LATAM Airlines expects investment-grade debt rating by 1st-half 2016

Reuters

(Adds company forecast on debt/earnings, margins, comment, shares)

By Felipe Iturrieta

SANTIAGO, April 29 (Reuters) - LATAM Airlines , which was created via a tie-up of Chile's LAN and Brazil's TAM in 2012, said it expects to regain investment-grade debt rating by the first half of 2016 at the latest.

But Latin America's largest airline, which as LAN enjoyed investment-grade status and was a darling of the market, has struggled since the merger to get its Brazilian operations in line against the backdrop of a slowing economy and currency headwinds.

The airline's debt, currently rated BB by Standard & Poor's and Fitch Ratings, was downgraded to junk following the merger, largely on concerns over TAM's high leverage.

But LATAM has said results should improve as cost-cutting measures take effect, and Chief Financial Officer Andres Osorio said at the company's annual general meeting on Tuesday that the company expected to return to investment-grade status by the end of 2015 or the first half of 2016.

Osorio added that LATAM predicted it would end 2014 with a debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of around 4.2 or 4.3 times, down from 4.9 at the end of 2013 and 7.2 in 2012.

The ratio gives investors a sense of a company's ability to pay off its debt and can affect its credit rating.

A ratio of 4.2 or 4.3 "would leave us in a range for investment grade," said Osorio. "However, the agencies need to see the improvement that we have made on margins sustained over time."

The airline is targeting improved operating margins in a range between 6 percent and 8 percent this year after reducing staff and capacity on Brazilian routes. Osorio said on Tuesday that they would likely end up "closer to the lower end of the range."

Shares in Santiago-listed Latam were up 2.4 percent to 8,500 pesos in late-afternoon trading, outperforming the IPSA index and valuing the company at around $8.1 billion.

(Writing by Rosalba O'Brien; editing by G Crosse and Leslie Adler)

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