Fitch Rates BR MALLS Participacoes S.A.'s Proposed Perpetual Notes 'BB'
NEW YORK -- October 18, 2012
Fitch Ratings has assigned a 'BB' rating to BR Malls International Finance
Limited's (Finco) proposed perpetual notes of up to USD175 million. The notes
will be unconditionally and irrevocably, jointly and severally, guaranteed by
BRMALLS Participacoes S.A. (BRMALLS) and its subsidiaries: ECISA Engenharia,
Comercio e Industria Ltda., ECISA Participacoes Ltda., and Proffito Holding
Participacoes S.A. Proceeds will be used to refinance existing debt as part of
the company's liability management program.
Fitch currently rates BR MALLS and its fully owned subsidiary, Finco, as
BR MALLS Participacoes S.A. (BRMALLS):
--Foreign currency Issuer Default Rating (IDR), 'BB';
--Local currency IDR, 'BB';
--Long-term national scale rating, 'AA-(bra)';
--BRL320 million local debentures, first and second tranches due in 2014 and
2016, respectively, 'AA-(bra)'.
BR Malls International Finance Limited (Finco):
--Foreign currency IDR at 'BB';
--USD175 million perpetual notes, 'BB'.
--USD230 million perpetual notes, 'BB'.
The Rating Outlook is Stable.
BRMALLS' ratings reflect its dominant business position as the largest
shopping center operator in Brazil. The company's portfolio consists of 48
shopping centers as of June 30, 2012, generating stable and predictable cash
flows from a diversified geographical property revenue base. The company has
low working capital requirements and renters are responsible for most
maintenance expenses. The ratings also factor in BRMALLS' organic and
inorganic growth strategy, and the potential delayed effects of integrating
acquired assets and/or leasing new developments. These factors are partially
offset by the company's adequate cash position, large pool of unencumbered
assets, and successful track record in selecting and assimilating acquisitions
while maintaining a stable credit profile.
The Stable Outlook reflects the expectation that BRMALLS will continue to
deliver positive operating results based on its strong market position, the
quality of its assets, and its proven ability to implement its growth strategy
while increasing cash flow generation. These expectations are contingent on
the company maintaining good liquidity and an adequate capital structure while
it pursues its growth objectives.
Business Model Conducive To Stable and Growing Cash Flow Generation:
BRMALLS' revenues are stable as a result of its lease portfolio that provides
it with a base of fixed-rent income with staggered lease expirations. The
company's growth trajectory can be seen in its revenues for 2010, 2011, and
the latest 12 months (LTM) to June 30, 2012 with BRL546 million, BRL862
million, and BRL992 million achieved, respectively. BRMALLS' EBITDA for the
LTM period ended June 30, 2012 was BRL791 million, which compares positively
with its EBITDA levels of BRL431 million and BRL319 million in 2010 and 2009,
respectively. The company's EBITDA margins have remained stable at around 80%
during the 2010-2012 period. BRMALLS' EBITDA for 2012 is expected to be around
Debt Refinancing Incorporated In Ratings; Incremental Debt Increase Not
BRMALLS is currently implementing a debt refinancing plan to reduce its
financial costs and improve its debt repayment profile. This plan includes the
announced re-tap of the USD230 million perpetual bonds issued in January 2011.
The total add-in will be up to USD175 million and the transaction proceeds
will be used to call the company's other perpetual bonds issued in November
2007 (USD175 million). The company is also planning the issuance of a local
currency structured finance transaction of up to BRL500 million to refinance
current debt and improve its debt repayment schedule. The placements of both
transactions are expected to be completed during October 2012.
Gross leverage is expected to remain stable. The company's gross leverage
measured as the total debt to EBITDA ratio - including liabilities related to
shopping mall acquisitions - was 5.3 times (x) at the end of June 2012. The
ratings incorporate the view that BRMALLS' gross leverage would remain in the
5x to 6x range in the medium term. By the end of June 2012, the company's
total debt was BRL4.2 billion. The main components of the company's total debt
were bank loans (30%), perpetual bonds denominated in U.S. dollars (20%), Real
Estate Credit Certificates (19%); local debentures maturing in 2014 and 2016
(10%), and liabilities related to shopping mall acquisitions for BRL476
Liquidity Has Declined But Remains Manageable:
The company's cash position has declined to BRL436 million during the LTM to
June 30, 2012 from BRL1.3 billion in June 2011. This decrease was driven
primarily by the company's development and acquisition capex totaling
approximately BRL2 billion. Including liabilities related to shopping mall
acquisitions, BRMALLS faces debt amortizations of approximately BRL539 million
during the next 12 month period ending June 30, 2013. These payments are
expected to be paid with a combination of cash on balance sheet, internal cash
flow generation and debt refinancing.
By the end of June 2012, the company exhibited a total gross leaseable areas
(GLA) and owned GLA of 1,513,000 square meters and 856 thousand, respectively,
with a property value of approximately BRL13 billion. BRMALLS also maintains
good levels of unencumbered assets; approximately 40% of the company's owned
GLA are available and free of any lien that the company could use in the
future to access liquidity.
The ratings factor-in the expectation that BRMALLS will maintain adequate
gross leverage of around 5.5x debt/EBITDA over the next two years and
sufficient liquidity while implementing its growth program. An upgrade or
Positive Outlook could occur as a result of a high cash position relative to
the company's short-term debt, and an improvement in the company's interest
coverage and debt service coverage ratios. Conversely, a combination of the
following factors could lead to a negative rating action: aggressive capex and
adverse macroeconomic trends leading to weaker credit metrics and significant
distributed dividends and increasing vacancy rates financed by debt.
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).
Applicable Criteria and Related Research:
Corporate Rating Methodology
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