Billionaire Slim’s Prison Rescue Can’t Save Homex LendersJonathan Levin and Veronica Navarro Espinosa
Desarrolladora Homex SAB’s bonds are signaling that not even a lifeline from billionaire Carlos Slim can prevent Mexico’s biggest homebuilder from joining industry rivals in restructuring its debt.
Homex’s $400 million of notes due in 2020 sank 3 cents to a record 36.94 cents on the dollar yesterday after the company said credit-rating downgrades and lawsuits from Barclays Plc and Credit Suisse Group AG over derivatives contracts put it in default on peso-denominated bonds. The announcement comes a month after Homex agreed to sell its stake in two prisons to companies controlled by Slim for 4 billion pesos ($322 million), triggering a 20-cent surge in the bonds that later evaporated.
Signs are increasing that Homex will follow Urbi Desarrollos Urbanos SAB and Corp. Geo SAB in seeking to renegotiate debt as a shift in government policy to promote more capital-intensive apartments in urban areas over homes in commuter towns depletes cash in the industry. Homex, whose cash and equivalents fell 94 percent in the first quarter to just 323 million pesos, has a dollar-bond coupon payment due June 11.
“I don’t think the business model works,” Wilbur Matthews, who helps manage $100 million in emerging-market corporate debt as chief executive officer of Vaquero Global Investment LP, said in a telephone interview from San Antonio. “Homex has given it the old college try.”
Marena Rubio, a press official with Homex, didn’t respond to an e-mail seeking comment on whether the builder needed to restructure. A phone call to her office went unanswered. In a previous e-mailed response to questions on April 15, she said the company wasn’t planning a restructuring.
Urbi and Geo defaulted on bonds last month and hired firms to advise them on possible restructurings. Homex’s default affects 11.7 million pesos in senior guaranteed local-currency notes, Homex said yesterday in a U.S. regulatory filing.
Fitch Ratings cut Homex’s rating to CCC on April 30, seven levels below investment grade. In a complaint filed May 9, Barclays said Homex failed to make required transfers of $1.7 million to the bank in April as collateral to cover potential losses, triggering a default.
Barclays said Homex was obligated to pay 536.6 million pesos for the early termination of the contract. Credit Suisse is seeking $26.7 million from Homex after it requested last month that a 2009 agreement be canceled, the Swiss bank said in a complaint filed in New York State Supreme Court in Manhattan.
“Certain of the aforementioned 2013 matters arguably have resulted in an event of default under the terms of the Company’s Senior Guaranteed Notes,” Homex said in the filing.
Brandon Ashcraft, a New York-based spokesman at Barclays, declined to comment on the Homex statement. Drew Benson, a spokesman for Credit Suisse, declined to comment on the Homex statement and lawsuit.
“The speed of the collapse has surprised many people,” Joe Kogan, the head of emerging-market debt strategy at Bank of Nova Scotia, said in telephone interview from New York. “They’re out of cash.”
Urbi, whose cash and equivalents fell 95 percent in the first three months of the year, said May 20 that it won’t make the $6.4 million in interest due on its 2016 notes following the expiration of a 30-day grace period.
On April 15, the Mexicali, Mexico-based company said it hired Rothschild and other advisers to analyze options including a debt restructuring.
Urbi faces the most lawsuits among Mexico’s three biggest homebuilders, with Barclays, Credit Suisse, Deutsche Bank AG and GE Capital, the financing arm of General Electric Co., all filing complaints against the company since early April.
The company’s bonds due in 2022 have plunged 76.91 cents this year through yesterday to a record low 18.15 cents on the dollar, according to data compiled by Bloomberg.
Geo, based in Mexico City, said last month it hired Fians Capital to advise it on a possible restructuring. It missed a bond payment for 2.3 million pesos due April 26. The company’s bonds maturing in 2022 have tumbled 67.24 cents in 2013 through yesterday to 39.50 cents on the dollar.
Carlos Legaspy, who manages $350 million in emerging-market debt at Insight Securities Inc. in Chicago, says that while he’s avoiding Homex, Geo and Urbi debt, their selloff is creating a buying opportunity in other Mexican construction companies. He said bonds sold by Servicios Corporativos Javer SAPI and Empresas ICA SAB have been hurt by a knock-on effect from peers.
Homebuilder Javer’s bonds due in 2021 have dropped 19.87 cents this year through yesterday to 86.99 cents on the dollar. Similar-maturity notes from ICA, Mexico’s biggest construction company, have dropped 22.55 cents to 86.22 cents over the same period.
“The way I’m playing it, is I’m sticking to the non-distressed construction, the Javers and ICAs,” Legaspy said.
The extra yield investors demand to own Mexican government dollar bonds instead of Treasuries climbed nine basis points, or 0.09 percentage point, to 174 basis points at 3:56 p.m. in New York, according to JPMorgan Chase & Co.
The cost to protect Mexican debt against non-payment for five years with credit-default swaps rose three basis points to 90 basis points, according to data compiled by Bloomberg. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.
The peso rose 0.1 percent to 12.4053 per dollar. Yields on interbank rate futures contracts due in December, known as TIIE, added five basis points to 4.19 percent.
Vaquero’s Matthews said Homex is likely to restructure its debt while some companies in the industry may disappear altogether.
“The recovery for foreign bondholders is negligible,” he said.