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Rating Action:

Moody's places Posadas' ratings on review for downgrade.

23 Oct 2008
Moody's places Posadas' ratings on review for downgrade.

Approximately USD36 million in debt instruments affected.

Mexico City, October 23, 2008 -- Moody's Investors Service placed Grupo Posadas, S.A.B. de C.V.'s (Posadas) Ba3 senior unsecured debt and corporate family ratings on review for downgrade.

The review was prompted by margin calls that Posadas has received on certain cross currency swaps for Mexican peso-denominated debt instruments (primarily certificados bursatiles, or local notes), which have created pressure on the company's short-term liquidity and will require a swift response to alleviate the situation.

"Moody's review will focus on the feasibility and effectiveness of various actions Posadas is currently pursuing in order to restore its short-term financial flexibility", says Moody's Vice President Sebastian Hofmeister. According to the analyst, those actions include, among others, drawdowns under pre-existing facilities and certain other credit lines with a number of financial institutions. The rating agency expects to conclude the review within the coming weeks.

On October 10, 2008, Posadas announced that the weakening of the peso since September 30, 2008, has caused the mark-to-market value of its derivates portfolio to drop by USD26.6 million to negative USD37.7 million, resulting in margin calls by counterparties. While not disclosed by the company, Moody's believes that the posted cash collateral has become significant relative to existing cash reserves as the peso continued to weaken in recent days, and that external funding will be required to cover any liquidity shortfall.

As of June 30, 2008, Posadas maintained MXN445 million in cash reserves and a short-term debt of MXN639 million (includes the current portion of long-term debt). In July, the company issued MXN750 million in certificados bursatiles due 2013 (as an add-on to a MXN1.5 billion issuance in April), which has addressed certain near-term debt maturities but may not necessarily have caused short term debt to drop in 3Q08. Moody's notes, that Posadas faces material debt maturities in 2009, including MXN250 million in certificados bursatiles due in May 2009 as well as scheduled principal amortization under a USD100 million syndicated facility and certain smaller credit lines.

Posadas' ratings continue to be supported by the company's leading position and brand recognition in the Mexican hotel industry, nationwide coverage, segment diversification, as well as adequate credit metrics for the rating category as of June 30. These strengths are partly offset by the intense competition from several large and financially strong domestic and international chains and the cyclical nature of the lodging industry, with pressures on room rates and occupancy likely to mount in the coming quarters as economic conditions continue to soften. The ratings also reflect Moody's belief that Mexicana, an ailing airline, may in the future require financial support from Posadas, its largest individual shareholder, which has a 30% equity stake in the airline company.

For the 12 months ended June 30, 2008 (LTM), Posadas reported revenues and EBITDA of MXN6,529 million and MXN1,540 million, respectively, with EBITDA margin coming in at 23.6%, down 90 basis points from 2007. In 1H08, reported revenues reached MXN1,875 million, up 14.6% from 1H07, while EBITDA margin dropped 170 basis points to 22.3% over the same period. Adjusted LTM 2Q08 Debt/EBITDA, EBIT/Interest and Free cash flow/Debt were about 3.8 times, 2.6 times and 4%, vs. 4.0 times, 2.4 times and 2% in 2007, respectively. Moody's expects Posadas to report 3Q08 results next week.

Grupo Posadas, S.A.B. de C.V. (Posadas), headquartered in Mexico City, is a leading hotel chain operator in Latin America, with MXN6,529 million (USD608 million) in revenues for the 12 months ended June 30, 2008, and has about 107 hotels and 19,368 rooms. Posadas' revenues mainly derive from Mexico, where it operates its key 5 and 4-star Fiesta Americana and Fiesta Inn formats, a 3-star format ("One") and a growing time share business. Posadas is also present in Brazil, Argentina, Chile through its Caesar Park and Caesar Business brands and has a small operation in Texas.

Mexico City
Sebastian Hofmeister
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Telephone:+52-55-1253-5700

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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