MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch Ratings downgrades Desarrolladora Homex, S.A.B. de C.V.'s (Homex) ratings as follows:
--Foreign currency Issuer Default Rating (IDR) to 'CCC' from 'B';
--Local
currency IDR to 'CCC' from 'B';
--USD250 million in senior notes
due 2015 to 'CCC/RR4' from 'B/RR4';
--USD250 million in senior
notes due 2019 to 'CCC/RR4' from 'B/RR4';
--USD400 million in
senior notes due 2020 to 'CCC/RR4' from 'B/RR4'.
The Rating Watch remains Negative.
KEY RATING DRIVERS
The rating action reflects Homex's poor
operating results in the first quarter of 2013 (1Q'13), with a 38%
decrease in units sold compared to 1Q'12 and 39.4% decrease in housing
income. As a consequence, EBITDA and funds from operations (FFO)
calculated by Fitch (Cash from operations before working capital minus
interest paid plus interest received) were MXN4,046 million and MXN2,448
million in the last 12 months (LTM) ended March 31,2013, respectively,
compared to MXN4,825 million and MXN3,285 million at year end 2012. For
1Q'13, FFO was negative MXN78 million and CFO (Cash from Operations net
of interest payments) was negative MXN3,961 million. These results,
together with a significant outflow of working capital, specifically
construction in progress and to a lesser extent accounts receivables
resulted in a negative free cash flow (FCF) of MXN3,966 million. First
quarter 2013 negative FCF was funded with MXN1,933 million of additional
debt and a MXN1,972 million cash reduction. Total debt amounted to
MXN21,468 million while cash balances were MXN323 million.
Fitch expects that the second quarter will remain under significant pressure, resulting in continued negative FCF and rising leverage. The pressure on cash flow is in part a result of a change in government policy, which is now more focused on promoting vertical housing in urban areas. This has resulted in land reserves that are less suitable for development. Inventories have also increased as a result of a decline in the level of mortgages granted for new houses by Infonavit, as the agency's lending for used homes has increased. In addition, delays in Homex's collecting accounts receivables have affected working capital cycles. Homex has stated that 87% of its land reserves could be used for the development of housing projects.
The Rating Watch Negative reflects the expectation that the company's
liquidity will continue to tighten as a result of the investments
required to finish construction in progress, further affecting the
company's ability to service its debt.
Homex announced on
April 19th that it has entered into an agreement with Grupo Financiero
Inbursa S.A.B de C.V. (Inbursa) and Impulsora del Desarrollo y el Empleo
en America Latina S.A.B de C.V. (Ideal) for the sale of Homex's interest
in the Federal Penitentiaries located at Morelos and Chiapas. The
company stated that in accordance with this agreement it expects to
receive proceeds equivalent to approximately MXN4,000 million, from
which approximately MXN2,000 million is expected to be used for working
capital purposes at the Homebuilding division, and approximately
MXN2,000 million is expected to be used to repay debt. Allocation of
proceeds to repay debt remains unclear.
Homex's total debt as
of March 31, 2013 was MXN21,468 million and is composed of MXN10,882
million in three senior notes issuances and MXN9,822 million in bank
debt, of which MXN3,238 million is with Banobras related to the
long-term project financing debt of the penitentiary projects that will
go away once the transaction is completed. Short-term debt was MXN4,683
million, mainly composed of MXN1,851 million with Inbursa; the rest is
bank debt and other credits. In addition, a good portion of bank debt is
secured by assets, which affects the recovery prospects. Homex's
derivative counterparties have called its swaps positions. The terms of
negotiations between Homex and the counterparties have not been
disclosed to Fitch; some default may have already occurred.
RATING SENSITIVITY
Further downgrades could result from some
combination of the following factors: delay in monetizing the company's
assets in order to improve its short-term liquidity; the company's
ability to service its debt is compromised; and/or government funding
for mortgage programs declines.
Conversely, positive rating actions could be taken if consolidated debt/EBITDA leverage ratio is consistently below 4.0x, FCF generation from homebuilding activities becomes neutral and the company is able to significantly improve its liquidity and debt structure.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating
Methodology', Aug. 8, 2012;
--'Recovery Ratings and Notching
Criteria for Nonfinancial Corporate Issuers', November 13, 2012.
--'2013
Outlook: Mexican Homebuilders', Dec.19, 2012;
--'Fitch Places
Mexican Homebuilders on Rating Watch Negative', Feb. 22, 2012.
Applicable Criteria and Related Research
2013 Outlook: Mexican
Homebuilders
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696675
Recovery
Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773
Corporate
Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=790101
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