Approximately BRL 250 million of Debt Securities Affected
Sao Paulo, January 19, 2011 -- Moody's América Latina has assigned first-time Ba3 local
currency and A2.br Brazil national scale corporate family ratings
to Even Construtora e Incorporadora S.A. ("Even") and Ba3/A2.br
to its proposed BRL 250 million 5-year senior unsecured debentures.
The proceeds will be used to pay down debt coming due over the next two
years extending the company's debt maturity schedule and to finance
Even's expansion plans. The outlook for the ratings is stable.
-Corporate Family Rating: Ba3/A2.br
-BRL 250 million 5-year senior unsecured debentures:
"Even's Ba3 rating reflects its strong brand name and track
record in the construction of apartments for the middle income families,
especially in São Paulo's metropolitan area.",
said Moody's Analyst, Marcos Schmidt. "The rating also
considers the company's size and market share in its geographic
niche market, good profitability, in part derived from its
low exposure to lower income housing, and adequate debt protection
metrics that compare well to its local rated peers. Even has conservative
financial policies that result in adequate liquidity which is also positive
to the rating", added Schmidt.
On the other hand, Even's rating is constrained by the company's
smaller size when compared to local and global rated peers that diminishes
the company's bargaining power acquiring land and raw materials,
relatively high pro-forma leverage measured by debt to capitalization,
small landbank for a company focused in a region with low availability
of new plots of land and many building restrictions like São Paulo's
metropolitan area, and concentration risk related to the reduced
Even's shareholders are comprised of the founding members with Carlos
Eduardo Terepins holding a 6% stake, Luis Terepins 3%,
and FIP Genoa 16.4%. Other shareholders include board
members and executive officers with a combined 1% stake,
and the remainder (73.7%) free floating. FIP Genoa
is an Investment vehicle controlled by Spinnaker, an asset manager
based in London focused on investments in emerging markets with approximately
USD 5.8 billion under management. The company is traded
in the stock market under the Novo Mercado corporate governance standards,
the highest level in Brazil, it needs to comply with many corporate
governance practices such as: 100% voting shares, 100%
Tag along, minimum 5 board members of which 20% must be independent,
auditing committee, ethics code, share trading policy and
With some BRL 1.7 billion in net revenues in the LTM ending in
September, 2010, Even is still small when compared to its
larger, higher rated competitors, such as Cyrela (Ba2/Aa2.br/Sta)
with BRL 4.7 billion, PDG (Ba2/Aa3.br/Sta) with BRL
4.1 billion, and Gafisa (Ba2/A1.br/Sta) with BRL 3.7
billion, reducing its scale, bargaining power and diversification
both in terms of product and geography. The company's landbank
is relatively small and concentrated mainly in the São Paulo metropolitan
region which make up 32 of the total 72 projects in the landbank and 55%
of the BRL 3.6 billion PSV ("Potential Sales Value").
If the countryside of São Paulo is included the contributions increase
to 41 projects and 65% of the PSV in the state of São Paulo.
On the other hand São Paulo alone represents 45% of the
Brazilian real estate market and 34% of the country's GDP.
Even has grown fast since its IPO in 2007, mostly organically.
The company has been able to maintain an adequate capital structure and
interest coverage with total adjusted Debt to Book Capitalization of 46%
in September 2010 and EBIT to Interest of 3.6 times, respectively.
Leverage will increase slightly to around 48% after the issuance
of the proposed BRL 250 million debentures. Even's pro-forma
capital structure is comprised of unsecured debentures (35%),
Sistema Financeiro de Habitação ("SFH") (55%)
and land financing (10%) that will be converted into SFH loans.
Since 75% of the company's units are priced below BRL 500
thousand they can benefit from cheaper government-sponsored SFH
funds during the construction and SFH and Fundo de Garantia do Tempo de
Serviço ("FGTS") funded mortgages for homebuyers.
FGTS is a mandatory employee's severance fund. The employer
makes a monthly deposit at Caixa Econômica Federal ("CEF"
) equivalent to 8% of the employee's monthly salary.
The funds can be withdrawn for retirement or to acquire an eligible house.
Given high commitments in the beginning of the construction phase,
Brazilian homebuilders generally have substantial working capital requirements
before construction financing kicks in, 20% of the construction
costs on average. This 20% is a use of the company's
working capital, funded mostly through client's down payment
or internal cash generation from finished projects being delivered.
