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A swank Cancun resort is rewarding loyal bond traders after rout

[MEXICO CITY] After getting swept up by a selloff in emerging markets, Mexico's Grupo Posadas SAB is now rewarding bondholders who stuck with the luxury-hotel operator.

Posadas's US$350 million of notes due in 2022 have jumped 9.2 per cent since Oct 9, when the securities slumped to their lowest level since they were issued in June. That's more than seven times the average return on corporate bonds from developing countries.

The rebound comes as Posadas, which operates hotels including Live Aqua in Cancun and Fiesta Americana in Los Cabos, is set to benefit from a surge in visitors fleeing colder weather in countries like the US after emerging from hurricane season unscathed. The company, which ties some of its room rates to the dollar, is also getting a boost from the peso's 11 per cent tumble this year. That's helped Posadas trim leverage this year to the lowest level since 2013.

"The storm season is mostly past and they're going into their high season, especially since more foreigners will come to Mexico in the winter to escape the cold," Araceli Espinosa, the head of fixed-income research at Corp Actinver SAB, said from Mexico City. "They're doing a really good job cutting costs and repaying debt, and they're positioned to continue benefiting from the peso depreciation." Posadas didn't respond to requests for comment left via e- mail and telephone.

On Oct 22, Mexico City-based Posadas said its sales jumped 15 per cent to 1.76 billion pesos (S$149.7 million) in the third quarter, the most since the fourth quarter of 2013. Posadas charges more than US$3,200 for the presidential suite at its Live Aqua beach resort in Cancun.

The hotel operator's net debt fell from a year earlier to 3.7 times its 12-month earnings before interest, taxes, depreciation and amortization as the company repaid all but US$38.3 million of its bonds due in 2017, according to data compiled by Bloomberg. Posadas has no other major debt payments coming due until 2022.

That provides room for additional gains in the bonds, said Cornel Bruhin, a money manager at MainFirst Schweiz AG whose holdings include Posadas debt.

Posadas's notes have climbed to 97.1 US cents on the dollar, pushing yields down to 8.45 per cent from a high of 10.1 per cent last month.

"I'm strongly of the belief they will trade above par in 2016 as more people come back to emerging-market bonds," Mr Bruhin said by telephone from Zurich. "You see the weak peso providing a lift and they have no major debt payments to make in the near future. They can just focus on improving their business."