Fitch Ratings has upgraded
Fitch has also upgraded the company's senior unsecured rating to 'B'/'RR3' from 'CCC'/'RR3'. The Rating Outlook is Stable.
The upgrades reflect decreased default risk following IRSA's successful refinancing of its 2023 notes. The FC IDR of 'B-' is constrained by Argentina's country ceiling. The Recovery Rating of 'RR3' reflects above average recovery expectation for creditors in the event of default. It is supported by the historical precedent of numerous distressed debt exchanges by Argentine corporates that did not result in a reduction in principal.
Key Rating Drivers
Improved Credit Profile: The successful refinancing of IRSA's
Following this exchange, IRSA was left with
Improving Operational Metrics: IRSA's EBITDA surpassed
Operating Environment Risk Remains: Argentina's operating environment continues to be one of the major risks for IRSA. The company's assets and cashflow generation is almost entirely from domestic sources. High inflation levels, capital controls, an upcoming electoral process, and limited access to international financial markets generate downside risks to IRSA's operational performance.
Relevant Business Position: The company is an experienced and well positioned operator. It maintained 67% of BA Malls' market share and 10% of BA Office's market share as of
Derivation Summary
IRSA's ratings are primarily driven by Argentina's weak operating environment, which compares negatively to regional peers. The ratings also reflect IRSA's status as an experienced and well-positioned real estate operator. The company has adequate portfolio granularity, limited tenant concentration, consistent consolidated occupancy levels of 90%, and average lease duration between two and three years.
Key Assumptions
Assumes 90% occupancy rates in the mall business and a minimum of 70% in office;
Capex at 2.5% of revenues;
Dividends at current levels in USD;
Tenant revenues grow with GDP growth;
Stable hotel business;
Refinancing of local bonds and debt.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Foreign Currency Long-Tern IDR is unlikely to be upgraded as it is capped by Argentina's country ceiling;
Debt to EBITDA of 2.5x or below;
Improved liquidity profile.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Debt to EBITDA increases above 3.5x;
Liquidity decreases below 1.0x cash to short-term debt ratio.
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
Adequate Liquidity Post-Refinancing: As of 1Q 2023 IRSA had approximately
Issuer Profile
IRSA is a premier real estate operator 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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