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Rating Action:

Moody's assigns a B1/Baa2.br rating to Inpar's senior secured debentures

 The document has been translated in other languages

13 Dec 2010

BRL 300 Million of Debt Securities Affected

Sao Paulo, December 13, 2010 -- Moody's has assigned a B1 local currency rating and Baa2.br Brazilian national scale rating to Inpar S.A.'s ("Inpar") proposed BRL 300 million senior secured 5-year debentures. At the same time, Moody's affirmed Inpar's B1/Baa2.br corporate family ratings ("CFR"). The outlook for the ratings is stable.

Ratings Assigned:

-BRL 300 million 5-year senior secured debentures: B1 (global scale) / Baa2.br (Brazilian national scale)

Ratings Affirmed:

- Corporate Family Rating: B1 (global scale) / Baa2.br (Brazilian national scale)

Outlook: stable

RATINGS RATIONALE

"Inpar's B1 corporate family rating reflects its strong brand name in the homebuilding industry, where the company is one of the market leaders in the southeast region of Brazil, as well as the ownership by Paladin Prime Residential Investors (Brazil), LLC ("Paladin"), a company with long experience in real-estate in many emerging markets", said Moody's Analyst, Marcos Schmidt. "The ratings also reflect the strengthened capital structure following the issuance of BRL 180 million in new equity in 2009 and an additional BRL 280 million in 2010, the proven good liquidity in the company's assets, which enabled the company to raise BRL 200 million from June 2008 to April 2009 and the company's solid track record of more than BRL 7.0 billion in PSV ("Potential Sales Value") launched and more than 15,000 units delivered (equivalent to around BRL 5.0 billion in PSV) since 1995", added Schmidt.

The B1 rating is further supported by the benefits of pent-up housing demand in Brazil, especially among the lower-income market, the segment that will represent the vast majority of the future launches (83%), with units priced below BRL 350,000. The government support and incentives toward lower-income housing, management and corporate governance enhancements after the takeover by Paladin in 2008 as well as the committed lines for construction that Inpar has available with commercial banks and are funded by SFH ("Sistema Financeiro de Habitação") are seen as rating positives.

However, Inpar's B1 corporate family rating is constrained by the company's relatively small size when compared to its international peers and certain local competitors, and its poor financial strategy track record under the previous controlling group. Other factors constraining Inpar's rating include limited internal cash flow generation, given the stage of the projects that were launched after the IPO in 2007, and its dependence on Caixa Econômica Federal ("CEF") (A3/STA) or other commercial banks for financing a large portion of its sales and the homebuyer's credit quality at the end of the construction process especially with the shift in focus towards the lower income segments.

Furthermore, the ratings consider Inpar's geographic concentration of its landbank in the southeast region of Brazil and in the lower income segment, and execution risks associated with its strategy of growing in the low-income housing market, given the large number of competitors, some of which have a high level of expertise in this segment. The risk of operating in the lower-income segment is partially mitigated by Inpar's experience in operating in this segment since 1999 through joint ventures ("JVs"), and through its low and mid-income brand ViVer that has delivered 5,000 units valued at approximately BRL 1.5 billion, and by the smaller size of many of its competitors which enhances Inpar's relative bargaining power with suppliers, land owners, banks and homebuyers.

At the end of September, 2010 the company had BRL 212 million of cash on balance sheet and BRL 339 million of ST debt, despite the small proportion of cash compared to ST debt we have to take in account that most of the debt coming due during the next twelve months, around 80%, are linked to projects that will be also delivered during the same period. These projects will be delivered to the homebuyers after they get their mortgages from CEF or other commercial banks, the mortgages will then pay down the ST loans. The projects being delivered during the 4Q'10 have a PSV of BRL 205 million, while there are BRL 1.4 billion more in PSV being delivered during 2011. Only around 20% of the ST debt is related to corporate debt, leaving the company with a comfortable debt maturity schedule.

