Fitch Rates LATAM Airlines' USD450MM Ticket Securitization 'BB+'

CHICAGO--()--Fitch Ratings has assigned the following rating to the 2013-1 notes issued by Guanay Finance Limited, a special purpose vehicle incorporated in the Cayman Islands and sponsored by LATAM Airlines Group S.A. (LATAM):

--Series 2013-1 USD450 million senior secured fixed-rate notes 'BB+', Outlook Stable.

The issuance is backed by U.S. and Canadian dollar-denominated receivables from ticket and cargo sales generated by credit, debit or charge cards in the United States and Canada. Fitch's rating on the 6% 2013-1 notes addresses the timely payment of interest and principal on a quarterly basis.

KEY RATING DRIVERS

The rating reflects (i) the credit quality of LATAM; (ii) the strategic and growing business that backs the pool of receivables; (iii) the expected quarterly debt service coverage ratio commensurate with the rating category; (iv) the level of future flow debt relative to LATAM's overall funding; and (v) moderate diversion risk.

LATAM has a Fitch local currency (LC) Issuer Default Rating (IDR) of 'BB', Outlook Stable. Formed in 2012 through a business combination of LAN Airlines S.A. (LAN) and TAM Linhas Aereas, S.A. (TAM), LATAM maintains a solid market position in the domestic, regional and international (long-haul), and cargo markets.

The majority of receivables will be for flights to and from North American gateways. The pool of receivables grew 21.45% compound annual growth rate (CAGR) from 2005-2012 driven by increased capacity and yield, improved load factors, the strength of the North American cargo business and growth in internet ticket sales. Many of the key North American gateways are more profitable than LATAM's overall and long-haul businesses.

Fitch expects the average quarterly debt service coverage ratio (DSCR) to be approximately 3.85x. This is based on average quarterly receivables for the last 12 months and the average quarterly debt service for the life of the transaction.

The proposed issuance represents approximately 4.4% of LATAM's consolidated debt and 6.8% of unconsolidated debt (excluding TAM). While these percentages are low relative to the balance sheet, the transaction size is large compared to the company's total unsecured debt, as most of company debt relates to leases and secured debt.

While designated obligors to the transaction have signed notice and consent agreements (N&Cs), the transaction is exposed to potential diversion risk. Cash flows could be diverted from the transaction by changing designated obligors or rerouting sales through a different IATA code. This risk limits differentiation of issuance rating from the originator's IDR.

RATING SENSITIVITIES

The rating is sensitive to changes in the credit quality of LATAM. A downgrade of LATAM's 'BB' IDR could lead to a downgrade of the notes. In addition, reductions in DSCRs could result in rating downgrades.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report to be released shortly.

TRANSACTION SUMMARY

The notes are backed by flows related to airline ticket sales and cargo charges by LATAM under IATA code 045 that are purchased using a qualified credit, debit or charge card in the U.S. and Canada.

The originator and initial servicer to the transaction, LATAM is headquartered in Santiago, Chile with the largest operations in Chile and Brazil. LATAM's rating incorporates the company's diversified business model, strong regional market position, high gross adjusted leverage, and low liquidity.

For more details on the transaction see Fitch's new issue report 'Guanay Finance Limited,' available shortly at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Future Flow Securitization Rating Criteria' (June 18, 2013);

--'Global Structured Finance Rating Criteria' (May 24, 2013).

Applicable Criteria and Related Research:

Future Flow Securitization Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=711077

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=807429

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Gregory Lane, +1-312-606-2304
Associate Director
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Maria Paula Moreno, +57-1-326-9999
Senior Director
or
Committee Chairperson
Greg Kabance, +1-312-368-2052
Managing Director
or
Media Relations
Elizabeth Fogerty, New York
+1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Gregory Lane, +1-312-606-2304
Associate Director
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Maria Paula Moreno, +57-1-326-9999
Senior Director
or
Committee Chairperson
Greg Kabance, +1-312-368-2052
Managing Director
or
Media Relations
Elizabeth Fogerty, New York
+1-212-908-0526
elizabeth.fogerty@fitchratings.com