News Column

Fitch Affirms LATAM Airlines Securitization at 'BB+'; Outlook Revised to Negative

June 13, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed 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 at 'BB+'.

The Rating Outlook is revised to Negative from 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 revision to the Rating Outlook assigned to LATAM's Issuer Default Ratings (IDRs), and reflects the following key rating drivers:

Credit Quality of the Originator: On May 2, Fitch affirmed LATAM's local currency (LC) IDR at 'BB' and revised the Outlook to Negative from Stable. 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 in Line with Expectations: The quarterly debt service coverage ratio (DSCR) considering maximum quarterly debt service for the life of the transaction averaged 3.9x during the first two quarterly payment periods, in line with Fitch's base case DSCR of 3.78x. Growth in purchased receivables was flat in 2013 as competition drove down yields on key North American gateway flights, but has resumed growth in 2014 thanks in part to improvement of the U.S. economy. Fitch's base case assumed no growth in purchased receivables.

Future Flow Debt Relative to Company Liabilities: The issuance represents approximately 4.9% of LATAM's consolidated debt and 7.2% of unconsolidated debt (excluding TAM). 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 18, 2013);

--'Global Structured Finance Rating Criteria' (May 20, 2014).

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=748821

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=834519

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.



Fitch Ratings

Primary Analyst

Gregory Lane, +1 312-606-2304

Associate Director

Fitch Ratings, Inc.

70 W. Madison St.

Chicago, IL 60602

or

Secondary Analyst

Cinthya Ortega, +1 312-606-2373

Director

or

Committee Chairperson

Greg Kabance, +1 312-368-2052

Managing Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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