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Rating Action:

Moody's places Posadas B2 ratings on review for downgrade

06 Mar 2020

New York, March 06, 2020 -- Moody's Investors Service, ("Moody's") has today placed Grupo Posadas, S.A.B. de C.V. ("Posadas")'s B2 corporate family rating and the senior unsecured rating on its 2022 notes on review for downgrade. Prior to this rating action Posadas rating outlook was positive. The action follows weaker than anticipated operating performance and challenging business prospects through at least 2021.

RATINGS RATIONALE

"The review for downgrade was prompted by Posadas' weak credit metrics in the context of the Coronavirus outbreak that will hit global growth this year and could rapidly derail the Mexican touristic sector." says Sandra Beltrán, a lead analyst at Moody's.

During the review, we will focus on Posadas' ability to refinance its 2022 notes, considering tightening capital markets conditions. We will also use the period to analyze the evolution of the coronavirus outbreak in Mexico and the US and its effects on Posadas' occupancy and tariffs.

In 2019 Posadas underperformed our expectations, closing the year with an adjusted gross debt to EBITDA of 9.7 times and EBITA / Interest Expense of 0.5 times. Urban hotels were affected by weak industrial activity and overall economic growth, whereas demand from international travelers continued affected by safety concerns. Overall, Posadas' occupancy remained relatively stable at 65%, but at the expense of tariffs, as reflected by the 5.8% drop in coastal average daily rate (ADR) that ultimately led to a 2.6% decline in total portfolio's revenue per available room (RevPar).

Moreover, during 2019 Posadas faced cost pressures that further affected profitability. Labor and energy costs increased due to minimum wage raises throughout the country and a hike in electric power rates in the Yucatan peninsula. Likewise, the cancellation of federal budget to promote Mexico's tourist destinations abroad resulted in higher promotion expenditures. As a result, Moody's adjusted EBITDA margin declined to 13% in 2019 from 21% the prior year.

Posadas' liquidity is tempered by the need to refinance its 2022 notes amid a challenging environment and history of underperformance. The bulk of Posadas' debt are $393 million outstanding under senior notes maturing in June 2022. In the end of 2019, the company's cash position amounted to MXN1.2 billion, enough to cover short term needs including lease commitments of MXN750 million, interest expense amounting $30 million (MXN615 million) and capital investments expected to be MXN650 million in 2020. However, the MXN1.5 billion cash burn reported in 2019 highlights the risk of a rapid deterioration. Although reflective of management prudency, the recent revision of 2020 capex and EBITDA - both downsized by $1 billion -- further flags this risk. Also limiting our assessment of Posadas' liquidity is its high exposure to the depreciation of the peso as only 30% of its revenues are US dollar denominated.

Ratings could be downgraded if there is no indication of an ongoing plan to refinance the 2022 global notes by mid-2020. A downgrade will also arise if cash burn continues, threatening Posadas' ability to cover corporate expenses such as interests, taxes and working capital with internal sources or if committed investments are at risk.

Posadas is the leading hotel operator in Mexico that owns, leases, franchises and manages 184 hotels and 29,851 rooms in the most important and visited urban and coastal destinations in Mexico. Urban hotels represent 81% of total rooms and coastal hotels represent 19%. Posadas trades in the Mexican Stock Exchange since 1992.

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.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

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Sandra Beltran
Vice President - Senior 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: 0 800 891 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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