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Rating Action:

Moody's affirms Posadas' B2 rating, maintain positive outlook

28 Feb 2019

New York, February 28, 2019 -- Moody's Investors Service ("Moody's") affirmed Grupo Posadas, S.A.B. de C.V.'s (Posadas) B2 corporate family and senior unsecured ratings on its 2022 notes. The outlook continues to be positive.

Affirmed:

..Issuer: Grupo Posadas, S.A.B. de C.V.

.... Corporate Family Rating, B2

....Senior Unsecured Regular Bond/Debenture, B2

Outlook: Positive

RATINGS RATIONALE

"Posadas' B2 rating balances the measures the company has recently taken to improve its capital structure and liquidity profile, with challenges envisioned ahead, mainly related with global economic deceleration and tightening conditions in the Mexican tourism sector." says Sandra Beltrán, a lead analyst at Moody's.

Since we changed the outlook to positive from stable in 2016, we considered that the refinancing of its senior notes due in 2017, coupled with better operating performance, was going to accelerate Posadas deleveraging. However, leverage has remained well above our original expectations mainly as a consequence of the Mexican peso depreciation as well as asset sales and refurbishments that temporarily reduced its EBITDA generation. Leverage will remain high over the next few years affected by an increase in lease expenses related with recently renewed contracts and the IFRS 16 requirement to have such expenses capitalized at present value. Due to this change in accounting rules, adjusted Debt / EBITDA will continue in the 5.0x -- 5.5x range on a sustained basis.

Despite the high leverage, Posadas credit metrics are comparable with those of other rated peers in the B1 category, such as Radisson Hospitality AB (B1, stable) and NH Hotel Group S.A. (B1, stable). On the other hand, the expected deceleration in both the US' and Mexico's economies through 2020 will put pressure on Posadas operating performance. Moody's expects Mexico's GDP to grow at a 2.2% in real terms during 2019 and 2.3% in the US. For 2020, Moody's expects both country's GDP to grow at 1.5%.

Moreover, although the Mexican tourism sector has gained momentum in recent years, evidenced by the constant improvements in its positioning in UN's World Tourism Organization (WTO) global ranking of foreign tourist destinations, we see the risk of some deceleration in the next couple of years. Accordingly, an increase in criminality in main coastal regions of Los Cabos and Cancun, if sustained, could take its toll on lodging companies operating in Mexico. Events such as a reduction in the budget to promote Mexico tourism abroad and the cancellation of Mexico City airport could also impact the sector in the long run.

Over the next several quarters, we'll monitor Posadas ability to deploy recently added capacity, specifically with the opening of the Live Aqua Residence Club San Miguel de Allende and the reopening of the Live Aqua Beach Resort Cancun. The company will also need to refinance ahead 2022 maturities and secure funding for its project for the Fiesta Americana Reforma hotel in Mexico City.

Posadas' B2 rating continues to reflect its small operating scale relative to global industry peers, and low geographic diversification as it operates almost entirely in Mexico. Balancing these negative are the company's leading position, brand equity and nationwide coverage in Mexico, a large and leading tourism market. Also supporting Posadas' B2 rating is its segment diversification across different hotel classes, varying business models and service business growth. Also positive credit factor is the stability of earnings and higher profitability resulting from loyalty programs and high share of direct channels.

Posadas' liquidity is adequate. As of December 31, 2018, Posadas cash balance was around MXN2.7 billion . Cash in hand and funds generated by the operation should be enough to cover the USD 26.7 million prepayment of its senior notes, under a recently launched offering, and to internally fund cash needs through 2020, including capex in line with its growth strategy. Capital investments in 2019 are expected at of MXN767 million (around USD40 million) and MXN1.6 billion in 2020. Limiting our assessment of Posadas' liquidity is its still high exposure to the depreciation of the local currency given the currency mismatch between its cash generation and debt. Currently, the bulk of Posadas' debt is denominated in US dollars and only close to 30% of its revenues are in US dollars.

Posadas positive outlook reflects our expectations that operating performance will continue to be strong, mainly supported by high occupancy rates and incremental cash generation from recently opened hotels and resorts. The positive outlook also considers that during the next 12 -- 18 months Posadas will be able to timely refinance the USD375 -- USD400 million senior notes due 2022.

An upgrade would be dependent on Posadas maintaining adequate liquidity and improving adjusted EBITA margins above 15% from current 13.5%. Likewise, adjusted Debt/EBITDA should decline towards 5.0 times and EBIT/Interest improve to close 2.0 times, both on a sustained basis. For a positive pressure to arise, liquidity will need to be adequate with a timely refinance of its 2022 maturities.

Ratings could be downgraded if Posadas' liquidity deteriorates or if Moody's adjusted debt/EBITDA is sustainably above 5.5 times and coverage reverts to below 1.5 times, with retained cash flow to net debt remaining below 10% on a sustained basis. Negative pressure will also arise as a result of any liquidity challenges or more aggressive financial policy.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Grupo Posadas, S.A.B. de C.V. (Posadas), is a leading hotel operator in Mexico. The company operates hotel under the upper brands Fiesta Americana and Explorean, middle economy brands Fiesta Inn and One hotels, luxury brands Live Aqua and Grand Fiesta Americana, the Fiesta Americana Vacation Club timeshare business and a franchise business under the brand Gamma. Posadas recently announced its entry into other Caribbean markets such as Cuba and the Dominican Republic through three managed properties. The company owns, leases and manages 175 hotels with 27,491 rooms in well-located urban and costal destinations in Mexico. In 2018, Posadas reported revenue of MXN7,910 million, excluding asset sales.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sandra Beltran
Asst Vice President - Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653

Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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