Fitch Ratings has affirmed the Issuer Default Rating (IDR) of Caparra Center Associates, LLC (Caparra) at 'BBB+'. Fitch has also affirmed Caparra's USD21.8 million secured bonds at 'A-'. Proposed Refinancing Neutral to Credit Quality.
The Rating Outlook is Stable.
The ratings reflect the company's stable cash flow generation, its lease portfolio with consistently adequate renewal, moderate vacancy rates in the 4% to 6% range during the last five years, and single shopping mall location with approximately 150 stores. Further supporting the ratings are the company's manageable debt maturity schedule with annual debt service levels (principal plus interests) of approximately USD5.5 million comfortably covered by the company's annual cash flow generation - measured by EBITDAR - of approximately USD10.5 million, adequate liquidity, stable EBITDAR margins of around 60%, and a solid collateral package with low loan-to-value.
The Stable Outlook reflects the expectation that Caparra will maintain stable operating results based on the quality of its assets while preserving good liquidity and an adequate capital structure.
The rating affirmation incorporates proposed refinancing. The company intends to enter into a new 20-year credit facility with Banco Popular (BP) for a total amount of USD22.45 million, compounded in two securities: the USD3.86 million loan, equal to the amount of the BP loan currently already in place, and a new USD18.59 million loan. The proceeds from the proposed transaction will be used to refinance approximately USD20.2 million in debt with banks and the remaining balance will be used primarily to cover capital expenditures and fees related with the transaction.
Overall, Fitch views the proposed transaction as neutral to Caparra's credit quality. On a pro forma basis, the completion of the projected refinancing is expected to result in the increase of the company's total on-balance debt by approximately USD2.54 million, or 5.7% of the company's total on-balance debt, which is not material, from USD44.4 million at May 15, 2012 to USD46.97 million after completion of the transaction, which is expected to occur during the second quarter of 2012. Positively, the proposed refinancing will result in a more flexible debt payment schedule resulting in lowering the company's total debt payment services (principal and interest) in approximately USD10.4 million during the next 10 years.
Post refinancing, the company's total on-balance debt outstanding is expected to be composed of the USD18.9 million AFICA secured bonds, the USD3.86 million new BP secured loan, the USD18.59 million new BP secured loan, the USD4.43 million BBVA secured loan, and the USD1.2 million unsecured First Bank loan.
Caparra's total adjusted debt (on-balance and off-balance) decreased from USD53.5 million in May 2010 to USD45.4 million in March 2012. The company's off-balance sheet debt associated with operating lease obligations was USD1.1 million. Caparra's leverage, as measured by net debt/EBITDAR, was 4.1x by the end of March 2012. The company has also maintained an average net debt/EBITDAR ratio of 3.5x between fiscal year-end 2007 and 2011. The company net leverage is expected to remain in the 3.5x to 4.0x range during the next 12 months ended in May 2013.
The company's bond collateral position should be unaffected by proposed refinancing. The rating affirmation considers that the liens on the Shopping Center securing the AFICA bonds will continue to be on parity only with the USD3.86 million BP loan and the USD4.43 million BBVA loan due in July 2016, as this is the situation prior to the proposed refinancing. The additional USD18.59 million BP secured debt included in the refinancing as a new credit facility will be subordinated to liens on the Shopping Center securing the AFICA bonds; this subordination will remain until the maturity of the AFICA bonds.
The ratings incorporate the AFICA bonds' premium collateral position over the Shopping Center, which is the company's main asset with a recent appraisal of USD144 million as of February 2012, and the expected improvement in the loan to value (LTV) ratio for the debt secured by the Shopping Center over the life of the AFICA bonds as this secured debt is being amortized. By the end of the May 2012, the LTV ratio based on the last appraisal value was 18.9% and under a distress scenario considering only 50% of the appraisal value the LTV is 37.7%. The LTV ratio is expected to be 9.4% and 18.8% based on the appraisal value and the distress value, respectively, by the end of fiscal 2016 (May 2016).
The ratings are constrained by the negative business environment and the concentration risk affecting Caparra's operations. The ratings consider the negative business environment affecting the economy of Puerto Rico, which has been in recession during the last few years. The ratings also factor in the concentration risk in Caparra's operations which are related to a single retail asset (the shopping center) limiting the company's diversification and growth strategies. Further, Caparra's operations are dependent on its main tenants, with six tenants representing approximately 36% of Caparra's total revenues. The ratings also consider as a negative credit factor Caparra's high dividend payout ratio. During the last five years, Caparra has distributed more than USD20 million in dividends, and the company expects to maintain a dividend payout ratio of approximately 85% for the next years.
The ratings incorporate Fitch's expectations that Caparra will maintain current leverage and liquidity levels and the company's willingness to reduce distributed dividends if required to maintain an adequate credit profile. Deterioration in the company's financial profile and weaker credit metrics coupled with significant distributed dividends and increasing vacancy rates or additional debt that would move the company's capital structure away from currently expected levels could lead to a negative rating action.
The Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) issued the secured bonds in December 2009. The secured bonds are payable solely from payments made to AFICA by Caparra. AFICA serves solely as an issuing conduit for local qualified borrowers for purpose of issuing bonds pursuant a trust agreement between AFICA and a trustee. The secured bonds are not guaranteed by AFICA, not constitute a charge against the general credit of AFICA; and, not constitute an indebtedness of the Commonwealth of Puerto Rico or any of its political subdivisions.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology