NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an expected rating of 'BB-(EXP)' to Interproperties Finance Trust's (IFT) proposed USD185 million senior secured notes. Fitch has also assigned 'BB-' local and foreign currency Issuer Default Ratings (IDRs) to Interproperties Holding (Interproperties) and to IFT. The Rating Outlook is Stable.
IFT, the issuer of the notes, is a newly formed trust constituted under the laws of the Cayman Islands solely to issue the proposed notes. The notes are structured as if they were senior secured obligations of Interproperties. The final rating is contingent upon the receipt of final documents conforming to information already received.
The ratings reflect Interproperties' solid market position, adequate asset diversification, high leverage, execution risk of the capex plan, and good collateral support incorporated in the proposed transaction. The Stable Outlook incorporates the expectation that the company's credit profile, and collateral support, will improve following the completion of the capex plan.
Solid Market Position:
Interproperties' ratings reflect its solid business position in Peru's shopping center industry with participation in eight shopping centers, stable and predictable cash flow generation, positive industry momentum riding on Peru's favorable economic environment, and the low working capital requirements nature of the industry with tenants responsible for most properties' maintenance expenses. Peru's favorable economic environment has led to increases in disposable income, which in turn has boosted retail sales growth at a higher rate than Peru's inflation rate and GDP growth. Further, there is a limited supply of gross leasable area in the shopping centers, and therefore inadequate supply of space to meet the demands of the main retailers. The ratings reflect that the company will continue to benefit from the positive business environment.
Significant Capex Plan:
Interproperties' has a significant capex plan which add to execution risk. The capex plan is expected to increase revenues derived from the new and expansionary projects upon their completion. The company's capex plan for 2011 and 2012, which includes possible asset acquisitions, will require investments of approximately USD138 million and USD83 million, respectively. The company's total gross leasable area (GLA) is expected to increase from 94,317 m2 GLA by the end of 2010 and reach levels of 177,933 m2 and 244,542 m2 by 2012 and 2013, respectively.
The completion of the scheduled capex is expected to result in the company's total revenue reaching levels of approximately USD17 million, USD25 million, and USD38 million during full years 2011, 2012, and 2013. The main development in the company's capex plan is the Salaverry project with a total investment of approximately USD70 million. This project will add 66,609 m2, generate annual revenues for approximately USD12 million and start operations during 1Q'13.
High Leverage:
The ratings also reflect Interproperties' current high leverage and the expectation that significant deleveraging will occur by 2013 as the company's capex plan completion should result in significant increase in its cash flow generation, measured by EBITDA. By the end of June 2011, the company's gross leverage, measured by total debt to EBITDA ratio, was 7.7 times (x) reflecting its LTM June 2011 EBITDA of USD10.2 million and total debt - by the end of June 2011 - of USD79 million.
Considering the proposed USD185 million senior secured notes, the company's gross leverage is expected to reach a gross leverage of 14.2x by the end of 2011. Significant deleveraging is expected to occur during 2012 and 2013 to reach gross leverage ratios of 9.6x and 6.2x, respectively, as the completion of capex plan should results in EBITDA levels of approximately USD22 million and USD32 million during 2012 and 2013, respectively. The company's total debt is expected to be approximately USD208 million by the end of 2011, being composed of the USD185 million proposed secured notes and the remaining of secured debt with banks.
Good Collateral Support:
Positively the ratings considers the collateral support incorporated in the proposed transaction secured by encumbered assets composed by real properties with a commercial value of approximately USD175 million as of June 2011. In addition, the transactions also includes a second lien on properties with a commercial value of approximately USD46 million that secure bank debt for approximately USD25 million. Considering the collateral without debt with banks, on a pro forma basis the loan to value ratio for the proposed transaction is estimated at 95%. The ratings incorporate the expectation that once the company's capex plan is completed by mid 2013, the loan to value ratio should improve to reach levels of approximately 60%.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
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