Cyrela Commercial Properties S.A. — Moody’s assigns Ba3/A2.br rating to CCP’s proposed unsecured debentures
Rating Action: Moody’s assigns Ba3/A2.br rating to CCP’s proposed unsecured debenturesGlobal Credit Research – 19 Mar 2021Sao Paulo, March 19, 2021 — Moody’s America Latina assigned a Ba3 (global scale) / A2.br (national scale) senior unsecured rating to Cyrela Commercial Properties S.A.’s new 13th series of locally issued debentures with a total face amount of BRL $300 million. The offering will be split into two tranches, comprising a first tranche of BRL $100 million due 2024 and a second tranche of BRL $200 million due 2026. The company intends to use the net proceeds to reinforce its cash position and other general corporate uses. The rating outlook remains positive.Assignment:Issuer: Cyrela Commercial Properties S.A….. New 13th Series of Local Debentures BRL $300 million due 2024 and 2026, Assigned Ba3/A2.br senior unsecuredRATINGS RATIONALECyrela Commercial Properties S.A.’s (“CCP”) Ba3/A2.br senior unsecured rating reflects the company’s status as one of the leading owners and operators of high-quality corporate office towers and shopping malls in Brazil. The ratings incorporate the company’s strengthened balance sheet with reduced leverage metrics and higher cash flows generated from a growing, top quality diversified portfolio. The company’s liquidity and funding profile is adequate, supported by its internally generated cash flow, along with approximately BRL 416 million in cash and cash equivalents on hand. Additionally, CCP’s substantial unencumbered asset pool provides a source of alternative liquidity at approximately 49% of gross assets, to meet a manageable near-term debt maturity schedule.The company’s main credit constraints include its elevated secured debt levels, although improved over the past several years, moderate near-term lease maturity risk, as well as the growing e-commerce penetration in the retail sector, which COVID-19 (coronavirus) has accelerated in terms of changing consumer preferences and spending habits. Although the portfolio is geographically concentrated in the city of Sao Paulo, the risk is substantially mitigated by the city and the region’s strong and resilient economic power. Similar to other retail landlords, CCP experienced operational challenges in 2020 due to social distancing, mandatory store closures or restricted occupancy levels in the mall segment, resulting in rent discounts and concessions. But this has been partially offset by more resiliency in the Class A/A+ corporate office market space, despite the home-office mandates.After incorporating Moody’s global standard adjustments, for the last 12-month (LTM) period ended on 31 December 2020, CCP’s total debt plus preferred stock as a percentage of gross assets and net debt to EBITDA were 36% and 5.3x (which does not include the full year benefit of EBITDA from the acquisition of 4th floor of the Faria Lima Financial Center building in November 2020), respectively, compared to 36% and 3.7x in 2019. Since 2018, the company’s secured debt levels have declined to approximately 30% of gross assets from a peak of approximately 40%, and the fixed charge coverage ratio has improved to 2.5x from 1.7x, providing a cushion against unexpected cash flow decline or higher interest rates.The positive rating outlook is based on our expectation that the company will continue to lower its leverage through its liability management plan while improving the portfolio’s operational performance and profitability.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating movement would be predicated upon CCP achieving the following criteria on a sustained basis: 1) Maintenance of a cash balance between BRL 200 and BRL 400 million to meet its debt obligations and short-term liquidity needs; 2) total debt plus preferred stock as a percentage of gross assets below 40%; 3) net debt to EBITDA below 5.0x (adjusted for any acquisitions); 4) secured debt at or below 35% of gross assets; and 5) fixed charge cover ratio above 2.0x. An increase in CCP’s owned share of total portfolio would be credit positive.Downward rating movement or a return to a stable outlook would likely result from the following criteria on a sustained basis: 1) A loss of liquidity to cover 24 months of debt obligations; 2) total debt plus preferred stock as a percentage of gross assets approaching 50%; 3) net debt to EBITDA above 6.0x; 4) significant decline in the portfolio’s occupancy rate or a 10% decline in EBITDA margins; 5) fixed charge coverage ratio approaching 1.2x. Downward rating pressure on Brazil’s credit profile would also negatively affect the company’s ratings and outlook.Based in Sao Paulo, Brazil, Cyrela Commercial Properties S.A. [B3: CCPR3] is in the business of owning, acquiring, developing and managing Class A/A+ corporate office towers and shopping centers. As of year-end 2020, CCP owned whole and partial stakes in 15 corporate office towers and seven shopping malls with a gross leasable area (GLA) of 518,000 square meters (sqm). The company’s owned consolidated share of the GLA was approximately 252,000 sqm.The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505.Alternatively, please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.Moody’s National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. 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