Business Wire) Fitch Ratings has affirmed Grupo Posadas, S.A.B. de C.V.'s (Posadas) Issuer Default Ratings (IDR) and debt ratings as follows:
-- Foreign currency IDR at 'BB';
-- Local currency IDR at 'BB';
-- Senior notes due 2011 at 'BB';
-- National scale rating at 'A+(mex)', including all of its 'Certificados Bursatiles' issuances.
The Rating Outlook has been revised to Negative from Stable.
The revision of the Outlook reflects expectations that a more adverse economic environment might pressure the Posadas' operating performance and financial results. Additionally, the revised Outlook takes into account increased exchange rate volatility which can negatively affect Posadas' financial position and has stressed the company's liquidity position as a result of using derivative instruments.
Operating performance through the first nine months of 2008 has remained stable, as positive results in urban hotels has helped offset declines in the coastal hotel segment. We expect year end results in the hotels segment to remain stable, as a depreciated Mexican Peso leads to improved performance in coastal hotels and as Mexican destinations become more attractive from a cost perspective.
For 2009, performance in the hotel segment should be more challenging, as decreased economic activity might affect performance in urban hotels and a global recession may have a negative effect in its coastal hotels. In previous economic downturns Posadas has been able to adjust and maintain a stable financial position with good operating results, although performance and results should be pressured during 2009. Growth in the Vacation Club segment, which in previous years had been of over 50%, should also be affected, as we believe this segment is more exposed to a downturn than the traditional hotel operations. During 2007, this segment represented 17% of total revenues.
The ratings also reflect Posadas' solid business position, strong brand name and multiple hotel formats. The company's 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 Posadas to target domestic and international business travelers as well as tourists. Operations are primarily located in Mexico, which limits geographic diversification. The ratings also consider the industry's high correlation to economic cycles, which might affect operating indicators negatively in downturns.
Posadas faces a comfortable debt maturity schedule and has a track record of positive free cash flow generation. The company recently issued in Mexican Pesos the equivalent of approximately US$73 million in the local markets to refinance upcoming maturities and existing debt and to improve its debt profile while also reducing funding costs. At Sept. 30, 2008, on-balance sheet debt reached US$430 million of which 97% was dollar-denominated and the remainder was in Pesos. As part of its financial strategy, Posadas uses derivative instruments to swap Peso denominated debt into U.S. Dollar debt, as approximately 40% of the company's revenues are dollar linked.
The recent volatility in the exchange rate has tightened Posadas' liquidity position as it has required the company to post cash on margin calls related to its positions held with derivative instruments. At Sept. 30, 2008, negative market value on derivative instruments totaled US$11.1 million, and as of Oct. 31, 2008 the exposure grew to approximately US$50 million. Cash required for margin calls at Oct. 31, 2008 was of approximately US$33 million.
Posadas has taken several measures to improve its liquidity position, and we consider that its current cash position is enough to maintain liquidity manageable. The company remains exposed to further movements in the exchange rate, as its strategy is to maintain its derivative positions open until maturity. This might lead to additional margin calls in the event currency volatility continued. A new and sustain short term depreciation of the Mexican Peso might prompt a negative rating action, as it would increase stress on liquidity and put greater pressure on financial indicators.
Posadas is the largest hotel operator in Mexico, with 107 hotels and 19,357 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, 2007 Posadas had US$548 million of revenues and US$134 million of EBITDA.
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.
Fitch Ratings
Roberto Guerra Guajardo, +52 81 8399 9100
(Monterrey, Mexico)
Sergio Rodriguez, CFA, +52 81 8399 9100
(Monterrey, Mexico)
Tyrene Frederick-Mack, +1-212-908-0540
(Media Relations, New York)
tyrene.frederick-mack@fitchratings.com
