TEXT-Fitch affirms Javer's ratings, outlook remains negative

Tue Dec 4, 2012 5:25pm EST

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Dec 4 - Fitch Ratings has affirmed Servicios Corporativos Javer, S.A.P.I. de
C.V.'s (Javer) ratings as follows:

--Foreign currency Issuer Default Rating (IDR) at 'B';
--Local currency IDR at 'B';
--USD270 million senior unsecured notes at 'B+/RR3'.

The Rating Outlook remains Negative.

The ratings incorporate the recent announcement that Javer and Empresas ICA,
S.A.B. de C.V. (ICA) have entered into a definitive agreement to combine their
homebuilding assets in Mexico. Javer will acquire the assets and operating
liabilities related to 20 affordable housing development projects being
developed by ICA through its ViveICA subsidiary in exchange for newly issued
shares of stock representing a 23% ownership interest in Javer. The company will
also assume MXN600 million of secured debt associated with the acquired
developments.

The Negative Outlook reflects the concern that the announced transaction could
be negative for Javer's credit quality due to potential deterioration in the
company's working capital cycle during the integration process of the acquired
developments, and continued declining EBITDA margins.

The ratings continue to reflect Javer's regional market position in northeastern
Mexico with a firm leadership presence in the state of Nuevo Leon, its
consistent business strategy oriented to the low-income housing segment, and
adequate land reserve. The ratings are constrained by Javer's incipient capacity
to generate free cash flow (FCF) through the economic cycle and high leverage
levels. The 'B+/RR3' ratings of the company's unsecured public debt reflect good
recovery prospects in the range of 50%-70% given default.

Positively factored in the ratings, is the company's FCF trend achieved in the
last quarters. During the LTM September 2012, the company maintained a sound
financial strategy based on conservative growth targets reducing working capital
needs and achieving slightly-positive FCF generation with low levels of
short-term debt. The company's LTM September 2012 revenues, FCF generation, and
FCF margin reached levels of MXN5.4 billion, MXN88 million, and 1.6%,
respectively.

The proposed transaction will improve Javer's geographic and asset
diversification. Post-acquisition, Javer will consolidate its position as one of
the main players in the Mexican homebuilding industry by increasing the numbers
of developments to 46 in 11 states nationwide, and reaching annual unit sales of
approximately 25 thousand, 7 thousand coming from the acquired developments.

The main credit concern is related to the potential deterioration in the
company's working capital cycle due to the integration of the acquired
operations that could require additional working capital investments as post
transaction the company is expected to increase revenues by approximately 40%
during the first year of operations. The company is planning to refinance the
MXN600 million debt assumed with the transaction through a term loan during the
next few weeks. Eventually Javer will be looking - depending on market
conditions - to execute another reopening to add this debt to its USSD270
million secured notes.

The transaction is not expected to add leverage. Javer had MXN3.5 billion of
total adjusted debt as of Sept. 30, 2012, it was composed primarily of the
USD270 million unsecured notes due in 2021, this amount included the 18% premium
the company paid during the last exchange debt offering that occurred in 2011.
During the latest 12 months (LTM) ended Sept. 30, 2012, the company generated
MXN906 million of EBITDA, with an EBITDA margin of 16.9%. These figures resulted
in Javer's total gross leverage, measured by the debt-to-EBITDA ratio, of 3.9x
for the LTM September 2012. The transaction will add incremental revenues,
EBITDA, and debt of approximately MXN2 billion, MXN232 million, and MXN600
million, respectively. On a pro forma basis, the company's gross leverage is
estimated at 3.6x, consolidated revenues around MXN7.5 billion and an EBITDA
margin of 15%.


Liquidity and FCF Generation Main Rating Drivers:

The ratings are expected to be driven by the development - during the next
quarters - of the company's liquidity, FCF generation, and gross leverage during
the process of integrating the acquired developments.

A downgrade could be triggered by a deterioration of the company's credit
protection measures and cash position due to weak operational results,
deterioration in FCF generation driven by increasing working capital needs, and
declining EBITDA margins. Expectations by Fitch of total adjusted debt to EBITDA
being consistently at or beyond 4.5x will likely result in a downgrade.

Conversely, stable operational performance reflecting a smoothly integration
process of the new acquired developments resulting in FCF from neutral to
slightly positive, in addition to the expectation that total adjusted debt to
EBITDA will remain below 4.0x over time, while maintaining adequate liquidity
and a manageable debt payment schedule, can trigger a revision of the Rating
Outlook to Stable.


Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers'
(Nov. 13, 2012).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
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