March 1 - Fitch Ratings has downgraded the following ratings for Urbi
Desarrollos Urbanos, S.A.B. de C.V. (Urbi):
--Foreign currency Issuer Default Rating (IDR) to 'CCC' from 'B';
--Local currency IDR to 'CCC' from 'B';
--National long-term rating to 'CCC(Mex)' from 'BBB-(Mex)';
--US$150 million senior notes due 2016 to 'CCC/RR4' from 'B/RR4';
--US$300 million senior notes due 2020 to 'CCC/RR4' from 'B/RR4';
--US$500 million senior notes due 2022 to 'CCC/RR4' from 'B/RR4';
--MXN600 million in Certificados Bursatiles (CBs) due in 2014 to 'CCC(mex)' from
--National short-term ratings to 'C(mex)' from 'F3(mex)'.
KEY RATING DRIVERS
The rating downgrades reflect a substantial deterioration of Urbi's liquidity
during 2012, which has heightened the risk of default. Urbi had a negative free
cash flow (FCF) of MXN7.8 billion during 2012 primarily as a result of
increasing working capital requirements that resulted from growing inventory
levels and accounts receivables. Fitch's FCF calculation considers cash from
operations less capital expenditures and dividends.
As of Dec. 31, 2012, Urbi had MXN2.1 billion of cash and marketable securities.
This figure is a sharp deterioration from MXN5.5 billion as of Dec. 31, 2011.
The company has covered its cash drain with incremental debt increases. Over the
12-month period ending Dec. 31, 2012, gross debt climbed to MXN19.9 billion from
MXN14.9 billion. The company's gross leverage (total debt over LTM EBITDA) at
year-end was 5.4x, with net leverage of 4.9x. Without external funding, the
company's cash position will not support another quarter of high cash burn
similar to what it experienced in the fourth quarter of 2012.
Fitch believes the factors that have contributed to cash flow deterioration in
the past--a challenging regulatory environment and changing demand
characteristics for the industry--are unlikely to change in the near term, and
may even escalate.
A significant reduction in inventories and receivables could stabilize the
company's financial situation. Another factor that could contribute to a
positive rating action would be the occurrence of a scenario in which the
company receives extraordinary financial support from the controlling
shareholders or third parties, including but not limited to the Mexican
government. While quite uncertain where this support could come from,
extraordinary financial support could provide additional time for the company to
right size its business and to liquidate assets to generate cash, to the extent