Cyrela Brazil Realty S.A. 'BB-' And 'brAAA' Ratings Affirmed And Taken Off UCO On Updated Criteria

  • S&P Global Ratings has completed our review of the ratings on Brazil-based homebuilder Cyrela Brazil Realty S.A., which we placed under criteria observation (UCO) following the publication of our revised "Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments," criteria on April 1, 2019.
  • Although the company's funds from operations (FFO) dropped following the revised criteria, because we no longer incorporate interest income, our view of Cyrela's underlying creditworthiness is unchanged, given the company's low leverage and strong cash flows.
  • On April 17, 2019, we affirmed our 'BB-' global scale and 'brAAA' national scale issuer credit ratings on the company, and removed the UCO designation.
  • The stable outlook reflects our view that Cyrela will increase launches while also focusing on selling its inventories. We expect debt to capital below 25% in the next 12-18 months.
SAO PAULO (S&P Global Ratings) April 17, 2019—S&P Global Ratings took rating actions described above. The application of our revised Ratios and Adjustments criteria lead to a weaker FFO to debt ratio for Cyrela, which we now forecast below 12% for the next two years, compared with roughly 20% under the previous methodology. This is because we no longer include interest income in the FFO calculation. As a result, we revised our financial risk profile on Cyrela to aggressive from significant.
Nevertheless, our view of the company's underlying creditworthiness hasn't changed, given its low leverage, with debt to capital below 25%, and solid cash flow generation compared with those of other homebuilders operating in Brazil. This results, in part, from Cyrela's greater scale and revenue diversification through operations in the low-, mid-, and high-income housing segments.
We believe improving consumer confidence in Brazil and lending from banks at lower interest rates should continue bolstering housing demand in the country. In 2018, the company advanced launches in top-line segments, reaching pre-sales value of roughly R$3.4 billion, compared with R$2.1 billion in 2017. In the next two years, we expect Cyrela to increase launches to R$3.9 billion - R$4.1 billion, while the company sells its inventory and maintains a conservative approach toward landbank acquisitions by maintaining a repository profile for its landbank and majority of acquisitions through swap. As a result, we expect Cyrela to maintain sound operating cash flows, similar to R$865 million in 2018.
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