Fitch Affirms Cyrela's IDR at 'BB'; Outlook Stable

martes 16 de diciembre de 2014 15:41 GYT

(The following statement was released by the rating agency) RIO DE JANEIRO/NEW YORK, December 16 (Fitch) Fitch Ratings has affirmed Cyrela Brazil Realty S.A. Empreendimentos e Participacoes' (Cyrela) foreign- and local-currency Issuer Default Ratings (IDR) at 'BB' and long-term national scale at 'AA-(bra)'. The Rating Outlook for Cyrela's corporate ratings is Stable. Cyrela's ratings remain supported by the company's conservative financial strategy sustained by low leverage, strong liquidity and well-distributed corporate debt maturity profile. The ratings are also supported by Cyrela's historical satisfactory operational performance, resulting from the company's ability to operate with adequate operating margins and positive operational cash flow generation, on a recurring basis, despite the more challenging environment observed for the industry in the last couple of years. Cyrela's credit profile is also benefits from the company's position as one of the largest developers in Brazil's real estate industry, the strength of its franchise and its solid and diversified landbank. The ratings remain constrained by the expectation that inventory of finished units should remain high and by the exposure of its business to the cyclicality of the homebuilding industry, which is highly correlated with the local economy and vulnerable to an economic slowdown, higher unemployment rate and restrictions in lines of credit. Fitch has a cautious outlook for the homebuilding sector in 2015. The sector risk is considered above average, due to the long construction cycle and direct exposure to macroeconomic conditions. The deterioration of the Brazilian macroeconomic scenario has resulted in lower homebuyers' indebtedness capacity and higher interest rates, which could increase cancellation of sales contracts and generate limitations in reselling capacity. KEY RATING DRIVERS Conservative Financial Strategy The company's financial strategy is conservative and is designed to maintain a strong cash cushion, which has remained above BRL1.7 billion since 2011, and a lengthened corporate debt maturity profile. As of Sept. 30, 2014, cash and marketable securities was BRL1.8 billion and total debt was BRL4.2 billion, with BRL1.9 billion due at the end of 2015 and BRL1.1 billion in 2016. Out of debt maturities, BRL528 million and BRL402 million, respectively, are related to corporate debt. A significant part of Cyrela's cash position is restricted cash, to finance construction costs. Non-restricted cash at the holding level of BRL554 million covered corporate debt due up to the end of 2015 at 1.1x. The company also benefits from potential liquidity from approximately BRL1.2 billion of receivables from completed and sold units not linked to debt and about BRL3.2 billion of receivables that will mature in the next 24 months, net of costs to be incurred. Positive Cash Flow Generation Cyrela reported positive cash flow from operations (CFFO) during the last four years and free cash flow (FCF) should continue to benefit from high volume of project deliveries in the next couple of years. In the LTM ended September 2014, the company generated FFO of BRL1.1 billion, CFFO of BRL721 million and FCF of BRL471 million. These numbers compare with BRL888 million, BRL334 million and BRL51 million, respectively, reported in 2013. EBITDA was BRL1.3 billion (excluding financial expenses allocated to costs). Cyrela used part of its cash generation in a share buyback program that amounted BRL109 million in 2013 and BRL265 million in the nine months ended September 2014. Higher dividend distribution and/or a share repurchase program, however, could pressure the company's FCF. Net Leverage to Remain Low Cyrela's net leverage should remain at conservative levels. In the LTM ended September 2014, total debt/adjusted EBITDA was 3.3x and, on a net basis, was 1.9x. These ratios compare with an average of 3.6x and 2.2x between 2010 and 2013. Fitch expects net leverage around 2.0x in the next couple of years. When analyzed under potential cash flow generation, the ratio of total receivables on the balance sheet plus inventory of concluded units plus revenue to be booked over net debt plus acquisition of property for development plus cost to be incurred of units sold was 1.8x in September 2014, stable compared to December 2013. This coverage ratio is strong and well above the industry's average. Finished Inventory Not Expected to Reduce Cyrela was efficient in managing the turnaround operating strategy and reported adequate margins, despite diverse market conditions. In the LTM ended September 2014, EBITDA margin was 22.6%, compared with an average of 21.4% reported in the last three years. Despite the reduction in sales speed, it remained above the average for the sector. The average sales over supply ratio, net of cancellations, was 16.3% per quarter during the first nine months of 2014, compared to 20.8% per quarter in 2013 and 18.2% per quarter in 2012. The volume of cancellations of sales contracts remained manageable. However, Cyrela still has the challenge to reduce its high inventory of finished units. As of Sept. 30, 2014, total inventory had estimated market value of BRL5.4 billion and about 18% consisted of concluded units. Fitch does not expect a significant reduction of finished inventory in the short term, as 31% of total inventory of units under construction will be delivered up to the end of 2015 and part of the company's inventory is located in cities with oversupply. RATING SENSITIVITIES Cyrela's ratings could be upgraded if the company preserves current credit metrics for a longer period of time and in diverse market conditions, couplef with the reduction of inventory to more conservative levels. Cyrela's ratings could be negatively affected if company's cash-to-short-term corporate debt coverage reduces to below 1.0x; by an increase in net leverage to above 3.5x on a recurring basis; and if inventory of concluded units continue to increase, frustrating Fitch's expectation of cash flow generation capacity. A reduction of total receivables on the balance sheet plus inventory of concluded units plus revenue to be booked over net debt plus acquisition of property for development plus cost to be incurred of units sold ratio to levels below 1.7x could also negatively pressure the ratings. In addition, a scenario for a Negative Outlook or downgrade includes a more unstable macroeconomic environment, which could impact the homebuilding sector's fundamentals. Contact: Primary Analyst Fernanda Rezende Director +55-21-4503-2619 Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20 - Sala 401 B - Centro - Rio de Janeiro - RJ - CEP: 20010-010 Secondary Analyst Jose Roberto Romero Director +55-11-4504-2603 Committee Chairperson Ricardo Carvalho Senior Director +55-21-4503-2627 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: Additional information is available at ''. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (May 2014). 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