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Rating Action: Moody's downgrades Javer's senior unsecured debt rating to B2; rating outlook stable
Global Credit Research - 14 Jun 2013
New York, June 14, 2013 -- Moody's Investors Service downgraded Servicios Corporativos Javer, S.A.P.I. de C.V.'s ("Javer") senior unsecured debt rating to B2 from B1. The outlook was revised to stable from negative.
RATINGS RATIONALE
This rating action follows the announcement by Javer and Empresas ICA, S.A.B. de C.V.'s ("ICA") that the agreement to purchase ICA's low-income sector homebuilding business had been terminated. This was a strategic transaction that would have improved the company's credit profile, particularly with respect to geographic diversity outside of Nuevo Leon. In addition, in March 2013 Javer raised US$50 million of debt through a reopening of its 2021 senior notes in order to cover the expected debt assumption of this transaction. With the termination of this transaction, the company is more highly leveraged with no immediate use for the cash. Exclusive of this transaction, the company's credit metrics continue to be weak with Debt/LTM Recurring EBITDA of 5.61x and LTM EBITDA margins at 13.2% as of 1Q13. Currently, approximately 30% of the company's sales are reliant on subsidies, the allocation of which is not under the direct control of the company. Also, the Mexican government has yet to announce the details regarding the implementation of the National Housing Policy, which was expected at the end of May.
The stable outlook reflects Javer's solid liquidity position in a tough operating environment. In addition, the stable outlook incorporates Moody's expectation that the company will successfully deleverage the balance sheet either through a tender offer or investment back into operations. Moody's also anticipates that Javer will be able to meet its sales targets in markets with challenging demand dynamics and strong competition from regional players. Finally, the stable outlook assumes that Javer's credit metrics have reached their weakest point and should remain stable or slightly improve over the medium term.
An upgrade of the rating would be predicated upon the company maintaining EBITDA above 15%, debt to EBITDA closer to 3x and fixed charge coverage at or above 2.0x. Finally, Moody's will need more clarity with respect to the implementation of the National Housing Policy and the impact it will have on Javer's operations in order to consider an upgrade. A downgrade will occur should Javer encounter further challenges in reaching titling and sales targets which result in a weakening of credit metrics from current levels such that EBITDA margins fall closer to 12% and/or debt/EBITDA approaches 5x.
The following rating was downgraded with a stable outlook:
Servicios Corporativos Javer, S.A.P.I. de C.V. - - Senior unsecured debt rating to B2
The last rating action with respect to Javer was on March 18, 2013 when Moody's confirmed Javer's senior unsecured debt rating at B1 and placed the outlook on negative.
Servicios Corporativos Javer, S.A.P.I. de C.V., headquartered in Monterrey, Mexico is one of the largest privately-owned, fully integrated homebuilders engaged in the development, construction, marketing and sale of affordable housing in Mexico. The firm reported assets of approximately $7.3 billion Mx pesos and equity of approximately $1.5 billion Mx pesos at March 31, 2013.
