SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has affirmed Even Construtora e Incorporadora S.A.'s (Even) foreign and local currency Issuer Default Ratings (IDRs) at 'BB-'. At the same time, Fitch has upgraded Even's national long-term rating to 'A+(bra)' from 'A(bra)'. The Outlook for the corporate ratings is Stable. A full list of rating actions follows at the end of this release.
KEY RATING DRIVERS
These rating actions reflect the strengthening of Even's credit profile within its international rating category of 'BB-', resulting in the national rating upgrade. Even has been efficient in preserving its adequate operating performance and conservative credit metrics in a more challenging scenario for the domestic homebuilding sector. Fitch consider the company's maintenance of comfortable liquidity and low corporate debt maturities up to the end of 2014 as positives. The ratings also take into consideration Even's solid execution capacity and steady growth in the Brazilian real estate construction market, with operations concentrated in Sao Paulo. Even has preserved sales speed above the sector average and reduced its inventory of ready units to 4% of the total inventory at March 2013.
The company's vulnerability to the cyclical downturns of the real estate sector and high dependency on the domestic economy and credit availability were factored into the ratings.
CONSISTENT OPERATING RESULTS
Even has reported consistent operating results since 2009, despite the increasingly challenging environment for the homebuilding sector. The company has a vertical integration and executes most of its projects, as well as applies controls and monthly reviews of its projects, concentrated in selected markets. These factors prevented Even from unexpected project cost adjustments, as opposed to the majority of the Brazilian homebuilders. In the last 12 months (LTM) ended March 2013, net revenues totaled BRL2.1 billion and EBITDA generation was BRL410 million. The company reported stable EBITDA margins, which averaged 19.7% in the last four years, and was 19.3% in the LTM ended March 2013, higher than the industry average. Fitch expects Even to preserve EBITDA margin between 18% and 19% in 2013 and 2014.
Even preserved sales speed above sector average, while quarterly sales over supply average, net of sales cancellations, was 23% in 2012, and 18% in the first quarter of 2013 due to lower volume of project launches. The company launched BRL2.5 billion of potential sales value (PSV) in 2012, compared to BRL2.1 billion in 2011 and BRL1.5 billion in 2010. In the first quarter of 2013, the company launched BRL286 million of PSV.
COMFORTABLE LIQUIDITY POSITION
Even's conservatively managed liquidity has been sufficient to sustain its expansion plans and meet corporate debt maturities. At end March 2013, cash and marketable securities totaled BRL586 million, and total adjusted debt was BRL1.7 billion, of which BRL583 million was in the short term. Even's liquidity remains comfortable since 70%, or BRL405 million, of short-term debt is related to the Housing Financial System (SFH) financings. This debt is adequate for the sector as it is secured by specific receivables from units sold and under construction and will be paid off upon delivery of the units through the transfer of the receivables to SFH creditor banks. SFH credit lines represented more than half of total debt since 2010 and were 62% at the end of March 2013. As of March 31, 2013, cash was sufficient to comfortably cover 335% of corporate debt maturities of BRL175 million up to the end of 2014.
The company's liquidity position is strengthened by BRL425 million of receivables of concluded units not linked to debt at end March 2013. Even's financial strategy to preserve a relevant liquidity is positive and should allow the company to manage planned project launches in 2013 and 2014.
LEVERAGE REMAINS CONSERVATIVE
Even has maintained an adequate capital structure, which has assured support for a steady increase in project launches. In the LTM period ended March 2013, total adjusted debt/EBITDA ratio was of 4.1 times (x) and net adjusted debt/EBITDA was of 2.7x. Net leverage remained relatively stable and averaged 2.5x since 2009. Fitch does not expect an increase of the company's corporate debt over the next two years and leverage should remain near current levels.
NEGATIVE CASH FLOW FROM OPERATIONS EXPECTED FOR 2013
In 2012, Even's cash flow from operations (CFFO) benefitted from a high volume of project deliveries and the more agile process to transfer homebuyer receivables to banks. The company delivered a total PSV of BRL1.9 billion in 2012, compared to BRL1.3 billion in 2011 and BRL900 million in 2010. During the LTM ended March 2013, Even generated BRL227 million of funds from operations (FFO), and CFFO was slightly negative BRL9 million. These figures compare with FFO of BRL284 million and CFFO of BRL93 million in 2012. CFFO should be pressured in 2013 due to lower expected volume of deliveries at about BRL1.3 billion and considering project launches at 2012's level. Cash generation should improve in 2014 and turn positive.
RATING SENSITIVITIES
Positive rating actions could be driven by relevant and consistent generation of positive free cash flow, combined with the maintenance of strong liquidity and conservative leverage ratios. The ratings could be negatively affected by the combination of weakening operating margins, liquidity reduction, and increase in leverage. An unstable macroeconomic environment that affects the fundamentals of the real estate sector could also lead to negative rating actions.
Fitch has taken the following rating actions:
--Local currency long-term Issuer Default Rating (IDR) affirmed at 'BB-';
--Foreign currency long-term IDR at affirmed at 'BB-';
--Long-term National Scale rating upgraded to 'A+(bra)' from 'A(bra)';
--Fifth debenture issuance, in the amount of BRL250 million, due in 2016, upgraded to 'A+(bra)' from 'A(bra)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'National Ratings - Methodology Update' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=797619
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