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
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
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.
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'.
--'Future Flow Securitization Rating Criteria' (
--'Global Structured Finance Rating Criteria' (
Future Flow Securitization Rating Criteria
Global Structured Finance Rating Criteria
Source: Fitch Ratings
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