S&P Assigns Consorcio Hogar 'BB-/B' Cred Rtgs.

NEW YORK--(BUSINESS WIRE)-- Standard & Poor's CreditWire 7/29/98--Standard & Poor's today assigned its double-`B'-minus long-term and single-`B' short-term local and foreign currency issuer credit ratings to Consorcio Hogar S.A. de C.V. (Hogar).

In addition, Standard & Poor's assigned its single-`B' short-term rating to the US$50 million Euro commercial paper program of Consorcio Hogar de Occidente S.A. de C.V., Hogar's main subsidiary. The program is guaranteed by Hogar.

The outlook is stable. The ratings reflect: -- Hogar's position as an important low-income housing developer in Mexico; -- The developer's high market share in the western region of the country, specifically in the states of Jalisco, Nayarit, Michoacan, and Sinaloa; and -- The benefits of participating in an industry with strong growth potential, supported by mortgage credit providing housing government institutions. The ratings also consider the seasonality of the sector derived from the lending cycles of the mortgage financing providers and a weaker financial profile as the company increases its debt levels to achieve its expansion program. The short-term rating assigned to Consorcio Hogar de Occidente's Euro commercial paper program considers the guarantee of the holding company, Hogar.

Hogar was founded as an association between various low-income housing developers in Jalisco, to take advantage of the favorable demographics of the region and its potential growth. Since the beginning of its operations, the company has built more than 10,000 houses that were sold through housing government institutions such as Fovi and Infonavit. The company is currently expanding its program to the states of Guanajuato, Sonora, and Chihuahua, and the metropolitan area of Mexico City. This expansion will increase its geographic diversification and will allow it to obtain greater economies of scale. Hogar also has begun a pilot low-to-middle income housing development in McAllen, Texas, which will be the basis for additional expansion in U.S. Hogar has a land backlog equivalent to two years of operation and a mortgage backlog of 7,788 units. The company's capacity to satisfy existing housing demand is restricted by the number of mortgage loans provided by Fovi and Infonavit, and its potential clients' lack of previous savings. Therefore, although the company benefits from existing housing demand and from its access to mortgage loans for its potential clients, the developer is susceptible to the delays that could arise in the housing budget and in the mortgage granting process of these institutions.

Revenues and cash flow generation have followed rapid sales volume growth in recent years. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins for 1997 were affected by a 9% average price reduction, as a result of a change in the sales mix. During this time, the company focused on FOVI (Bank of Mexico's housing fund) sales, in the category of 100 minimum wages, or approximately 120,000 pesos. Still, 1997 EBITDA margin of 18%, is expected to remain high at around 20%, based on the development of greater operating efficiencies and economies of scale, and a higher participation in the 130 minimum wages category (about 150,000 pesos). During 1997, Hogar's financial leverage was moderate, with a total debt to capitalization of 11%, partly achieved as a result of the US$32 million initial public offering issued in May 1997. However, with the increase in debt to finance future expansion, the company's total debt to capitalization is expected to increase to an average of 35% in the next few years. Hogar will use proceeds of the Euro commercial paper program for working capital needs and intends to substitute its commercial paper lines in pesos with a peso-denominated medium-term note program in the next few months for land acquisition. Although debt coverage ratios historically have been adequate, these ratios deteriorated during 1995 due to the high interest rates that prevailed in the Mexican market. During the last two years, cash flow protection have been strong due to the moderate debt level that Hogar has been able to maintain as a result of its initial public offering. However, with the issuance of additional debt, EBITDA interest coverage ratio is expected to decrease to an average of 3.0 times during the next three years. The foreign exchange exposure related to the Euro commercial paper program is expected to diminish by the use of hedging contracts.

OUTLOOK: STABLE Standard & Poor's expects that Hogar will achieve its planned expansion and will be able to substitute its peso-denominated short-term debt with the medium-term note program. Delays in short-term debt refinancing, or the prolonged use of the proceeds from the Euro commercial paper program to finance long-term assets, could result in Standard & Poor's lowering the rating. -- CreditWire

   CONTACT: Sandra Sainz, Mexico City (52) 5-280-4300
             Patricia Calvo, Mexico City (52) 5-280-4300
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