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

miércoles 9 de diciembre de 2015 12:15 GYT

(The following statement was released by the rating agency) RIO DE JANEIRO, December 09 (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. KEY RATING DRIVERS Cyrela's ratings remain supported by the company's capacity to operate with stable and satisfactory operating margins, on a recurring basis, despite the highly pressured business environment, and by its conservative financial strategy. Cyrela has historically reported strong liquidity, a well-distributed corporate debt maturity profile, and low net leverage. The company's credit profile also benefits from its position as one of the largest developers in Brazil's real estate industry and the strength of its franchise. The ratings remain constrained by the exposure of its business to the cyclicality of the homebuilding industry. The deterioration of the Brazilian macroeconomic environment has affected the majority of the sectors, and, in particular, the homebuilding sector. This segment is highly correlated with the local economy and is strongly vulnerable to an economic slowdown, higher unemployment and interest rates, and restrictions in lines of credit. This scenario will further pressure sales cancellations and inventory, and reduce the homebuilders' capacity to resell its units. Conservative Financial Strategy Cyrela's liquidity is strong and is not expected to change in 2016, despite much more volatile business conditions. As of Sept. 30, 2015, cash and marketable securities was BRL2.5 billion and total debt was BRL4 billion, with BRL1.7 billion due by the end of 2016 and BRL1.2 billion in 2017. Of those maturities, BRL509 million and BRL385 million are related to corporate debt. Cash at the holding level of BRL1.4 billion was sufficient to cover corporate debt due up to December 2016 by 2.7x. FCF Should Remain Positive in 2016 and 2017 Cyrela has consistently reported positive cash flow from operations (CFFO) since 2011. Fitch expects CFFO to remain around BRL900 million to BRL1 billion at least until 2017, supported by high volume of project deliveries. In the LTM ended September 2015, the company generated BRL1 billion of EBITDA (excluding financial expenses allocated to costs), FFO of BRL604 million and CFFO of BRL1.3 billion. Free cash flow (FCF) was strong at BRL1.1 billion in the period and Fitch expects it to remain positive over the next few years. Cyrela used this cash generation to improve its cash position, distribute BRL157 million of dividends, and for a share-buyback program that amounted to BRL329 million in 2014 and BRL47 million in the first nine months of 2015. Net Leverage to Remain Low Fitch expects net leverage to remain below 2.0x. In the LTM ended September 2015, total debt/EBITDA was 4.0x and, on a net basis, 1.5x. These ratios compare with an average of 3.2x and 1.8x, respectively, between 2012 and 2014. Cyrela used its operating cash generation to reduce debt and improve liquidity. Net debt fell to BRL1.5 billion in September 2015, from BRL2.1 billion in December 2014 and BRL2.5 billion in December 2013. When analyzed using potential cash flow generation, the ratio of total receivables on the balance sheet plus total inventory plus revenue to be booked over net debt plus acquisition of property for development plus cost to be incurred of units sold was 3.1x in September 2015, up from 2.7x in December 2014. This coverage ratio is strong and well above the industry's average. High Finished Inventory is a Concern Cyrela still has the challenge to reduce its high inventory of finished units. As of Sept. 30, 2015, total inventory had an estimated market value of BRL5.5 billion and about 25% consisted of finished units. Fitch does not expect a significant reduction in finished inventory in the short term, as 23% of units under construction will be delivered by the end of 2016. The delivery of BRL809 million in finished inventory more than offset the BRL412 million sales of finished inventory in the first nine months of 2015. Cyrela's sales speed slowed in 2015. The average sales over supply ratio, net of cancellations, was 10.6% per quarter in the first nine months of 2015, compared to 17.3% per quarter in 2014 and 20.8% per quarter in 2013. Cancellations of sales contracts continued to pressure operating results and Fitch does not expect sales cancellations to reduce in 2016 due to high project deliveries programmed. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Cyrela include: --EBITDA margin between 20% and 21% in the next 3 years. --CFFO of BRL900 million to BRL1 billion in 2016 and 2017. --Cash position to remain strong. --Net leverage below 2.0x. RATING SENSITIVITIES Future developments that may individually or collectively lead to a positive rating action include: --Rating upgrades are unlikely in the short term, at least while the unfavorable macroeconomic conditions persist; --Gross leverage below 3.0x on a recurring basis, associated with the maintenance of strong liquidity profile. Future developments that may individually or collectively lead to a negative rating action include: -- Cash-to-short-term corporate debt coverage falls to below 1.3x; -- Net leverage above 3.0x on a recurring basis; --Total receivables on the balance sheet plus total inventory plus revenue to be booked over net debt plus acquisition of property for development plus cost to be incurred of units sold ratio consistently below 2.5x; --More unstable macroeconomic environment, which could impact the homebuilding sector's fundamentals. LIQUIDITY Cyrela efficiently maintained a conservative liquidity position. As of Sept. 30, 2015, cash and marketable securities was BRL2.5 billion and total debt due by the end of 2016 was BRL1.7 billion and BRL1.2 billion due in 2017. Of its debt maturities, BRL509 million due by the end of 2016 and BRL385 million due in 2017, are related to corporate debt. The company also benefits from potential liquidity from approximately BRL1.4 billion of receivables from completed and sold units not linked to debt and about BRL2 billion of receivables that will mature in the next 24 months, net of costs to be incurred. Cyrela has an adequate debt profile, with 60% of total debt composed of credit lines from SFH (Housing Financial System). The company has no exposure to FX risk and total debt is denominated in BRLs. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Cyrela Brazil Realty S.A. Empreendimentos e Participacoes --Foreign and Local currency IDR at 'BB'; --Long-term National Scale rating at 'AA-(bra)'. 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: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: Additional information is available on Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=996313 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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