CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded the following rating assigned 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 to 'BB' from 'BB+'.
The Rating Outlook is Stable.
The issuance is backed by U.S. and Canadian dollar-denominated ticket receivables originated by LATAM. Purchased receivables result from airline ticket sales and cargo charges by LAN Airlines S.A. (LAN) under IATA code 045 that are purchased using a qualified credit, debit or charge card in the U.S. and Canada. Fitch's rating addresses the timely payment of interest and principal on a quarterly basis.
KEY RATING DRIVERS
The rating action follows Fitch's downgrade to LATAM's Issuer Default Rating (IDR) and reflects the following:
Credit Quality of the Originator: On April 1, 2015, Fitch downgraded LATAM's IDR to 'BB-'/Stable Outlook from 'BB'/Negative Outlook. Fitch also affirmed the GCA score of 'GC3' assigned to the operations of LATAM excluding TAM. The credit strength of the transaction is linked to the credit quality of LATAM.
Coverage Ratios Meet Expectations: The quarterly debt service coverage ratio (DSCR) averaged 4.1x in 2014, slightly above Fitch's expected quarterly DSCR of 3.78x. Fitch's DSCR considers maximum and quarterly debt service for the life of the transaction. Fitch's base case assumed no growth in purchased receivables.
Future Flow Debt Relative to Liabilities: The future flow issuance represents approximately 5.1% of LATAM's consolidated debt and 6.5% of unconsolidated debt (excluding TAM) as of December 2014. While these percentages are low relative to the balance sheet, the transaction is large relative to the company's total unsecured debt, as most of the company's debt relates to leases and secured debt.
Moderate Diversion Risk: While designated obligors 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 the 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, a contraction in LAN's North American gateway business that would result in a decline in DSCRs could lead to rating downgrades.
For more details on the transaction see Fitch's new issue report 'Guanay Finance Limited,' available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Future Flow Securitization Rating Criteria' (June 9, 2014);
--'Global Structured Finance Rating Criteria' (March 31, 2015).
Applicable Criteria and Related Research:
Future Flow Securitization Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749768
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982421
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.