| SAO PAULO
SAO PAULO Feb 17 PDG Realty SA, the Brazilian
homebuilder struggling with a cash crunch, is considering
surrendering buildings and land given as collateral to creditors
ahead of a potential in-court reorganization, two people
directly involved in the plan said.
São Paulo-based PDG hired restructuring advisory
firm RK Partners in November to come up with a rescue plan.
Terms of the plan contemplate giving creditors control of some
assets guaranteeing debt issued by about 700 special purpose
vehicles created to fund projects, the people said.
The sources asked for anonymity because the plan remains
under discussion. Representatives for both PDG and RK declined
Allowing creditors to foreclose on the collateralized assets
will hinge on the status of each project and other terms, the
sources said. Management and board members at PDG, once Brazil's
largest homebuilder by revenue, believe an in-court
reorganization is inevitable at this point, they said.
The situation underscores how mounting litigation stemming
from years of delayed project deliveries and high debt have led
more Brazilian real estate companies into restructurings.
Hobbled by a myriad of client lawsuits, Viver Incorporadora
SA filed late last year for bankruptcy protection,
the first ever by a local homebuilder.
Reuters reported last week that Urbplan Desenvolvimento
Urbano SA, a Brazilian land developer controlled by Carlyle
Group LP, is considering filing for creditor protection
as it struggles with mounting client and creditor
Press representatives for PDG did not have an immediate
comment, nor did advisor RK Partners. The people asked for
anonymity because the plan remains under discussion.
According to one of the sources, contractual terms of a
significant part of PDG's debt give creditors the right to
foreclose on collateralized assets in the event of non-payment,
keeping projects and land aside in an in-court reorganization.
Hopes of a negotiated solution with creditors, coupled with
recent government measures aimed at reducing the stock of unsold
home units, have led to a 180 percent surge in shares of PDG
The government is seeking to mitigate the impact of sales
cancellations on builders through new rules that would let them
keep a defined share of the home value in the event of a sales
PDG failed to honor two scheduled debt payments in January,
leading Moody's Investors Service to cut credit ratings, citing
an "unsustainable capital structure."
Gross debt at PDG reached 8 billion reais ($2.6 billion) at
the end of the third quarter, with the company keeping about 235
million reais in cash and equivalents.
The stock gained 0.3 percent to 3.34 reais in early Friday
afternoon trading in São Paulo.
($1 = 3.1015 reais)
(Editing by Guillermo Parra-Bernal and Clive McKeef)