Fitch Ratings has affirmed
IRSA PC's ratings are capped by its exposure to
Key Rating Drivers
Weak Operating Environment Caps Ratings:
Strong Parent-Subsidiary Linkage: Fitch views the rating linkage between IRSA PC and its parent company, IRSA, as strong due to IRSA's high level of access to and control over IRSA PC's resources and weaker legal ringfencing provisions. IRSA PC's ratings are driven by the consolidated credit profile of IRSA/IRSA PC. IRSA is viewed as having dominating control, with limited or no influence from external stakeholders. IRSA owns 79.9% of IRSA PC as of
High Financial Leverage: IRSA PC's net debt to EBITDA ratio was 4.7x as of
Relevant Business Position: The company is an experienced and well positioned operator maintaining 67% of BA Malls market share and 10% BA Office market share as of
Recovery in Malls Operations as Economy Reopens: Recovery has been significant in 2021 as operations recuperate following the sharp decline in operational performance seen in 2020 as a result of pandemic-related restrictions on malls activities. Fitch expects to see a continued gradual improvement in IRSA PC's sales and traffic in 2022. Income has shown a 297% increase yoy in 1Q22, and although not back to pre-pandemic levels, recovery has been seen to about 75% of pre-pandemic levels.
The company mitigated occupancy level declines during the pandemic with provided flexibility to tenants by means of rent deferrals and discounts. As of
Derivation Summary
IRSA PC's ratings are primarily driven by
Key Assumptions
Recovery trend in occupancy continues, with occupancy levels around 92% and 75% for the mall and office segments, respectively, during fiscal 2022-2023;
EBITDA margin recovery and trending to levels around 65% during fiscal 2022-2023.
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that IRSA PC would be reorganized as a going-concern in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim. The GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganization EBITDA level upon which Fitch bases the enterprise valuation. An EV multiple of 6x EBITDA is applied to the GC EBITDA to calculate a post-reorganization enterprise value.
The choice of this multiple considered the following factors: similar public companies trade at EBITDA multiples in the 12x-15x range, Fitch used a multiple of 6x to estimate a value for IRSA PC because this company benefits from dominant market share, unique brands, higher barriers to entry, or undervalued assets. It also factors in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade is unlikely to occur but can be considered if there is an upgrade of the Argentine sovereign rating in conjunction with an improved macroeconomic environment and increased clarity surrounding the company's ability to refinance its hard currency debt and strengthen its liquidity in
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A significant deterioration of credit metrics to total net debt/EBITDA of 10x on a sustained basis;
Weakened EBITDA to Interest expense of below 1.0x coupled with a liquidity position of less than
A downgrade may occur if, in Fitch's judgment, a default of some kind appears probable or a default or default-like process has begun, which would be represented by a 'CC' or 'C' rating.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Refinancing Risk Remains: Fitch views refinancing risks for
Fitch expects the issuer to execute liability management in the next 12 months as they are facing refinancing risks associated with upcoming debt. Post-merger, the issuer faces debt principal payments of
The issuer maintains a readily available cash of
Issuer Profile
IRSA PC operates its real estate activities primarily in the shopping centers and office segments. With six of its 15 shopping centers in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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