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 'C' from 'CCC';
--Local currency IDR to 'C' from 'CCC';
--USD250 million in senior notes due 2015 to 'C/RR4' from 'CCC/RR4';
--USD250 million in senior notes due 2019 to 'C/RR4' from 'CCC/RR4';
--USD400 million in senior notes due 2020 to 'C/RR4' from 'CCC/RR4'.
The ratings remain on Rating Watch Negative.
KEY RATING DRIVERS
The downgrades follow Homex's announcement that it did not make the interest payment due June 11, 2013 on its senior notes due 2019. The notes contain a 30-day grace period. As a result of the company's actions, a default or a distressed debt exchange (DDE) is highly likely, which would likely impose a material reduction of principal and/or interest vis-a-vis the original contractual terms of the company's capital markets debt. The Recovery Rating of 'RR4' reflects an anticipated recovery in the event of default of between 30% and 50%.
Homex reports combining financial information as of Dec. 31, 2012, which has raised concerns about the creation of large intercompany loans/transactions by the company during 2012. Fitch has not been able to ascertain the exact details of the intercompany loans/transactions between Homex, its guarantor subsidiaries, and its non-guarantor subsidiaries. These loans/transactions have the potential to hurt recoveries of external creditors in the event they are treated pari passu by a Mexican bankruptcy court, as this gives Homex's existing shareholders a significant say in a potential debt restructuring.
Fitch notes that between Dec. 31, 2011 and Dec. 31, 2012, Homex's non-guarantor subsidiaries reported a MXN17.5 billion increase in the balance sheet line entitled 'due from related parties' and a MXN20.6 billion increase in the balance sheet account line 'due to related parties'. During the same time period, these balance sheet lines for Homex and its guarantor subsidiaries grew by MXN9.9 billion and MXN7.1 billion, respectively.
Upon consolidation, Homex reports no figure under the category of 'due to related parties' and only MXN56 million of obligations under the 'due from related parties' category. As of Dec. 31, 2012, Homex had MXN20.7 billion of consolidated debt.
RATING SENSITIVITY
Failure to pay in full the due amount at the end of the grace period and/or the execution of a DDE will result in a downgrade to Restricted Default (RD).
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', Nov. 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=793440
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