Fitch Ratings Raises Outlook for Brazilian Homebuilding Sector

Fitch Ratings has revised the Rating Outlook for the following Brazilian homebuilders to Stable from Negative as well as affirmed their ratings:

Brookfield Incorporacoes S.A. (Brookfield Incorporacoes)
--Local currency Issuer Default Rating (IDR) at 'BB-';
--Foreign currency IDR at 'BB-';
--National scale rating at 'A+(bra)';
--First debenture issuance at 'A+(bra)'.

Brookfield Sao Paulo Empreendimentos Imobiliarios S.A. (Brookfield Sao Paulo)
--Local currency IDR at 'BB-';
--Foreign currency IDR at 'BB-';
--National scale rating at 'A+(bra)';
--Third debenture issuance at 'A+(bra)'.

Cyrela Brazil Realty S.A. Empreendimentos e Participacoes (Cyrela)
--Local currency IDR at 'BB-';
--Foreign currency IDR at 'BB-';
--National scale rating at 'A+(bra)'.

Even Construtora e Incorporadora S.A. (Even)
--Local currency IDR at 'B+';
--Foreign currency IDR at 'B+';
--National scale rating at 'BBB+(bra)';
--Second and third debenture issuances at 'BBB+(bra)'.

MRV Engenharia e Participacoes S.A. (MRV)
--National scale rating at 'A+(bra)';
--Second debenture issuance at 'A+(bra)'.

Fitch also maintains ratings of the following companies with a Negative Outlook with the exception of Tenda, which is in the process of merging into higher rated Gafisa and is on Rating Watch Positive. The rating levels are as follows:

Gafisa S.A.(Gafisa)
--National scale rating 'A-(bra)';
--Fifth debenture issuance 'A-(bra)'.

Trisul S.A.(Trisul)
--National scale rating 'A-(bra)';
--First debenture issuance 'A-(bra)'.

Construtora Tenda S.A. (Tenda)
--National scale rating 'BBB(bra)';
--First debenture issuance 'BBB+(bra)'.

The Stable Rating Outlook for the homebuilders reflects the fast and consistent changes in the sector's weak fundamentals observed since January 2009 and the limited impact of the global credit crisis on the Brazilian economy. The valuable support extended by the Brazilian government to homebuilders during the crisis limited the liquidity risk in an environment of softened demand. The majority of companies analyzed by Fitch successfully managed the adverse environment and reduced project launches, focused on the sale of inventory and preserved liquidity. Some homebuilders are expected to recapitalize in the short term, improving the liquidity position to sustain its growth plans. Fitch also expects homebuilders in Brazil to resume their growth strategy, as the availability of real estate credit, consumer confidence and demand has improved, if compared to the levels reported in the last quarter of 2008.

The Negative Outlooks for Gafisa and Trisul reflect the companies' weak credit metrics during the last 12 months and the expectation that they will continue to face operating and financial challenges to recover its credit metrics to levels reported before the crisis and more in line with their current ratings.

Fitch will review the Brazilian homebuilders' ratings in the near term and further rating actions will be driven by the company's individual operational and financial performance and the expectation for its business in a more favorable operating environment.

<b>Brazilian Economy Resilience to Improve Sector Fundamentals: </b>
<small>The faster than expected recovery of the Brazilian economy is key to improving real estate sector's fundamentals. Fitch expects Brazilian GDP to contract 0.4% in 2009 and grow 3.8% in 2010, compared to the initial forecasts at the beginning of 2009 of a contraction of 1% and growth of 3.2%, respectively. Although the unemployment rate increased since January 2009, reaching a peak of 9% in March 2009, it has shown signs of improvement to 7.7% in September 2009. Demand and consumer confidence, which significantly dropped during the last quarter of 2008 and first quarter of 2009, have recovered since May 2009 and the upward trend is expected to continue. </small>

<b>Return of Credit Supports Business Growth and Demand: </b>
<small>The slow return of the availability of credit lines in the Brazilian market should support the homebuilders' growth plans and stimulate demand. The local market has shown signs of recovery since the second quarter of 2009, underpinned by a moderate recovery of market sentiment. While no debt issuances were made by real estate companies in the local capital markets from January to March 2009, about BRL900 million was issued since April 2009, of which BRL600 million is related to funding from Caixa Economica Federal (Caixa). The Brazilian capital market has recently opened for new issuances and homebuilders are expected to reinforce their cash position to support business growth, land bank acquisition and high working capital needs inherent to the business nature.

The Brazilian government has extended valuable support to homebuilders during the crisis, stimulating demand, especially in lower income segments. Since the announcement of the 'My Home My Life' program ('Minha Casa Minha Vida') in March 2009, with a total funding amount expected to reach BRL36.5 billion for the construction of 1 million homes, only about 13,300 homes were financed by Caixa up to June 2009. The program facilitates access to real estate credit for the low- and middle-income homebuyers by providing subsidized interest rates with a grace period, longer terms and lower installments. The program's strong dependence on Caixa and the slow and bureaucratic process to obtain all the licenses may continue to delay the implementation of all measures of the program. </small>

<b>Majority of Fitch Rated Companies Successfully Managed Crisis: </b>
<small>The adverse environment observed since the last quarter of 2008 resulted in weaker overall credit metrics. Based on the companies analyzed by Fitch, liquidity, measured by cash and receivables from ready and delivered units to short-term debt, dropped to an average of 2.7 times (x) in June 2009, from an average of 6.7x in June 2008. Despite weaker credit metrics and higher levels of leverage, the majority of homebuilders were able to preserve adequate liquidity to face debt amortization and cover high working capital needs, thanks to their strategy of dramatically slowing growth plans and increasing sales of inventories. Fitch expects free cash flow to remain negative in 2009 and, following the completion of the majority of the projects launched in 2007 and 2008, some homebuilders should report positive cash flow during 2010 and thereafter. </small>

<b>Brazilian Homebuilders Resume Their Growth Plans: </b>
<small>After a dramatic drop in project launches and several initiatives to protect liquidity, homebuilders resumed their growth plans since the second quarter of 2009. Total project launchings of the companies analyzed by Fitch decreased to BRL4 billion in the first half of 2009, down 40% and 60% compared to the second half of 2008 and first half of 2008, respectively. Fitch does not expect project launches to return to the levels observed before the credit crisis in the short term for all homebuilders. Only more robust companies that successfully managed liquidity position during the crisis, with good access to debt and capital markets, should report a sharp increase in project launches in the short term.

The reduction in demand was smoother than previously expected, evidencing the surprising response of the Brazilian economy to the more challenging global environment. Considering the companies analyzed by Fitch, presales totaled BRL5.8 billion in the first half of 2009, compared to BRL4.2 billion in the second half of 2008 and BRL6.7 billion in the first half of 2008. The good performance reported in the first half of 2009 reflects the recovery o

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