Fitch Rates IRSA’s $150MM 11.5% Notes Due 2020 ‘B’

BUENOS AIRES, Argentina & NEW YORK–(Business Wire)–
Fitch Ratings has assigned the following rating to IRSA Inversiones y
Representaciones’ notes:
–USD150 million series 2 senior unsecured notes ‘B/RR4’.
The Rating Outlook is Stable.
IRSA’s foreign and local currency Issuer Default Ratings (IDR) are:
–Foreign currency IDR ‘B’;
–Local currency IDR ‘B+’.
The proceeds will be used to fund capital expenditures and investments,
replacement of short-term debt and capital contributions to subsidiaries.
IRSA’s ‘B+’ local currency IDR reflects the company’s strong market position and
diversified portfolio of real estate assets in Argentina. The ‘B+’ rating also
factors the company’s positive operating trends, the positive improvement in the
company’s corporate structure, and relatively low leverage levels. The ‘B+’
local currency IDR rating is constrained by the company’s exposure to market
cyclicality due to the heavy concentration of its assets in Argentina. The
rating also reflects the company’s exposure to a devaluation of the Argentina
pesos due to its peso revenues and U.S. dollar denominated debt (partially
offset by their assets denominated in dollars). IRSA’s foreign currency IDR
continues to be constrained at the level of ‘B’ due to the ‘B’ Country Ceiling
assigned to Argentina by Fitch.
The Stable Outlook reflects Fitch’s expectations that IRSA will manage its
balance sheet to a targeted ratio of debt-to-EBITDA around 3.0 times (x). The
company’s cash flow from operations is expected to become more stable and
predictable as a result of recent actions taken by the company. These actions
include the sale of 80% of Alto Palermo’s (APSA) consumer financing subsidiary,
Tarshop, and the increase in its stake in APSA to 93% from 63%.
Strong Market Position and Diversified Portfolio:
Through its subsidiary APSA, IRSA has a leading market share in the shopping
center segment of the market within the city of Buenos Aires City and the Great
Buenos Aires area. The shopping centers segment accounted for about 42% of
IRSA’s consolidated EBITDA for the fiscal year ended June 30, 2009 (49% at Dec.
31, 2009).
IRSA’s second most important business division is its office-building segment,
which accounts for about 23% of the company’s EBITDA. IRSA is the clear leader
in the development and management of office buildings in Buenos Aires, with a
market share of approximately 20% in the premium segment. The balance of IRSA’s
EBITDA is derived from three premium hotels, as well as its residential property
development division. Importantly, both IRSA and APSA own key parcels of land in
strategic areas of Buenos Aires, which could be sold to improve the company’s
liquidity, or used in new developments. The book value of this undeveloped land
exceeds USD100 million.
Improving Trend in Operating Results:
For the last 12 months (LTM) ended Dec. 31, 2009, IRSA recorded sales and EBITDA
of USD358 million and USD197 million, respectively. These figures compare to
USD358 million and USD127 million for the fiscal year ended in June 2009. IRSA’s
cash flow generation during the LTM allowed it to finance capital expenditures
of USD69 million and distribute USD14 million of dividends. Free cash flow (FCF)
totaled USD66 million.
The improvement in IRSA’s cash flow generation was due to the positive
performance of IRSA’s office rental and residential real estate development
business units. The company also benefited from the strong performance of APSA’s
shopping malls and the stabilization of its consumer financing subsidiary,
Tarshop S.A.
Reorganization of Corporate Structure a Positive:
IRSA has taken several steps to rationalize its businesses during the past year.
Fitch views these actions as positive as they should make the company’s cash
flow more stable and predictable. During January 2010, the company reached an
agreement with Parque Arauco to acquire a 29.55% stake the later has in APSA.
This transaction will increase IRSA’s control on APSA to 93%. It also includes
Parque Arauco’s USD15.4 million hold of APSA’s convertible notes.
IRSA has already paid USD6 million to Parque Arauco, and is expected to pay an additional
USD120 million to Parque Arauco by November 2010.
In December 2009 APSA agreed to sell 80% of its consumer credit card subsidiary,
Tarshop, to Banco Hipotecario for USD26.8 million. The transaction is subject to
Central Bank’s approval. From a credit perspective, Fitch views APSA’s decision
to sell Tarshop as a positive since it will allow the company to focus on its
core business, real estate.
Adequate Leverage But Below Average Liquidity:
IRSA had USD369 million of debt as of Dec. 31, 2009. It is comprised primarily
of IRSA’s USD150 million notes maturing during 2017 and the APSA’s USD 120
million notes and USD50 million peso linked notes, maturating 2017 and 2012,
respectively. IRSA’s leverage, as measured by net debt/EBITDA, was 1.6 times (x)
for 2009, a reduction from the average net debt ratio of 2.2x maintained by the
company between 2007 and 2009. IRSA’s ratings incorporate the expectation that
the company’s leverage would increase to between 3.3x and 3.5x by the end of
fiscal year ended 2010. Nevertheless, the leverage ratio remains comfortable
within the rating category.
