Reuters logo
7 months ago
Fitch Affirms Caparra Hills LLC's IDR at 'B+', and Secured Debt at 'BB'; Outlook Stable
December 21, 2016 / 6:41 PM / 7 months ago

Fitch Affirms Caparra Hills LLC's IDR at 'B+', and Secured Debt at 'BB'; Outlook Stable

13 Min Read

(The following statement was released by the rating agency) NEW YORK, December 21 (Fitch) Fitch Ratings has affirmed Caparra Hills LLC (Caparra Hills) Long-Term Issuer Default Rating (IDR) at 'B+' and the senior secured debt at 'BB'. Fitch has also assigned a Recovery Rating of 'RR2' to the senior secured debt. The Rating Outlook is Stable. The company's 'B+' rating reflects Caparra Hills' limited property diversification and size, as well as high leverage that is projected to peak at around 10x in 2017. Caparra Hills' notes have been notched up to 'BB' to reflect strong recovery prospects in the event of a default. The company's loan-to-value ratio, based on the last appraisal, is estimated to be around 75%. KEY RATING DRIVERS Recovering Occupancy Rates: Fitch expects occupancy to improve in FY2017 and expects rates to recover closer to historical levels by FY2018. Fitch's base case projections anticipate occupancy will reach 85% by FY2017 and 90% by FY2018. Occupancy rates deteriorated during the last few years following the departure of a major tenant, as well as the reduction in space by a second major tenant. Caparra Hills has successfully signed leases for close to 90% of space that was vacated. Concentration and Contracts Risk: Fitch expects that counterparty risk and contract maturity will continue to improve as the company replaces key tenants. As of Sept. 30, 2016, Santander Tower's occupancy rate was 73% of which about 62% was occupied by 10 major tenants (down from 85% at Sept. 30, 2014). Within 12 months, 26% of its leases are set to expire. Contract maturity is viewed as manageable, however, as Caparra has a good track record of renewals. Secured Bond Enhances Recovery Prospects: The 'BB' rating on the secured bonds positively incorporates the collateral support included in the transaction structure. The payments of the bonds are secured by a first mortgage on the company's real estate properties and the assignment of leases. The secured bonds are payable solely from payments made to the Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) by Caparra Hills. AFICA serves solely as an issuing conduit for local qualified borrowers for the purpose of issuing bonds pursuant to a trust agreement between AFICA and the trustee. The secured bonds are not guaranteed by AFICA, do not constitute a charge against the general credit of AFICA, and do not constitute an indebtedness of the Commonwealth of Puerto Rico or any of its political subdivisions. Peak in Leverage: Fitch expects Caparra Hills gross leverage to reach 10x by FY2017, then gradually improve to 8.5x and below as a result of increased revenues from new tenants and stable EBITDA margins. Gross leverage has increased the past three years due to a significant increase in vacancy rates, after the company lost a major tenant. Caparra had USD55 million of total debt as of Sept. 30, 2016, composed entirely of secured bonds and requires annual debt service of approximately USD5.3 million (interest and principal). KEY ASSUMPTIONS --Recovering occupancy rates; --Debt-to-EBITDA reaching 10x at FY2017 then declining to 8.6x and below; --Negative free cash flow (FCF) in FY2017 due to capex on tenant improvements. RATING SENSITIVITIES A downgrade could be triggered from a lack of material improvement in the company's vacancy rates and contract maturity schedule coupled with declining cash flow generation, measured as EBITDA, resulting in weaker credit metrics. A positive rating action could be triggered by lower business risks in terms of contract maturity schedule; concentration risk while improving cash flow generation resulting in lower gross leverage of about 6.5x. A loan-to-value (LTV) of 60%, or below, would also be viewed positively. LIQUIDITY Adequate Liquidity: Caparra Hills's liquidity position is supported by its positive cash flow from operations (CFFO) and strong cash position. As of Sept. 30, 2016, Caparra Hills had USD6.1 million of cash while its short-term debt obligation was USD1.5 million. Additionally, the company maintains a debt service reserve fund of approximately USD8.7 million, covering 18 months of debt service, and an unsecured committed line of credit for USD1 million. FCF is expected to turn negative during FY2017, as the company goes through a period of tenant renovations, but will return to positive levels during FY2018, driven by increased revenues from new tenants and lower capex requirements. FULL LIST OF RATING ACTIONS Fitch has taken the following rating actions: Caparra Hills LLC --Long-Term IDR affirmed at 'B+'; --Senior secured debt affirmed at 'BB'; --Recovery Rating of 'RR2' assigned to senior secured debt. Contact: Primary Analyst Johnny da Silva Director +1-212-612-0367 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Jose Vertiz Director +1-212-908-0641 Committee Chairperson Joe Bormann, CFA Managing Director +1-312-368-3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Date of Relevant Rating Committee: Dec. 20, 2016. Additional information is available on www.fitchratings.com. Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016883 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below