NEW YORK—(BUSINESS WIRE)—LATAM Airlines Group S.A.‘s (LATAM, ’B+’/Negative Outlook) recently announced agreement for Qatar Airways to acquire up to 10% of LATAM’s total shares in connection with a capital increase will moderately improve the company’s liquidity, according to Fitch Ratings. The company’s gross adjusted leverage remains high and its operational margins are expected to continue to be under pressure for the foreseeable future.

Considering the announced capital increase, expected to be fully executed during the fourth quarter of 2016 if successful, the company’s liquidity is expected to slightly improve to around USD1.6 billion to USD1.8 billion by Dec. 31, 2016. Including available unused credit lines, these figures would represent approximately 17% to 19%, respectively, of the company’s annual revenues; viewed as adequate for the rating category.

The company held cash of USD1.4 billion as of March 31, 2016 compared to short term debt of USD1.2 billion – excluding approximately USD0.4 billion in short term revolving debt – for the same period corresponding to a weak coverage ratio of 1.2×. Total cash and marketable securities plus unused committed credit lines over LTM revenues represent 14.2% of the company’s revenues for LTM March 31, 2016, alleviating refinancing risk.

Fitch’s 2016 base case for LATAM projects net revenues and EBIT margins of USD9.3 billion and 6.5% for this year, respectively, while its gross adjusted debt/EBITDAR ratio is forecasted at 6×. The company’s total adjusted debt/EBITDAR ratio was 6.6x at March 31, 2016, with total adjusted debt of USD12.9 billion including USD3.7 billion in off-balance-sheet obligations. These were related to operating leases with combined rental payments of around USD529 million during the LTM March 2016.

Fitch anticipates the company’s 2016 net revenues deteriorating by single digits as a result of continued decline in yields. Although yields should remain under pressure during 2016, Fitch expects LATAM’s 2016 operational performance to exhibit some improvement, as the company should benefit from several initiatives aimed at reducing ex-fuel cost.

The Negative Outlook reflects LATAM’s weaker than expected consolidated operational performance during 2015. Fitch expects the company’s key credit metrics, primarily operating margins, leverage, and FCF generation, will remain pressured over 2016 – 2017. Fitch believes that prevailing unfavorable economic conditions in Latin America, particularly in Brazil, will make it more difficult for the company to execute deleveraging during 2016 – 2017.

LATAM will hold an extraordinary shareholders meeting no later than Sept. 2, 2016 to propose a capital increase for the amount of USD613 million through the issuance of new shares at a price of USD10 per ADR. If approved, the capital increase would be fully executed during the fourth quarter of 2016.

Additional information is available at ‘www.fitchratings.com’.