Homex files for bankruptcy protection

July 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Troubled Mexican homebuilder Desarrolladora Homex SAB has filed for bankruptcy protection, according to a statement released by the firm. Homex’s bankruptcy filing came about due to a heavy debt load and rapidly declining sales of homes in the Mexican market. Homex hopes that the bankruptcy deal agreed with the company’s creditors prior to the filing will allow the firm to complete the restructuring process and remain viable.

In order to carry out its much needed restructuring, Homex, which was founded in 1989, opted to file for a pre-packaged bankruptcy proposal, backed by the majority of its creditors. The filing, submitted to a bankruptcy court in the company’s home town of Culiacan, Mexico, will see the firm attempt to secure funding to help it restart around 60 housing developments. In order to help secure further funds for these developments, Homex began to negotiate with Chicago billionaire Sam Zell in early April. The company has sought investment from Mr Zell and his firm Zell Credit Opportunities Fund with a view to securing two three-year loans totalling $162m. According to Homex, the loans would help the company to build up to 8000 new homes as well as finance general corporate expenses for the foreseeable future. Historically, Homex’s business has been focused on providing affordable entry level and middle income housing across both Mexico and Brazil. The firm is hopeful that the existing relationship between Mr Zell and Homex will see funds made available. Mr Zell has backed Homex previously, having purchased a minority stake in the company via Equity International Properties in 2002. Equity International cashed out of Homex between 2006 and 2008 through sales in the public market and to the company’s founders.

In a statement to the Mexican stock exchange, Homex – formerly the largest house builder in Mexico – noted that by filing for bankruptcy the company was attempting to “safeguard the long-term viability of the company, while at the same time safeguarding the rights of its creditors”. Under the terms of Homex’s bankruptcy filing, the majority of the equity in the company would be turned over to the firm’s unsecured creditors and bondholders. Between 80 percent and 92.5 percent of Homex’s equity would be transferred to creditors – the company’s existing shareholders and management would hold the remaining stock.

Homex is the latest in a string of Mexican homebuilders which have endured financial difficulty. The firm and two of its main competitors, Mexico City-based Corporación Geo SAB and Mexicali-based Urbi Desarrollos Urbanos SAB, all defaulted on their debts last year following a marked shift in government policy. Where previous government policy favoured companies committing to extensive rural developments, large, widespread developments in cities are now en vogue among Mexican law makers. As a result of this shift in focus, many Mexican home builders were left haemorrhaging cash and with sizable land inventories that had to be written down in value.

In a financial statement on the company’s website, Homex noted that it had debts of around $2.5bn as of September 2013; at the same time the firm had less than $13m in cash. Homex’s default in July 2013 was on payments to holders of its $250m in 2019 bonds. The builder also has $250m in notes due in 2015 and $400m due in 2020 that are currently nonperforming.

In light of the company’s bankruptcy filing, Moody’s Investors Service has withdrawn the C ratings that it had assigned to Homex’s guaranteed senior global notes. Moody’s also withdrew all ratings of Homex as a result of the firm’s bankruptcy filing.

Richard Summerfield