Fitch Downgrades LATAM Airlines Securitization to 'BB-'; Outlook to Negative

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has downgraded the rating on Guanay Finance Limited's 2013-1 notes to 'BB-' from 'BB' and revised the Rating Outlook to Negative from Stable. A full list of rating actions follows at the end of this press release.

The issuance is backed by U.S. and Canadian-dollar-denominated future flow ticket receivables originated by LATAM Airlines Group S.A. (LATAM). Flows result from airline ticket sales and cargo charges by LAN Airlines S.A. (LAN) under IATA code 045 that are purchased using a qualified credit, debit or charge card in the U.S. and Canada. Fitch's rating addresses the timely payment of interest and principal on a quarterly basis.

KEY RATING DRIVERS

The rating action follows Fitch's recent downgrade to LATAM's long-term Issuer Default Rating (IDR) and reflects the following key rating drivers:

Downgrade to LATAM: On March 24, 2016, Fitch downgraded LATAM's long-term IDR to 'B+' from 'BB-' and revised the Outlook to Negative from Stable. Fitch assigns a going-concern assessment (GCA) score of 'GC3' to the airline. The credit strength of the transaction is linked to the credit quality of LATAM.

Coverage Ratios in Line with Expectations: Collections supported an average quarterly debt service coverage ratio (DSCR) of 3.82x in 2015, in line with Fitch's base case. Fitch's DSCR considers maximum quarterly debt service for the life of the transaction. Coverage levels benefit from a strategically important and strong securitized business line.

Future Flow Debt Relative to Company Liabilities: The future flow issuance represents approximately 4.7% of LATAM's consolidated debt and 5.6% of unconsolidated debt (excluding TAM). While these percentages are low relative to the balance sheet, the transaction is large relative to the company's total unsecured debt, as most of the company's debt relates to leases and secured debt.

Moderate Diversion Risk: While designated obligors have signed notice and consent agreements (N&Cs), the transaction is exposed to potential diversion risk. Cash flows could be diverted from the transaction by changing designated obligors or rerouting sales through a different IATA code. This risk limits differentiation of the issuance rating from the originator's IDR.

RATING SENSITIVITIES

The rating is sensitive to changes in the credit quality of LATAM. A downgrade of LATAM's 'B+' IDR could lead to a downgrade of the notes. In addition, a contraction in LAN's North American gateway business that would result in a decline in DSCRs could also lead to rating downgrades.

Fitch has downgraded the following ratings:

--Series 2013-1 USD450 million senior secured fixed-rate notes downgraded to 'BB-' from 'BB'; Rating Outlook revised to Negative from Stable.

Additional information is available at www.fitchratings.com.

Sources of Information:

In addition to the sources of information identified in the master criteria, this action was additionally informed by information from LATAM.

Applicable Criteria

Future Flow Securitization Rating Criteria (pub. 12 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868191

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001620

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001620

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160329006061/en/

Fitch Ratings
Primary Analyst
Gregory Lane
Director
+1-312-606-2304
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Committee Chairperson
Maria Paula Moreno
Senior Director
+1-312-368-2052
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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