OREANDA-NEWS. Fitch Ratings has assigned an expected rating of 'B-/RR3' (EXP) to IRSA Propiedades Comerciales S.A.'s (IRSA PC) proposed notes in the expected amount around USD300 million. Proceeds from the issuance would be used to refinance existing debt, primarily the company's USD120 million unsecured notes due in 2017 and a USD240 million intercompany loan with Inversiones y Representaciones S.A. (IRSA). IRSA owns 95.2% of IRSA CP as of Dec. 31, 2015. Also, IRSA intends to use the proceeds for the payment by IRSA CP of the USD240.0 million intercompany loan to pay the total consideration for all IRSA's USD150 million unsecured notes due in 2017 and up to USD76.5 million of IRSA's USD150 million unsecured notes due in 2020. Fitch views the proposed notes transaction as positive to IRSA PC's credit quality as it will be used primarily to refinance debt, adding financial flexibility by the improvement of its debt payment schedule.

KEY RATING DRIVERS

Exposure to Argentina's Business Conditions Incorporated

IRSA PC's ratings reflect the company's exposure to Argentina's business climate, economic conditions, credit profile, and the credit linkage with its parent company, IRSA. IRSA CP's foreign currency (FC) IDR continues to be constrained at 'CCC' by the country ceiling assigned to Argentina by Fitch. Fitch has assigned a country ceiling of 'CCC' to the Republic of Argentina, which limits the foreign currency rating of most Argentine corporates to 'CCC'. Country ceilings are designed to reflect the risks associated with sovereigns placing restrictions upon private sector corporates, which may prevent them from converting local currency (LC) to any foreign currency (FC) under a stress scenario, and/or may not allow the transfer of FC abroad to service FC debt obligations.

The company's local currency (LC) IDR remains at 'B+' due to the risk of operating in Argentina's real estate industry. The 'RR3' Recovery Rating reflects above average recovery prospects in the event of default. The notching above the soft cap of 'RR4' for bonds issued by Argentine corporates reflects the company's solid credit profile and high level of unemcumbered assets.

Leading Real Estate Player, Diversified Portfolio

The rating reflects IRSA PC's solid business position as one of the largest owners and managers of shopping centers and office and other commercial properties in Argentina in terms of gross leasable area and number of rental properties. IRSA CP owns and operates 15 shopping centers in Argentina. The company manages a total gross leasable area (GLA) of 333,719 square meters (sq. m.) as of December 31, 2015. IRSA PC's tenants' sales in the shopping centers segment totaled ARS8.3 billion (USD640 million) during the October - December 2015 period. The company's occupancy level in the shopping centers segment was solid at 99% as of December 31, 2015. Also, the company owns and manages six premium office buildings in the City of Buenos Aires and owns certain properties for future development in Buenos Aires and several provincial cities.

Low Leverage, High and Stable Margins

IRSA PC's leverage is low for a real estate company. During the last twelve months ended December 31, 2015 (LTM Dec. 2015), the company's leverage was 2.7x. IRSA PC had ARS2.9 billion - USD308 million - in sales and generated ARS2 billions of EBITDA - USD 214 million. The company has consistently kept its EBITDA margin around 75% over the last several years. The company's total debt as of Dec. 31, 2015, was ARS5.4 billion - USD420 million, which consists primarily of the USD120 million unsecured notes and the USD240 million intercompany loan with its parent company. Fitch links the credit quality of IRSA PC with its higher leveraged parent company (IRSA). As of Sept. 30, 2015, IRSA had ARS6.1 billion - USD646 million - of consolidated total debt, resulting in a total net debt-to-EBITDA ratio of 3.3x in LTM September 2015.

Liquidity to Improve Post Transaction, High Unencumbered Assets

Liquidity post issuance is viewed as adequate considering the company's capacity to cover interest expenses, manageable debt schedule - with no material debt principal payment due during the three years ended June 2018, and significant levels of unencumbered assets. The company's financial strategy is to shift toward an asset base primarily unencumbered through the issuance of the proposed unsecured notes to replace a portion of its current secured debt. The company's debt structure after the execution of the proposed transaction will be almost entirely unsecured. The company's asset value is estimated at around USD2 billion, which will mostly unencumbered post refinancing.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for IRSA PC include:

--EBITDA margin for full-year 2016 around 75%;
--Total adjusted net leverage for full-year 2016 around 3x;
--Consolidated occupancy levels around 95% during 2016 - 2017; --Interest coverage (EBITDA/gross interest expenses) consistently around 4x during 2016 - 2017.

RATING SENSITIVITIES

The ratings are expected to be driven primarily by developments in Argentina's business climate and economic conditions.

Negative: Future developments that could, individually or collectively, lead to negative rating actions in the short term:

--Further economic deterioration and the Republic of Argentina's inability to convert and transfer foreign exchange for corporates;
--Given high dependence on subsidies by various Argentine corporates, any further weakening of Argentina's fiscal accounts could have a negative impact on the companies' collections / cash flow;
--A significant deterioration of IRSA PC's credit metrics.

Positive: A positive rating action could be the result of an upgrade of the sovereign rating.

LIQUIDITY

Liquidity post issuance is viewed as adequate considering the company's capacity to cover interest expenses, manageable debt schedule - with no material debt principal payment due during the three years ended June 2018, and significant levels of unencumbered assets. The company's liquidity position, measured as readily available cash, was ARS163 million (USD13 million) as of Dec. 31, 2015. The company's interest coverage ratio, measured as total EBITDA-to-gross interests, is forecasted to be in the 4x to 4.5x range during 2016 - 2017. Post proposed issuance, the company's debt principal payments due in the next 12 and 24 months is viewed as manageable at levels around ARS423 million and ARS407 million, respectively.

The company's financial strategy is to shift toward an asset base primarily unencumbered through the issuance of the proposed unsecured notes to replace a portion of its current secured debt. The company's debt structure after the execution of the proposed transaction will be almost entirely unsecured. The company's asset value is estimated at around USD2 billion, which will mostly unencumbered post refinancing.

FULL LIST OF RATING ACTIONS

Fitch Ratings has assigned an expected rating of 'B-/RR3' (EXP) to IRSA PC's proposed notes in the expected amount around USD300 million.

Fitch currently rates IRPC as follows:

--Foreign currency Issuer Default Rating (IDR) 'CCC';
--Local currency IDR 'B+';
--USD120 million notes due in 2017 'B-/RR3'.

The Rating Outlook is Stable.

Fitch also rates Inversiones y Representaciones S.A. (IRSA) as follows:

--Foreign currency Issuer Default Rating (IDR) 'CCC';
--Local currency IDR 'B+';
--USD150 million notes due in 2017 'B-/RR3';
--USD150 million notes due in 2020 'B-/RR3';

The Rating Outlook is Stable.