Grupo Posadas, one of Mexico's biggest operators, has effectively put itself into play by confirming that it is looking at "all options" to resolve its financing issues.
The group operates more than 112 resorts and hotels in 50 beach and city locations in Mexico, Brazil, Argentina, and Chile, but reliance on the events market and concerns over drug-related violence in Mexico has hit trading.
The company announced at the end of June that it had agreed a $50m capital injection in the third quarter with its main investors, "as an alternative to other options aimed at strengthening its capital structure". It also commented that it was "evaluating all options" including a buyout or public offering, after having appointed Rothschild several months ago to run the process.
The group is highly leveraged, with net debt of $441m the end of March and a ratio of net debt to Ebitda of 5.28 times, which was 1.4 times higher than in the same period last year. The group is reported to have 4.63 billion ($399m) pesos of bonds due in 2013 and 2015 and 676 million pesos in cash and short-term investments at the end of the first quarter.
At the end of last month, CFO Ruben Camiro said: "The debt situation is such that we can handle it perfectly well. You are always working and thinking on how to manage liabilities and what you do with it. Institutional investors might come in different flavours. What we are looking for is to grow, so those are the types of things one has to consider. I cannot rule it out, but I would say that would not necessarily be preferred.
"Of course we want to deleverage. Obviously this is one of our major goals, to be more comfortable and remove this threat."
Operationally, the company reported a 27% fall in first-quarter earnings, although sales rose 10%, with revpar up by 6%. The group said that urban hotels, which represent 82% of the total rooms, had performed better, driven by domestic business travellers. The group added that revenues at its coastal resorts had risen by 13% on the year, driven by three hotels which had become all-inclusive since November, an attractive proposition for consumers during a downturn.
The group is thought to be looking to recovery in the US in the second half of the year to bolster its fortunes, as its domestic market falls further, with forecasts for annual growth cut recently after strong 5.5% GDP growth last year.
The company's eight brands include Aqua, Fiesta Americana, Fiesta Americana Grand, Fiesta Inn, One Hotels, Caesar Park, Caesar Business and The Explorean, giving it broad coverage across the market, with 85% of the estate in Mexico and 82% of rooms in urban destinations.
Posada's pipeline includes 40 hotels, with 5,328 rooms, due to open within the next three years, representing a total investment of $290m, 99% of which will be made by third parties. In line with the group's current expansion strategy, the majority of the hotels will be operated under management agreements, representing a shift for the group, which currently takes 56% of its revenue from its owned and leased hotels.
At the time of the announcement about its financing options, Mexico's airline pilots' union added to Posadas' issues, submitting a complaint against the group, accusing it of failing to notify the market when it cut its share in the Mexicana airline, which it then owned, or when it took out bank loans.
Posadas no longer owns the airline, which filed for bankruptcy last August. The group had written off the value of its stake in the airline as zero at the end of 2008.
Posadas said its statement that it was "a profitable concern that enjoys the confidence of its and creditors and share holders".
HA Perspective: The resort market has been particularly heavily hit during the downturn and Posadas was thus likely to be an early victim.
With domestic media now widely reporting that it is up for sale, an independent future looks doubtful. But it is also not an appealing takeover target.
Accor has indicated that it is interested in taking a look but it, and other hotel operator suitors, are not going to want to hold onto the real estate interests. Some sort of private equity investment, at least for the property, seems the most probable way forward.