Alsacia Bonds Plunge on JPMorgan, Fitch Outlook: Santiago Mover

Inversiones Alsacia SA bonds tumbled, pushing yields up the most in 15 months, as JPMorgan Chase & Co. recommended selling the Chilean bus operator’s debt and Fitch Ratings said it may lower its rating.

Yields on dollar-denominated notes due 2018 rose 41 basis points, or 0.41 percentage point, to 8.72 percent at 2:02 p.m. in Santiago, the biggest increase on a closing basis since October 2011. The price of the securities dropped 1.72 cents to 96.92 cents on the dollar.

JPMorgan lowered its recommendation yesterday to the equivalent of sell, saying Alsacia’s ability to service its debt is deteriorating. Fitch said it may cut the company’s BB ranking, two levels below investment grade, citing the company’s shrinking profit, slower growth and declining demand for bus transportation.

“The use of reserve funds is imminent,” Fitch analysts Astra Castillo in Monterrey, Mexico, and Omar Valdez in New York wrote in a report yesterday. “Debt coverage for the coming payments is highly uncertain.”

Telephone calls to Patricio Pinto, Alsacia’s head of corporate affairs, weren’t answered during business hours today.

The company sold $464 million of the bonds two years ago with a yield of 8 percent. That yield was higher than the expected 7.5 percent, spurring Fitch to cut its rating by one level to BB.

Alsacia’s debt service coverage ratio was 1.12 at the end of January, compared with a level of 1.1 that may require the company to start making early payments, JPMorgan analysts Daniel Sensel and Daniela Savoia wrote in a research report yesterday. JPMorgan and Bank of America Corp. managed the original bond sale in 2011.

“Even though we believe the company has enough cash to take care of operating expenses and debt service, we believe there will be some volatility in the short term until there is more clarity about the plans of the company to avoid a possible break” of the debt ratio in April, Sensel and Savoia wrote.

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