The financing for all the projects launched by Even has already been committed
and will be disbursed according to the construction progress. The
company will not build any project without having secured the respective
By the end of September, 2010 Even had BRL 550 million in cash and
marketable securities on its balance sheet. With the objective
of strengthening its liquidity position, the company is now proposing
BRL 250 million in 5-year senior unsecured debentures, where
the proceeds will be used to pay down BRL 145 million in debentures coming
due over the next two years. The balance of the issuance will be
utilized in the company's plans to expand operations outside the
state of São Paulo. The pro-forma cash balance of
BRL 655 million, plus adequate availability under the company's
SFH lines, and BRL 3.4 billion in receivables on balance
sheet leave the company in a comfortable position to meet its adjusted
ST debt maturity commitments of around BRL 336 million. Adjusted
ST debt are mostly SFH loans for construction that will be self liquidated
with the delivery of the units to the respective homebuyers. Working
capital requirements that have consumed around BRL 500 million a year
over the past 5 years should turn positive in 2011 with the delivery of
an estimated BRL 1.5 billion of PSV in finished units.
While the proposed unsecured debentures will be structurally subordinated
to Even's existing secured debt with respect to certain assets,
they are rated at the same level as Even's CFR given the fact that most
of the secured debt is collateralized by specific real estate projects
with no recourse to the company's remaining assets, such as
accounts receivables. As a result there is high amount of unencumbered
assets that in case of a default should provide good recovery for the
The stable outlook takes into consideration that Even will continue to
acquire adequate landbank in a timely fashion and maintain adequate liquidity
on its balance sheet to execute its launched projects and growth plans,
preserving a minimum cash balance to face weaker economic environments
and honor its debt obligations during a downturn in the homebuilding industry.
Even's rating or outlook could experience upward pressure if the company
is able to increase in size in terms of revenues and tangible net worth,
improve diversification outside the state of São Paulo and build
a larger landbank in strategic locations, and at the same time reduce
its leverage metrics. Quantitatively, positive pressure could
arise from an increase in availability of strategic landbank to 3.0
years in the current positive cycle of the Brazilian real estate market,
(1.8 years in the end of September 2010) total debt to capitalization
in the mid 40% range (48% pro-forma in the end of
September 2010), and interest coverage (EBIT to Interest expense)
above 4.5 times (3.6 times for the last twelve months ended
in September 2010) on a sustainable basis.
Even's ratings would likely be downgraded if Total Debt to Capitalization
increased above the mid 50% range (48% pro-forma
in the end of September 2010) on a sustainable basis or if the company
were to face a significant deterioration in its liquidity profile due
to a downturn in the homebuilding industry or due to excessive dividend
payout that could instead be used in the down payment of debt or in the
built up of a liquidity cushion. Negative pressure could arise
if the company's cash balance decreases to a level that would not
be sufficient to meet the company's short term financial obligations
and minimum working capital requirements.
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 differ from Moody's global scale ratings in that they are not globally
comparable with the full universe of Moody's rated entities, but
only with NSRs for other rated debt issues and issuers within the same
country. NSRs are designated by a ".nn" country
modifier signifying the relevant country, as in ".br"
for Brazil. For further information on Moody's approach to national
scale ratings, please refer to Moody's Rating Implementation Guidance
published in August 2010 entitled "Mapping Moody's National Scale
Ratings to Global Scale Ratings."
The principal methodology used in this rating was Global Homebuilding
Industry published in March 2009.
Headquartered in São Paulo, and established in 1980,
Even Construtora e Incorporadora S.A. ("Even")
is a real estate developer with activities in the states of São
Paulo, Minas Gerais, Rio de Janeiro and Rio Grande do Sul
and focus on residential developments with units priced up to BRL 500
thousand. The company is vertically integrated, executing
all real estate development phases from the analysis of the prospective
land to the construction of the units and sale to the final homebuyer.
During the last twelve months ended in September 2010 the company had
BRL 1.7 billion in net revenues.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
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on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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Please see ratings tab on the issuer/entity page on Moodys.com
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Corporate Finance Group
Moody's America Latina Ltda.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's America Latina Ltda.
Moody's assigns a Ba3/A2.br rating to Even and its proposed BRL 250 million senior unsecured debentures
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