Besides the BRL 300 million proceeds from the proposed secured debentures, the company has around BRL 600 million available in SFH loans that are sufficient to finance the construction of all its already launched projects.

At the end of September, 2010 Inpar had a landbank with a PSV of BRL 11.2 billion of which BRL 3.8 billion (34%) can be launched during the next three years according the company's current operating capacity, 80% of those launches are focused in the middle and low income segments. It is important to note that the company already has signed 100% of the financing to launch and build all the BRL 3.8 billion.

A corporate family rating is an opinion on the expected loss associated with the debt obligations of a group of companies assuming that it had one single class of debt and is a single consolidated legal entity. Specific debt instruments for the same corporate family may be rated differently, depending on their seniority and guarantors, as compared to other debt instruments issued by the group.

Moody's assigned a B1 rating on the global scale and Baa2.br on the Brazilian national scale to Inpar's proposed BRL 300 million senior secured 5-year debentures, the same level as the corporate family ratings. The ratings consider the sizable amount of secured debt in Inpar's capital structure of almost 100% and the likelihood that the secured proportion will stay at this level given the reliance on SFH loans.

Inpar's B1 local currency corporate family rating reflects its global default and loss expectation, while the Baa2.br national scale rating reflects the standing of its credit quality relative to other domestic issuers. Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Brazil are designated by the ".br" suffix. Issuers or issues rated Baa2.br demonstrate average creditworthiness relative to other domestic issuers. NSRs differ from global scale ratings in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.

The stable outlook assumes that the demand for lower income housing and financing to homebuyers will remain steady and Inpar will be able to execute its planned launches through 2012, and that the returns on cash invested in the construction of projects since 2007 will materialize in 2011 improving the company's cash flow based debt protection metrics. The stable outlook also assumes that the company will maintain the minimum cash balance of BRL 200 million as to preserve healthy liquidity and a cushion to face eventual weaker economic environment and more difficult capital market conditions.

Although unlikely in the near term Inpar's rating or outlook could experience upward pressure if the company improves its cash-flow based credit metrics through reduced working capital requirements over time. Mortgage availability at an earlier point in the construction cycle, which is more common in the lower income and middle-income segments in which the company is increasing its presence, are an important factor in Inpar's ability to reduce its sizable investments in working capital. Quantitatively, positive pressure could arise from sustainable positive cash flow from operations, total debt/capitalization maintained below 40% (45.1% at the end of September, 2010) and interest coverage (EBIT / Interest) above 6 times (2.0 times in the last twelve months ended in September, 2010) on a sustainable basis.

Inpar's ratings or outlook would likely suffer downward pressure if Total Debt to Capitalization ratio is sustained above 50% (45.1% at the end of September, 2010) or if the company were to face a significant deterioration in the quality of its receivables, especially in a more adverse macro-economic scenario. A downgrade could also be triggered by a deterioration in Inpar's liquidity profile due to a reduction in the availability and timeliness of disbursements from SFH credit lines that the company has actually available with CEF and commercial banks.

The principal methodology used in rating Inpar S.A. was Global Homebuilding Industry rating methodology published in March 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Headquartered in Sao Paulo, Brazil, and founded in 1992, Inpar is an integrated homebuilder historically focused in high-rise construction for the middle and mid-high income families. Inpar has a solid track record of operations having delivered more than 15,000 units since 1995. Concentrated in the southeast region, mainly in São Paulo, Inpar has changed its main focus towards the middle and low income segments. The company is also involved in commercial, tourism and land development segments spread across 17 states targeting all income brackets. Inpar had net revenues of BRL 655 million during the last twelve months ended in September 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Sao Paulo
Marcos Schmidt
Analyst
Corporate Finance Group
Moody's America Latina Ltda.
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

New York
Brian Oak
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Moody's assigns a B1/Baa2.br rating to Inpar's senior secured debentures
No Related Data.
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