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Global Credit Research - 11 Jan 2011
Approximately $210 Million in securities affected
New York, January 11, 2011 -- Moody's Investors Service affirmed Servicios Corporativos Javer,
S.A.P.I. de C.V.'s ("Javer")
senior unsecured debt rating at Ba3 and revised the rating outlook to
negative, from stable.
The outlook revision reflects Javer's deterioration in its operating
results in 2010 as a result of reduced housing inventory and delays in
titling on new housing construction, which will continue to pressure
the company's key credit metrics and operating statistics.
As a result, Moody's notes that covenant compliance may be challenged.
In 2010 Javer's operating stats were negatively affected by a dramatic
reduction in the completed home inventory at the end of 2009, with
the idea that eight new macro projects would be launched in 2010 that
would provide the bulk of the company's home titling for the next
couple of years. By the end of 2010, Javer anticipated titling
20,000 homes (vs. 16,000 titled in 2009). Several
problems arose including a severe slowdown in obtaining construction licenses
and permits in 2009, which was an electoral year for many states
and municipalities in which Javer has a concentration, including
Nuevo Leon, Tamaulipas, Jalisco and Aguascalientes.
This resulted in new developments not breaking ground until the first
part of 2010. Furthermore, titling did not go as quickly
as was expected in 2010, mainly due to a delay in model home openings
in the second quarter caused by Hurricane Alex in June, which affected
the state of Nuevo Leon most dramatically. In addition, the
state of Tamaulipas suffered setbacks in titling due to drug violence
in the region. Although Infonavit's mortgage customer base
was running as expected in the fourth quarter, Infonavit net pre-sales
did not produce a large enough customer bank to meet the titling needed
to reach Javer's year-end goal. Also, the informal
sector sales were slower due to longer lead time in pre-qualifying
customers. Javer's guidance was revised down in the third
quarter by 15%, and expected titling for the full-year
is expected at 17,000 and EBITDA of approximately $900 million
Javer's Ba3 senior unsecured debt rating continues to reflect its
position as one of the largest home developers in Mexico with more than
35 years of real estate experience. This strength is complemented
by Mexican housing supply and demand dynamics that remain favorable.
The company also has efficient controls and construction expertise with
a well executed land reserve strategy. Javer enjoys brand recognition
in its key markets. Javer's primary credit challenges are its significant
revenue concentration in the State of Nuevo Leon. The company's
business also has a large reliance on the Mexican economic and political
environment, given the important role the government plays in supporting
housing policy. Furthermore, Javer is a privately-owned
developer, which may result in less disclosure than its public peers.
However, senior management consists of all professional individuals.
Finally, 100% of Javer's corporate debt is in U.S.
dollars while Javer generates cash in MX pesos which, despite the
partial hedge, creates foreign exchange risk.
Moody's stated that a return to a stable outlook would be predicated
on steady improvement in titling over the next two quarters. In
addition, continued improvement in operating statistics, specifically
with EBITDA margins approaching 20%, Fixed Charge Coverage
closer to 3.0x and Debt/EBITDA below 2.0x. A ratings
upgrade is unlikely at this time. A downgrade to B1 would result
should there be any further mishaps in reaching titling and sales targets
and any additional weakening of current credit metrics, such as
EBITDA margins falling below 15%, debt/EBITDA above 3x and
fixed charge coverage below 2.5x (including capitalized interest)
on a sustained basis.
The following rating was affirmed and the outlook revised to negative,
from stable outlook:
Servicios Corporativos Javer, S.A.P.I.
de C.V. -- senior unsecured debt at Ba3
Moody's last rating action on Javer was on July 27, 2009 when
Moody's assigned a long-term Ba3 global scale foreign currency
rating to Javer's proposed US$160 million to US$200 million
senior unsecured debt issuance. This was the first time Moody's
The principal methodology used in this rating was Global Homebuilding
Industry methodology published in March 2009.
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 $5,477
million Mx pesos and equity of $1,164 million Mx pesos at
September 30, 2010.
Commercial Real Estate Finance
Moody's Investors Service
Senior Vice President
Commercial Real Estate Finance
Moody's Investors Service
Moody's Investors Service
Moody's revises Javer's rating outlook to negative, (senior unsecured at Ba3)
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New York, NY 10007
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