For this industry, the emphasis of Fitch’s methodology is on portfolio quality
and diversity, and size of the asset base. IRSA’s portfolio of assets is strong
with USD1.1 billion of undepreciated book capital at Dec. 31, 2009. These assets
are mostly unencumbered, as secured debt accounted for only USD4.5 million of
the company’s USD369 million total debt load. Leverage measured by total debt as
a percentage of undepreciated book capital was 35% at the end of December 2009.
On a market value basis, these ratios would be even lower.
IRSA’s cash position has been trending negative during the last two years, as
cash has decreased to USD51 million as of Dec. 31, 2009 from USD135 million as
of June 30, 2008. The company’s liquidity position, measured by the ratio of
cash to short-term debt, was below average at 0.5x as of Dec. 31, 2009. The
declining trend in the company’s liquidity over the past year is attributable to
the resources oriented to support APSA’s financial consumer business (Tarshop).
The company maintains a large pool of unencumbered assets that could provide
alternative sources of financing if required. During 2009, the company sold
non-strategic properties for USD52 million.
Rating Drivers:
Any significant increase in IRSA’s leverage beyond expectations could pressure
ratings. A downturn in the Argentine economy would hurt the company’s results
and could also lead to a negative rating action. IRSA’s foreign currency IDR is
constrained by the ‘B’ Country Ceiling of Argentina. An upgrade or downgrade of
the Argentine Country Ceiling would impact IRSA’s foreign currency IDR.
IRSA is a leading real estate company in the Argentine market founded 1943.
IRSA’s diversified business portfolio splits among office rental, real estate &
hotel developments and shopping centers. The company’s stock is listed in the
Buenos Aires Stock Exchange and in the NYSE. The company’s main shareholder is
Cresud S.A., with a 57% stake. The company’s strategy focuses on the enhancement
of its real estate asset portfolio, within its different business units. To this
end, IRSA maintains a substantial amount of land reserves for future projects.
Applicable criteria available on Fitch’s website at ‘www.fitchratings.com’: The
primary methodology used in this rating action is ‘Corporate Rating
Methodology’, dated Nov. 24 2009. Fitch has also used the Corporate Manual
presented at the Comision Nacional de Valores (CNV).
Additional information is available at ‘www.fitchratings.com’.
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 Ratings
Gabriela Catri, +54-11-5235 8100, Buenos Aires
Jose Vertiz, 212-908-0641, New York
or
Media Relations:
Brian Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com
Copyright Business Wire 2010

BUENOS AIRES, Argentina & NEW YORK–(Business Wire)–Fitch Ratings has assigned the following rating to IRSA Inversiones yRepresentaciones’ notes:
–USD150 million series 2 senior unsecured notes ‘B/RR4’.
The Rating Outlook is Stable.
IRSA’s foreign and local currency Issuer Default Ratings (IDR) are:
–Foreign currency IDR ‘B’;
–Local currency IDR ‘B+’.
The proceeds will be used to fund capital expenditures and investments,replacement of short-term debt and capital contributions to subsidiaries.
IRSA’s ‘B+’ local currency IDR reflects the company’s strong market position anddiversified portfolio of real estate assets in Argentina. The ‘B+’ rating alsofactors the company’s positive operating trends, the positive improvement in thecompany’s corporate structure, and relatively low leverage levels. The ‘B+’local currency IDR rating is constrained by the company’s exposure to marketcyclicality due to the heavy concentration of its assets in Argentina. Therating also reflects the company’s exposure to a devaluation of the Argentinapesos due to its peso revenues and U.S. dollar denominated debt (partiallyoffset by their assets denominated in dollars). IRSA’s foreign currency IDRcontinues to be constrained at the level of ‘B’ due to the ‘B’ Country Ceilingassigned to Argentina by Fitch.
The Stable Outlook reflects Fitch’s expectations that IRSA will manage itsbalance sheet to a targeted ratio of debt-to-EBITDA around 3.0 times (x). Thecompany’s cash flow from operations is expected to become more stable andpredictable as a result of recent actions taken by the company. These actionsinclude the sale of 80% of Alto Palermo’s (APSA) consumer financing subsidiary,Tarshop, and the increase in its stake in APSA to 93% from 63%.
Strong Market Position and Diversified Portfolio:
Through its subsidiary APSA, IRSA has a leading market share in the shoppingcenter segment of the market within the city of Buenos Aires City and the GreatBuenos Aires area. The shopping centers segment accounted for about 42% ofIRSA’s consolidated EBITDA for the fiscal year ended June 30, 2009 (49% at Dec.31, 2009).
IRSA’s second most important business division is its office-building segment,which accounts for about 23% of the company’s EBITDA. IRSA is the clear leaderin the development and management of office buildings in Buenos Aires, with amarket share of approximately 20% in the premium segment. The balance of IRSA’sEBITDA is derived from three premium hotels, as well as its residential propertydevelopment division. Importantly, both IRSA and APSA own key parcels of land instrategic areas of Buenos Aires, which could be sold to improve the company’sliquidity, or used in new developments. The book value of this undeveloped landexceeds USD100 million.
