Grupo Posadas, S.A.B. de C.V. -- Moody's upgrades Posadas' ratings to B2, changes outlook to stable and assigns a B2 rating to proposed global notes

Mexico, November 09, 2012 -- Moody's Investors Service (Moody's) upgraded to B2 from B3 Grupo Posadas, S.A.B. de C.V.'s (Posadas) corporate family and senior unsecured ratings and changed the company's ratings outlook to stable from negative. At the same time Moody's assigned a B2 rating to Posadas' proposed USD225 million global notes due 2017.

The ratings upgrades result from the combination of reduced leverage and improved liquidity. Having applied the proceeds of recent asset sales towards debt reduction and with increased EBITDA, Posadas' leverage has improved to 5.5x (September 30, 2012) from 7.9x (December 31, 2011). Over the same period, interest coverage (adj. EBIT/Interest expense) has also improved, to 1.3x from 0.9x. We anticipate leverage and coverage to further improve as Posadas uses the proceeds of the sale of its South American operation to reduce debt, and expect leverage (adj. debt/EBITDA) to remain in the 4.5x -- 5.0x range over the rating horizon.

The issuance of the proposed USD225 million global notes will be neutral to leverage as the proceeds will be used to refinance existing debt. However, since the refinance transaction results in a much improved liquidity profile with no major debt maturities before 2017, the transaction is integral to the ratings upgrade and outlook stabilization.

Ratings affected:

- Corporate Family Rating (CFR): upgraded to B2 from B3, outlook is stable

- USD200 million 9.250% senior unsecured notes due 2015: rating upgraded to B2 from B3, outlook is stable

- USD225 million senior unsecured notes due 2017: B2 rating assigned, stable outlook

The date of the last Credit Rating Action was December 10, 2010

RATINGS RATIONALE

Posadas' rating reflects its somewhat aggressive financial profile, small operating scale relative to global industry peers, and low geographic diversification as it now operates almost entirely in Mexico. In addition, since the economic outlook for the two main tourism sources for Mexico, the U.S. and Europe, remains uncertain, Posadas' ability to achieve its growth plan could be compromised; this would result in unproductive capital spending and increased leverage. The company's leading position and brand equity in the Mexican lodging industry, its nationwide coverage in Mexico with coastal and urban locations, its segment diversification across different hotel classes, and service business growth supports the rating. The rating is also supported by our expectation that management will follow prudent financial policies, maintaining adequate liquidity and a dividend payout that is consistent with earnings and internally generated cash flow; this is a change from the somewhat aggressive policies observed in the past.

Posadas' average daily rate (ADR) and occupancy rate have shown positive trends since hitting their lowest levels in 2009 as a result of the post crisis economic recovery. ADR was USD88 during the first nine months of 2012 (9M12) vs. USD89 in 2011, USD85 in 2010, and USD79 in 2009. Similarly, occupancy rate has increased steadily from 54% in 2009 to 61% in 2011 and to 64% during the 9M12. Revenues per available room (RevPaR) have grown as well from USD43 in 2009 to USD54 in 2011 at a 12% CAGR. While RevPaR further recovered to USD56 during the 9M12 it is still below pre-crisis levels of around USD59.

According to the Consejo Nacional Empresarial Turistico, 88.4 million travelers will visit Mexico in 2012, out of which 23.9 million or 27% will be international travelers. As the economic outlook for the two main tourism sources for Mexico, the U.S. and Europe, remains under stress, there could be pressure on Posadas ability to achieve its projected growth. In addition, Mexico's security concerns continue to affect the lodging industry mainly in areas in the northern part of the country.

The stable rating outlook reflects our expectations that Posadas' refinance transaction will close as planned and that the proceeds from the sale of its South American operation will reduce debt and allow leverage to be maintained in the 4.5x-to-5.0x range. The stable outlook is also based on the company maintaining adequate liquidity.

Ratings would come under negative pressure if Posadas' liquidity worsens or because of delays in addressing medium term debt maturities. Ratings could be downgraded if Moody's adjusted debt/EBITDA increased above 5x with no clear plan for deleveraging within a reasonable time frame. A decline in revenues per available room to levels towards USD53 could also pressure the rating.

Positive ratings pressure would result from Posadas maintaining adequate liquidity and improving adjusted Debt/EBITDA below 4.5x and EBIT/Interest above 2.0x, both on a sustainable basis.

The principal methodology used in rating Posada was the Global Lodging & Cruise Industry Rating Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Grupo Posadas, S.A.B. de C.V., headquartered in Mexico City, is a leading hotel chain operator in Latin America, with 105 hotels and 17,871 rooms in operation. In October 2012 Posadas sold its hotel business in South America and currently derives most of its revenues from Mexico, where it operates its key 5- and 4-star Fiesta Americana and Fiesta Inn formats, a 3-star format ("One"), its luxury class Live Aqua, and its Vacation Club timeshare business. The company also has a small operation in Texas. For the last twelve months ended September 30, 2012, Posadas reported revenues of MXN6,432 million and EBITDA of MXN912 million.

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