SAO PAULO, Brazil--(BUSINESS WIRE)--Fitch Ratings has upgraded the ratings of Even Construtora e Incorporadora S.A. (Even) as follows:
--Long-term national scale to 'A(bra)' from 'A-(bra)';
--Long-term foreign currency Issuer Default Rating (IDR) to 'BB-' from 'B+';
--Long-term local currency IDR to 'BB-' from 'B+';
--BRL100 million second debenture issuance, due 2012, to 'A(bra)' from 'A-(bra)';
--BRL75 million third debenture issuance, due 2013, to 'A(bra)' from 'A-(bra)';
--BRL250 million fifth debenture issuance, due 2016, to 'A(bra)' from 'A-(bra)'.
The Outlook for the corporate ratings is Stable.
The upgrades reflect Even's consistent operational results and conservatively managed liquidity position, which has allowed it to grow with limited risk. Further factored into the rating upgrades are the company's low leverage and manageable debt amortization schedule. The ratings also take into consideration Even's position as the seventh largest Brazilian homebuilder, with a concentration of operations in Sao Paulo.
The ratings are constrained by an expectation that cash flow from operations should remain negative due to rapid growth and landbank acquisitions, as well as a high level of competition amongst homebuilders. Like other homebuilders it is vulnerable to cyclical downturns in an industry, which is highly correlated to the local economy and to the availability of credit.
Strong Liquidity:
Even has a strong liquidity position, which should support its growth plans. As of March 31, 2011, the company had BRL657 million of cash and marketable securities and BRL1.4 billion of total debt, of which BRL620 million was classified as short-term. Even's liquidity position is comfortable since 84% of its short-term debt is related to financing from the Housing Financial System (SFH). This debt is guaranteed by specific receivables from units sold and under construction, and is paid upon the delivery of the units and the transfer of the receivables to SFH banks. Even's liquidity position is equally manageable for 2012, when the company will have BRL409 million of debt maturing, of which approximately BRL220 million is related to SFH financing. The company's financial strategy to preserve liquidity is positive and should allow Even to manage expected project launches of BRL2 billion in 2011 and BRL2.5 billion in 2012.
Capital Structure Has Improved:
Even's debt profile improved since the end of 2008 due to a higher participation of SFH credit lines as a percentage of total debt. As of March 31, 2011, Even had 57% of total debt represented by SFH financings, compared to 26% in 2008. The company's strategy is to focus on project launches with unit prices of up to BRL500,000 which makes them eligible for SFH financing. This debt structure is positive, as principal payments of SFH lines are liquidated with the delivery of receivables of ready units to the banks. During the latest twelve months (LTM) ended March 2011, Even's total debt/adjusted EBITDA ratio declined to 3.3 times (x) from 4.1x in 2009, while its net debt/adjusted EBITDA ratio reduced to 1.8x from 2.8x. Leverage is not expected to significantly increase in the next couple of years.
Consistent Operating Results:
Even has reported consistent growth. From 2007 to the LTM ended March 31, 2011, net revenues grew 4.7 times to BRL2.0 billion, while adjusted EBITDA increased 5.6 times to BRL421 million. Adjusted EBITDA margins also improved to 20.8% from 17.6% during this time period. Even launched projects that had BRL1.5 billion of potential sales value (PSV) during 2010. This represents an increase from BRL927 million during 2009. The growth of the company's sales was above the market average. During 2010, Even's pre-sales/supply ratio was more than 27% and it increased to 33% during the first quarter of 2011. Nevertheless, the company's inventory is high. As of March 31, 2011, the company had 14% of its concluded units in inventory. This should decline as the inventory is spread across 25 projects.
Growth of Project Launches and Landbank Acquisition May Pressure Cash Flow:
Cash flow from operations should remain pressured by an increase in project launches and landbank acquisition. During the LTM ended March 31, 2011, Even's generated BRL446 million of funds from operations (FFO). Cash flow from operations (CFFO) was negative BRL244 million, however, as working capital needs increased by BRL690 million. These numbers compare with an FFO of BRL161 million and a negative CFFO of BRL328 million during 2009. Fitch expects CFFO to remain negative in 2011.
As of March 31, 2011, Even had a landbank with a PSV of BRL4.6 billion. This covers about two years of project launches and represents a sharp increased from a landbank with a PSV of RL3.3 billion at the end of March 2010. The company's strategy is to have a quick landbank turnover and to continue to make new investments in land to support continued business growth.
Potential Rating or Outlook Drivers:
Even's ratings could be negatively affected by an unstable macroeconomic environment, which would impact the homebuilding sector's fundamentals and pressure the company's liquidity. The ratings could also be negatively affected by the combination of an increase in leverage, lower sales, declining operational margins, and a reduction in liquidity. Positive rating actions could be driven by a consistent improvement in the company's cash flow from operations and a movement to positive free cash flow. A higher participation of SFH loans in the company's debt profile, as well as lower leverage, would also be viewed positively.
Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Jul. 12, 2011);
--'National Ratings - Methodology Update' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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