Posadas to seek haircut in restructuring talks

Posadas to seek haircut in restructuring talks

Asset Management Bonds Debt Capital Markets Fixed Income Funds Coronavirus Mexico United States

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Mexican hotel operator Grupo Posadas is expected to ask for a "significant haircut" in talks to restructure its 7.875% 2022 bonds as it strives to hold on to cash during the COVID-19 pandemic, sources familiar with the company told LatinFinance.

Posadas is scheduled to make an interest payment for $15.5 million on June 30, but it said in a statement on Thursday that does not expect to make the payment even after a 30-day grace period.

"Grupo Posadas is taking this measure to ensure the continuity of its business, as a result of the significant COVID-19-related deterioration of the company's operating revenues and cash flows, and the uncertain impact of COVID-19 on Mexico's tourism industry in the foreseeable future," it said in the statement.

Posadas added that it has hired DD3 Capital Partners as its financial adviser and Ritch Mueller and Cleary Gottlieb as legal advisers in the restructuring talks with bondholders that are expected to start soon.

The company closed most of its 179 hotels as the coronavirus outbreak swept across Mexico, but it has since reopened 114 hotels and plans to reopen another 42 hotels in the next two weeks, it said.

The Mexican government has not offered to help the hotel industry, and companies do not have a clear sense of when the tourism market might recover, sources said.

"It can't be taken care of with a cash injection in the short term," one source said. "Assumptions were made based on pre-COVID-19 levels."

Fitch Ratings downgraded Posadas to C from CC on Friday and said it will likely list the company in restrictive default after the grace period ends next month. Posadas burned through its cash holdings at a rate of MXN90 million MXN100 million, or $3.9 million to $4.34 million, per month in April, May and the first half June as many hotels remained closed, Fitch said in a report. Free cash flow for the year, despite the reopenings, will likely remain negative this year, it added.

Posadas said in March that it had MXN1.6 billion in cash on hand and added that it had repurchased some of the 2022 notes.

The company first issued $350 million in the 7.875% 2022 notes at par in June 2015 and added $50 million at 8% in May 2016.