Improving Trend in Operating Results:
For the last 12 months (LTM) ended Dec. 31, 2009, IRSA recorded sales and EBITDAof USD358 million and USD197 million, respectively. These figures compare toUSD358 million and USD127 million for the fiscal year ended in June 2009. IRSA’scash flow generation during the LTM allowed it to finance capital expendituresof USD69 million and distribute USD14 million of dividends. Free cash flow (FCF)totaled USD66 million.
The improvement in IRSA’s cash flow generation was due to the positiveperformance of IRSA’s office rental and residential real estate developmentbusiness units. The company also benefited from the strong performance of APSA’sshopping malls and the stabilization of its consumer financing subsidiary,Tarshop S.A.
Reorganization of Corporate Structure a Positive:
IRSA has taken several steps to rationalize its businesses during the past year.Fitch views these actions as positive as they should make the company’s cashflow more stable and predictable. During January 2010, the company reached anagreement with Parque Arauco to acquire a 29.55% stake the later has in APSA.This transaction will increase IRSA’s control on APSA to 93%. It also includesParque Arauco’s USD15.4 million hold of APSA’s convertible notes. IRSA hasalready paid USD6 million to Parque Arauco, and is expected to pay an additionalUSD120 million to Parque Arauco by November 2010.
In December 2009 APSA agreed to sell 80% of its consumer credit card subsidiary,Tarshop, to Banco Hipotecario for USD26.8 million. The transaction is subject toCentral Bank’s approval. From a credit perspective, Fitch views APSA’s decisionto sell Tarshop as a positive since it will allow the company to focus on itscore business, real estate.
Adequate Leverage But Below Average Liquidity:
IRSA had USD369 million of debt as of Dec. 31, 2009. It is comprised primarilyof IRSA’s USD150 million notes maturing during 2017 and the APSA’s USD 120million notes and USD50 million peso linked notes, maturating 2017 and 2012,respectively. IRSA’s leverage, as measured by net debt/EBITDA, was 1.6 times (x)for 2009, a reduction from the average net debt ratio of 2.2x maintained by thecompany between 2007 and 2009. IRSA’s ratings incorporate the expectation thatthe company’s leverage would increase to between 3.3x and 3.5x by the end offiscal year ended 2010. Nevertheless, the leverage ratio remains comfortablewithin the rating category.
For this industry, the emphasis of Fitch’s methodology is on portfolio qualityand diversity, and size of the asset base. IRSA’s portfolio of assets is strongwith USD1.1 billion of undepreciated book capital at Dec. 31, 2009. These assetsare mostly unencumbered, as secured debt accounted for only USD4.5 million ofthe company’s USD369 million total debt load. Leverage measured by total debt asa percentage of undepreciated book capital was 35% at the end of December 2009.On a market value basis, these ratios would be even lower.
IRSA’s cash position has been trending negative during the last two years, ascash has decreased to USD51 million as of Dec. 31, 2009 from USD135 million asof June 30, 2008. The company’s liquidity position, measured by the ratio ofcash to short-term debt, was below average at 0.5x as of Dec. 31, 2009. Thedeclining trend in the company’s liquidity over the past year is attributable tothe resources oriented to support APSA’s financial consumer business (Tarshop).The company maintains a large pool of unencumbered assets that could providealternative sources of financing if required. During 2009, the company soldnon-strategic properties for USD52 million.
Rating Drivers:
Any significant increase in IRSA’s leverage beyond expectations could pressureratings. A downturn in the Argentine economy would hurt the company’s resultsand could also lead to a negative rating action. IRSA’s foreign currency IDR isconstrained by the ‘B’ Country Ceiling of Argentina. An upgrade or downgrade ofthe Argentine Country Ceiling would impact IRSA’s foreign currency IDR.
IRSA is a leading real estate company in the Argentine market founded 1943.IRSA’s diversified business portfolio splits among office rental, real estate &hotel developments and shopping centers. The company’s stock is listed in theBuenos Aires Stock Exchange and in the NYSE. The company’s main shareholder isCresud S.A., with a 57% stake. The company’s strategy focuses on the enhancementof its real estate asset portfolio, within its different business units. To thisend, IRSA maintains a substantial amount of land reserves for future projects.
Applicable criteria available on Fitch’s website at ‘www.fitchratings.com’: Theprimary methodology used in this rating action is ‘Corporate RatingMethodology’, dated Nov. 24 2009. Fitch has also used the Corporate Manualpresented at the Comision Nacional de Valores (CNV).
Additional information is available at ‘www.fitchratings.com’.
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, RATINGDEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’SPUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM’. PUBLISHED RATINGS, CRITERIA ANDMETHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OFCONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCEAND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OFCONDUCT’ SECTION OF THIS SITE.
Fitch RatingsGabriela Catri, +54-11-5235 8100, Buenos AiresJose Vertiz, 212-908-0641, New YorkorMedia Relations:Brian Bertsch, 212-908-0549, New YorkEmail: brian.bertsch@fitchratings.com
Copyright Business Wire 2010

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One response to “Fitch Rates IRSA’s $150MM 11.5% Notes Due 2020 ‘B’

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