OREANDA-NEWS. Fitch Ratings has affirmed Caparra Center Associates, LLC (Caparra) Long-Term Issuer Default Rating (IDR) at 'BBB+'. Fitch has also affirmed Caparra's USD21.8 million secured bonds at 'A-'. The Rating Outlook is Stable.


Stable Cash Flow Generation

Caparra's ratings reflect the company's stable cash flow generation due to the characteristics of its lease portfolio, which provides a stable base of fixed-rent income. Caparra's lease structure consists of fixed-rent payments (66%) and tenant reimbursements (25%), which essentially cover costs associated with property management and taxes. The company has consistently maintained positive free cash flow (FCF) margins between 10% - 12% during the last four years; however, Fitch expects FCF to decline in the near term as a result of potential increase of renovation capex.

Moderate Vacancy Rates and Steady Rents

The vacancy rate was 3.85% as of Sept. 30, 2015. During the next 12 months, lease expirations are at 14%. The lease maturities are concentrated in mostly small tenants and Fitch expects the vast majority of the leases to be renewed. Caparra's most important anchor tenants are Walgreens, Kmart, Bed Bath & Beyond, Office Depot, PetSmart, T.J. Maxx and Capri. These tenants generate approximately 37% of its annual rent revenue.

Strong Collateral Coverage

The 'A-' rating for AFICA secured bonds incorporates the collateral support included in the transaction structure. The notes are secured by a first mortgage on the shopping center and an assignment of the leases. The last appraisal of the shopping center was at $140 million as of May 2014 ($144 million as of March 2013). By the end of September 2015, the loan/value ratio based on the last appraisal value was 25% for the total debt (12% for the senior secured debt with priority claims).

Concentration Risk and Business Environment

Caparra's rating is constrained by the weak economic environment in Puerto Rico and lack of geographical diversification. It currently relies on a single shopping mall location, with about 149 stores with seven tenants representing approximately 37% of total rents.


--Low revenue growth due to the challenging economic environment in Puerto Rico;
--Steady EBITDA margin at about 58% over the next two years.
--Positive FCF in fiscal year end 2015 but negative FCF in FY16 due to potential increase of capex.


Considerations that could lead to a negative rating action of Caparra Center are deterioration in the company's financial profile and weaker credit metrics driven by the non-renewal of leases with a major anchor tenants would be viewed negatively.

Increasing vacancy rates or additional debt that would move the company's capital structure away from currently expected levels could also lead to a negative rating action.


The group has a manageable maturity profile covered by its cash flow generation, measured by EBITDA. Caparra's debt was $39.5 million as of Sept. 30, 2015. Caparra's cash position (unrestricted) was $1.1 million plus a $2.3 million in restricted funds to secure the payment of principal and interest for the secured public debt when due, as required by the transaction structure. The company's liquidity is further supported through committed and unused credit lines of $3.8 million.


Fitch affirms the following

Caparra Center Associates, LLC

--Long Term Issuer Default Rating at 'BBB+';
--Senior Secured Debt at 'A-'