NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed Grupo Senda Autotransporte, S.A., de C.V.'s (Grupo Senda) local and foreign currency Issuer Default Ratings (IDRs) and its USD150 million senior secured guaranteed notes due in 2015 as follows:
--Foreign currency Issuer Default Rating (IDR) at 'B';
--Local currency IDR at 'B';
--USD150 million secured guaranteed notes due in 2015 at 'B/RR4'.
The Rating Outlook is Stable.
The Stable Outlook incorporates the expectation that Grupo Senda will close 2013 with an EBITDA margin around 24% and gross leverage ratio, as measured by total debt/EBITDA, of around 3x. Grupo Senda's 2013 free cash flow (FCF) generation is anticipated to be slightly positive during 2013; capital expenditures are expected to be funded with cash flow, not additional debt. Liquidity is expected to remain weak due to significant levels of debt repayment due during 2013 and 2014 relative to the company's cash position.
Grupo Senda's 'B' ratings reflect the company's leading market position in the highly competitive and fragmented intercity bus passenger transportation sector in Mexico, moderate leverage, high financing cost, limited FCF generation, and weak liquidity, which leads the company to heavily relying upon banks to fund debt maturities during the next couple of years. Grupo Senda's ratings also incorporate the company's exposure to foreign exchange risk, as 90% of its revenues are in Mexican pesos and approximately 70% of its debt is denominated in U.S. dollars. The 'B/RR4' ratings on the company's public debt reflect average recovery prospects given default.
The ratings also incorporate industry-related risks such as seasonal fluctuations in passengers, cyclicality risk affecting the personnel segment, and volatile fuel costs. Positively, the company benefits from the importance of bus transportation within Mexico, which results from income constraints that limit the ability of many people to use more expensive alternative means of transportation, such as automobiles or airlines.
KEY RATING DRIVERS
Stable Operational Results, EBITDA Margin at 24%:
Grupo Senda has maintained stable operating performance for the past three years due to its management of bus capacity levels. Positively, this stability has occurred against the wave of violence affecting several Mexican states. On a consolidated basis, Grupo Senda's total bus kilometers (247 thousand bus kilometers) declined 2.1% during the last 12 month (LTM) period ended on March 31, 2013, compared with the same period ended in March 2012 (252 thousand bus kilometers). As of March 31, 2013, the company's total fleet was composed of 2,283 units, which represents a decline of 16% versus the company's total units as of March 31, 2012.
Grupo Senda's cash flow generation, measured by EBITDA, totaled MXN813 million, MXN919 million and MXN924 million during 2011, 2012 and the LTM ended March 31, 2013, respectively. Margins during this period remained relatively stable at 22.2% in 2011, 23.8% in 2012 and 23.7% in 2013, respectively. The company has two main business units, the passenger and the personnel business units. These units have EBIT margins of around 15%. The former unit represents 75% of the company's total revenues. The company's revenue structure is not anticipated to materially change during 2013.
Gross Leverage Expected Around 3.0x:
Grupo Senda's gross leverage, measured by total debt/EBITDA ratio, continued improving during the LTM ended March 31, 2013. The company's gross leverage was 3.0x as of March 31, 2013, which represents a decline from 3.4x and 3.6x during the prior comparable periods. The ratings factor in the expectation that the company will maintain a stable gross leverage ratio of around 3.0x during 2013.
The company maintained a similar debt structure during the last few years. Total debt was MXN2,786 million (USD232 million) as of March 31, 2013. Grupo Senda's debt is primarily composed of corporate bonds (USD150 million), financial leases (MXN700 million), and short-term facilities with local banks (MXN133 million); and short-term papers (MXN110 million). The company' cost of funding remains high at 12.4% during the LTM. Grupo Senda's USD150 million corporate bonds, which represent approximately 67% of the company's total debt, have an interest rate of 10.5%.
Weak Liquidity Remains a Rating Constrain:
Grupo Senda's cash position remains weak and the company continues to remain highly dependent upon its banks to rollover its short-term debt obligations. As of March 31, 2013, Grupo Senda had MXN213 million of consolidated cash and marketable securities and MXN489 million of debt due in 2013 and MXN160 million of debt due in 2014. The company's cash position represents 5.5% of its LTM revenues. In addition, the company faces the maturity of its USD150 million bond issuance due September 2015.
The company is expected to complete a major refinancing in the short term to improve its debt payment schedule. A capital increase is not considered at this time in the company's base scenario. The execution of a major refinancing would be viewed in general as a positive credit factor; its impact on the company's IDRs and debt ratings would also depend upon an improvement in its liquidity position and debt structure.
Limited FCF Generation:
The company's FCF generation remains low relative to its upcoming debt obligations. During the LTM ended March 31, 2013, Grupo Senda's FCF after capex was slightly positive at MXN58 million. This level of FCF represents 27% and 2% of the company's short-term and total debt obligations as of March 31, 2013. The company's FCF calculation for the LTM ended March 31, 2013, considers cash flow from operations - after interest paid - of MXN289 million less capital expenditures of MXN231 million.
Factors that limited the company's FCF generation during the LTM ended March 31, 2013 were the increase in working capital needs by MXN174 million, as a result of an increase in account receivables by MXN136 million, and an increase in capital expenditures. During 2013, the company's FCF generation is expected to remain limited due to high capital expenditures related to fleet renewal. The company's capex during 2012 was MXN157 million and it is expected to increase to around MXN430 million in 2013. The company's FCF margin (FCF/revenues) is expected to be slightly positive (low single digit margin).
Considerations that could lead to a positive rating action (Rating or Outlook)
Fitch would view as a positive to credit quality some combination of the following factors: improvement in FCF generation, lower financing costs, significant reduction in short-term debt levels - above expectations incorporated in the ratings - coupled with solid liquidity.
Considerations that could lead to a negative rating action (Rating or Outlook)
A negative rating action could be triggered by a deterioration of the company's credit protection measures due to sizeable negative FCF driven by poor operational results and/or unexpected capex levels funded with short-term debt. Expectations by Fitch of total debt to EBITDA being consistently at or beyond 4.5x would likely result in downgrade. Increasing competition followed by the return to discounted-price practices, as a key component of the company's business strategy to gain market share, would also likely result in a negative rating action.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 8, 2012;
--'National Ratings Criteria', Jan. 19, 2011.
Applicable Criteria and Related Research
Corporate Rating Methodology
National Ratings Criteria
Jose Vertiz, +1-212-908-0641
Fitch Ratings, Inc.
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Joe Bormann, CFA, +1-312-368-3349
Managing Director, Latin America Corporates
Elizabeth Fogerty, New York, +1 212-908-0526