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Rating Action:

Moody's assigns B2 rating to Posadas' proposed notes; outlook is negative

18 Jun 2015

Approximately USD 250 million in debt instruments affected

New York, June 18, 2015 -- Moody's Investors Service ("Moody's") has today assigned a B2 global scale rating to Grupo Posadas S.A.B. de C.V.(Posadas)'s proposed issuance for up to USD 250 million senior unsecured notes maturing in 2023. The outlook on the ratings is negative.

Since the proceeds of the proposed transaction would be used to refinance existing debt, we expect it to be largely neutral to Posadas' leverage. However, the notes will result in a more comfortable maturity profile, eliminating near term refinancing risk.

RATINGS RATIONALE

Posadas' B2 rating reflects its high leverage, small operating scale relative to global industry peers, and low geographic diversification as it operates almost entirely in Mexico. The rating also considers our view that future growth could be affected by a subdued global economic environment and financial constraints to its investment program. The company's leading position, brand equity and nationwide coverage in Mexico balance the rating. Also supporting Posadas' B2 rating is its segment diversification across different hotel classes, varying business models and service business growth.

On the other hand, the rating also factors in that profitability has been pressured in recent years by factors such as the sale of 14 hotels and the increase in taxes in the context of the Mexican fiscal reform. More recently, we have already seen a recovery in Posadas performance. Although EBIT margins as adjusted by Moody's remained at modest 8.3% in the first half of 2014, profitability has recovered since the 3Q14, with adjusted EBIT margin for the last twelve months (LTM) ended March 31, 2015 of 13.5%. In the same period, the company was able to increase its effective tariff (Rev PAR) to 9.3% for hotels under management and 23.9% in its owned or leased hotels. The recovery also allowed Posadas to reduce leverage to 4.7 times as of March 31, 2015 from 5.8 times by the end of 2014, despite the 17% Mexican peso depreciation during the LTM ended March 2015.

Posadas' outlook has been negative since July 15, 2014, when we changed it from stable, mainly reflecting our expectation that leverage would remain high at least over the next following 18 months. The outlook also considers the liquidity risk resulting from Posadas' material upcoming debt maturities coupled with a high capital expenditure program. Since then, the company has been able to improve its credit profile with a visible trend of deleveraging. Upon the successful closure of the proposed transaction, Posadas' will eliminate immediate refinancing risk, increasing the likelihood of a ratings outlook stabilization.

Ratings could be downgraded if Posadas' liquidity deteriorates or if Moody's adjusted debt/EBITDA remains above 5.0 times with no clear de-lever trend over the next few quarters.

Likewise, positive ratings pressure would result from Posadas maintaining adequate liquidity and improving adjusted Debt/EBITDA below 4.5 times and EBIT/Interest above 2.0 times, both on a sustainable basis.

Grupo Posadas, S.A.B. de C.V. (Posadas), headquartered in Mexico City, is a leading hotel operator in Mexico. Posadas owns, leases and manages 131 hotels with 21,742 rooms in well located urban and costal destinations throughout Mexico and a single hotel in Texas. It operates key 5- and 4- star Fiesta Americana and Fiesta Inn business-class formats, a 3-star format (One Hotels), the luxury class Live Aqua, the Fiesta Americana Vacation Club timeshare business and more recently a franchise business under the brand Gamma . For the last twelve months ended March 31, 2015, Posadas reported revenues of MXN6,247 million excluding asset sales.

The principal methodology used in this rating was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 rating action on the support provider and in relation to each particular 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.

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Sandra Beltran
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: 001-888-779-5833
SUBSCRIBERS:52-55-1253-5700

Marianna Waltz, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Releasing Office:
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Moody's assigns B2 rating to Posadas' proposed notes; outlook is negative
No Related Data.
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