Fitch Downgrades & Places Brazilian Homebuilders on Negative Outlook.

SAO PAULO, Brazil & CHICAGO -- Fitch Ratings has taken various rating actions on the following Brazilian homebuilders:

Cyrela Brazil Realty S.A. Empreendimentos e Participacoes

--Local currency Issuer Default Rating (IDR) downgraded to 'BB-' from 'BB';

--Foreign currency IDR downgraded to 'BB-' from 'BB';

--National scale rating downgraded to 'A+(bra)' from 'AA-(bra)'.

Even Construtora e Incorporadora S.A. (Even)

--Local currency Issuer Default Rating (IDR) affirmed at 'B+';

--Foreign currency IDR affirmed at 'B+';

--National scale rating downgraded to 'BBB+(bra)' from 'A-(bra)';

--Second and third debenture issuances downgraded to 'BBB+(bra)' from 'A-(bra)'.

Gafisa S.A.(Gafisa)

--National scale rating downgraded to 'A-(bra)' from 'A(bra)';

--Fifth debenture issuance downgraded to 'A-(bra)' from 'A(bra)'.

Trisul S.A.(Trisul)

--National scale rating downgraded to 'A-(bra)' from 'A(bra)';

--First debenture issuance downgraded to 'A-(bra)' from 'A(bra)'.

The Rating Outlook for all of the above corporate ratings is Negative.

Company S.A.

--Local currency IDR maintained at 'B+';

--Foreign currency IDR maintained at 'B+';

--National scale rating maintained at 'A-(bra)';

--Third debenture issuance maintained at 'A-(bra)'.

Company S.A.'s ratings remain on Rating Watch Positive. Fitch is analyzing the merger of Company and Brascan Residential Properties S.A. and will resolve the Positive Rating Watch in the near term.

The rating actions and the Negative Outlook for the homebuilders reflect the change in the sector's fundamentals and the expectation that homebuilders in Brazil will face a challenging operating environment and financial pressures in 2009 and 2010. Fitch expects a slowing Brazilian economy, limited access to real estate credit, higher cost of credit, weakening of demand and consumer confidence, lower income and higher unemployment rates to negatively impact sector fundamentals. Ratings may be further affected in the case of a prolonged downturn that includes a scarcity of long-term funding sources to finance these once rapidly growing businesses. Homebuilders' profitability and operational cash flow generation can be significantly influenced by business and macro factors challenging the management of balance sheets and liquidity.

Fitch expects a reduction in the liquidity of the Brazilian homebuilding industry, as cash will be spent to cover construction costs. Credit availability has shrunk globally and in the Brazilian market leading to a considerable reduction of credit risk exposure by the Brazilian banks which have sought to preserve capital. Consequently, funding costs have risen and tenors have shortened. The limited availability of lines of credit in the Brazilian market will continue to pressure real estate companies' liquidity, especially those with less robust capital structure and less representative scale. Most homebuilders have generated negative free cash flow in 2007 and 2008, due to the increased volume of projects in course. Fitch expects cash flow to remain negative in 2009.

Financial performance is expected to be under pressure in 2009. The growth of supply and the willingness to buy new homes observed in the last couple of years has recently decreased. Despite fewer project launches, Fitch expects EBITDA and margins will decrease, and inventory levels will rise. Although not experienced to date, possible discounting of sales price would further affect profitability. The third quarter of 2008 (3Q'08) results for homebuilders analyzed by Fitch reflected a decline of the total future sales value (VGV) of projects launched to BRL2.9 billion from BRL4.6 billion in 2Q'08. Net revenues and EBITDA in the last 12 months (LTM) ended September 2008 still benefited from the good moment of the sector in Brazil, however, 3Q'08 results revealed some downturn caused by the new scenario and EBITDA margin reduced to an average of 16.1% from 18.9% in 2Q'08.

Leverage will likely remain under pressure in 2009. In the LTM ended in September 2008, total debt, excluding Housing Financial System (SFH) loans, to EBITDA of homebuilders analyzed by Fitch stood at 2.9 times (x), compared to an average of 2.3x and 1.6x in the LTM ended June 2008 and 2007, respectively. Net debt, excluding SFH loans, to EBITDA also increased, to a still adequate average of 0.9 times in the LTM ended September 2008, compared to an average of 0.4 times and -0.8 times in the LTM ended June 2008 and 2007, respectively. Lower EBITDA and cash levels going forward will contribute to higher ratios and will reduce companies' coverage ratios.

With the availability of credit lines significantly reduced, companies are now using cash to cover construction, advertising and operational costs. Liquidity position measured by cash to short term debt of homebuilders analyzed by Fitch dropped to a still adequate average of 2.4x in the LTM ended September 2008, compared to an average of 3.4x and 5.5x in the LTM ended June 2008 and 2007, respectively. Positively, the sector's substantial capitalization, with the injection of about BRL14 billion in new capital through initial public offers (IPOs) of more than 20 Brazilian homebuilders in 2006 and 2007 has provided many companies with sizable cash balances to help fund out these in-process projects. Also, some of the homebuilders have recently benefited from new medium term funding, new capital injection or change in ownership. Trisul issued a 5-year BRL200 million debentures in July 2008; Even received a BRL150 million capital injection in September 2008; Company S.A. was acquired by the Brookfield group and merged with Brascan Residential Properties.

Homebuilders have also responded adequately to the current situation by dramatically curtailing growth plans with the aim to preserve liquidity. Most homebuilders have postponed project launches, reduced guidance for new projects and delayed many projects until there is more clarity to the amount of credit availability and real estate demand. Project launches guidance of homebuilders analyzed by Fitch announced earlier in 2008 and in the last quarter of 2008 dropped by 22%. In addition to the reduction in project launches, companies are taking several measures to preserve liquidity, such as lowering operating costs, headcount and avoiding land acquisition with cash. Fitch expects companies to continue adopting measures to protect liquidity, given the environment subject to credit squeeze and the sector's typical high cash needs.

Consolidation of the Brazilian homebuilding sector is a real possibility as the downturn continues. During the second semester of 2008, several ownership changes occurred including the acquisition of Tenda S.A. by Gafisa, in which Equity International increased its share in Gafisa to 19% from 14%. Also, the merger of Company S.A. and Brascan has already been completed. The BRL3 billion line of credit from BNDES announced in the last quarter of 2008, providing funds for the acquisition of projects of companies under difficulties, should favor market consolidation on behalf of the larger and most established Brazilian homebuilding companies, which is positive for the industry.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.