(Adds share price)
By Tatiana Bautzer
SAO PAULO, Feb 17 (Reuters) - PDG Realty SA, the Brazilian homebuilder struggling with a cash crunch, is considering surrendering buildings and land given as collateral to creditors ahead of a potential in-court reorganization, two people directly involved in the plan said.
São Paulo-based PDG hired restructuring advisory firm RK Partners in November to come up with a rescue plan. Terms of the plan contemplate giving creditors control of some assets guaranteeing debt issued by about 700 special purpose vehicles created to fund projects, the people said.
The sources asked for anonymity because the plan remains under discussion. Representatives for both PDG and RK declined to comment.
Allowing creditors to foreclose on the collateralized assets will hinge on the status of each project and other terms, the sources said. Management and board members at PDG, once Brazil’s largest homebuilder by revenue, believe an in-court reorganization is inevitable at this point, they said.
The situation underscores how mounting litigation stemming from years of delayed project deliveries and high debt have led more Brazilian real estate companies into restructurings.
Hobbled by a myriad of client lawsuits, Viver Incorporadora SA filed late last year for bankruptcy protection, the first ever by a local homebuilder.
Reuters reported last week that Urbplan Desenvolvimento Urbano SA, a Brazilian land developer controlled by Carlyle Group LP, is considering filing for creditor protection as it struggles with mounting client and creditor lawsuits.
According to one of the sources, contractual terms of a significant part of PDG’s debt give creditors the right to foreclose on collateralized assets in the event of non-payment, keeping projects and land aside in an in-court reorganization.
Hopes of a negotiated solution with creditors, coupled with recent government measures aimed at reducing the stock of unsold home units, have led to a 180 percent surge in shares of PDG this year.
The government is seeking to mitigate the impact of sales cancellations on builders through new rules that would let them keep a defined share of the home value in the event of a sales cancellation.
PDG failed to honor two scheduled debt payments in January, leading Moody’s Investors Service to cut credit ratings, citing an “unsustainable capital structure.”
Gross debt at PDG reached 8 billion reais ($2.6 billion) at the end of the third quarter, with the company keeping about 235 million reais in cash and equivalents.
The stock reversed early gains and fell 0.3 percent 3.32 reais in Friday afternoon trading in São Paulo.
$1 = 3.1015 reais Editing by Guillermo Parra-Bernal and Clive McKeef