Fitch Ratings has assigned a rating of 'B+/RR3' to Servicios Corporativos Javer, S.A.P.I. de C.V.'s (Javer) proposed issuances of up to USD210 million of new notes and up to USD30 million of new additional notes.
Fitch currently rates Javer as follows:
--Foreign Currency Issuer Default Rating (IDR) 'B';
--Local Currency IDR 'B';
--US$210 million senior unsecured notes 'B+/RR3'.
The Rating Outlook is Stable.
The ratings continue to reflect Javer's solid regional market position in northeastern Mexico with a firm leadership presence in the state of Nuevo Leon, its sustainable business strategy oriented to the low-income housing segment, its significant land reserve, and its relatively adequate liquidity position. The ratings are constrained by Javer's volatile operational performance, moderate leverage, limited geographic diversification, and reduced capacity to generate positive cash flow from operations (CFFO) in the medium term. Like other Mexican homebuilders, Javer's credit ratings incorporate a challenging operating environment, growing working capital requirements, and a high dependence upon government-related mortgage funding for low-income homes. The 'B+/RR3' ratings on the company's unsecured public debt reflect good recovery prospects in the range of 50%-70% given default.
The proposed transaction includes the issuance of new notes up to USD210 million plus an additional 18% premium over the notional amount being exchanged and the issuance of new additional notes up to USD30 million. These notes, the new notes and the additional new notes, will mature in 2021 and will be callable after five years. The issuance of the proposed 2021 senior notes is contingent upon the acceptance of the voluntary exchange offering by more than 50% of the holders of Javer's USD210 million senior notes due in 2014, the existing notes. In connection with the exchange offer, the company is soliciting the elimination of substantially all of the restrictive covenants and certain events of default applicable to the existing notes. The final settlement date of the proposed transaction is expected to be April 18, 2011.
Overall, Fitch views the proposed transaction neutral to Javer's credit quality. On a pro forma basis, the completion of the proposed transaction is expected to increase the company's leverage, measured by Total Debt/ EBITDA ratio, to approximately 3.8 times (x). The negative impact of increasing leverage would be offset by the improvement in Javer's liquidity position and by extending its debt maturities with the proposed transaction. Also incorporated in the ratings is the expectation that the company's leverage will return to 3.0x during the second half of 2011 driven primarily by a significant improvement in the company's cash flow generation, measured by EBITDA. Failure to accomplish expectations incorporated in the ratings would likely result in a downgrade.
At the end of December 2010, Javer had MXN2.65 billion (approximately USD214.6 million) of total debt. The company's debt consists primarily of the USD210 million senior notes due in 2014. During 2010, Javer generated MXN886 million (USD72 million approximately) of EBITDA, an 18.7% decline over the company's EBITDA for 2009 (MXN1.09 billion). These figures resulted in a total debt-to-EBITDA ratio of 3.0x for 2010. On a pro forma basis, the company's gross leverage is expected to increase to around 3.8x. The pro forma scenario considers the company's LTM EBITDA by December 2010 of MXN886 million and total debt amount of approximately MXN3.3 billion (USD281.4 million approximately). The total pro forma debt amount consists of: a conversion rate of 97% over the existing notes, equal to approximately USD204.2 million; USD36.8 million related to the 18% premium over the notional amount being exchanged; the issuance of the new additional notes for USD30 million; and other debt related primarily to financial leases.
The ratings consider expected improvement in the company's cash flow generation to occur during 2011. The company's units sold in 2010 were 16,063 units, similar to 2009 level (16,025 units). The company's total units and EBITDA in 2011 are expected to be around 19,000 units and MXN1.2 billion, respectively. The company's total debt by the end of 2011 is expected to remain similar to the pro forma levels. Based on these prospects, the company's leverage by the end of 2011 is expected to be around 3x.
Liquidity expected to improve. The company's debt maturity profile presents an average life of four years by the end of 2010, with no material debt maturities during the following years. With the proposed transaction, the company's debt maturity profile is expected to improve, being extended to approximately 8.6 years, enhancing the company's financial flexibility in the short and medium term. In addition, the company's cash position is expected to remain relatively stable around MXN500 million during 2011.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 13, 2010;
--'Liquidity Considerations for Corporate Issuers', June 12, 2007;
--'Parent and Subsidiary Rating Linkage (Fitch's Approach to Rating Entities within a Corporate Group Structure), July 14, 2010.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
Liquidity Considerations for Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666
Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826
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