February 22, 2017 / 5:39 PM / in 8 months

UPDATE 1-Brazil builder PDG seeks court protection from creditors

(Adds context, analyst comment)

SAO PAULO, Feb 22 (Reuters) - Brazilian homebuilder PDG Realty SA said it was seeking protection from creditors by filing on Wednesday to restructure its debt in court, the country’s second publicly listed builder to do so in less than six months.

PDG’s gross debt was 5.4 billion reais ($1.75 billion) at the end of September, according to a quarterly earnings report. The company had 235 million reais of cash on hand at the time.

The company said its efforts to restructure about 74 percent of its bank debt last year “did not achieve the originally desired effect.” PDG said it continues to struggle with weak demand, growing sales cancellations, stalled construction projects and lawsuits from clients and contractors.

The bankruptcy filing in a São Paulo court follows a similar move by Viver Incorporadora e Construtora SA in September and underscores risks for the sector, which boomed early this decade due to plentiful capital and government incentives for low-income housing.

PDG passed on the low-income housing boom and focused on more custom-built projects in the middle-income segment as it pushed into new corners of the country.

That made it harder to achieve economies of scale as it tripled the size of its operations in three years to become Brazil’s biggest homebuilder in 2011.

As PDG’s finances deteriorated, management hired São Paulo-based RK Partners in November as adviser on a new round of talks with its creditors. RK’s mandate included helping PDG access credit to obtain construction financing, the builder said in Wednesday’s filing.

PDG shares fell as much as 5 percent in early Wednesday trading and then rebounded to a 3 percent gain before they were suspended at 3.33 reais on the São Paulo Stock Exchange.

If a court grants PDG bankruptcy protection, it will have 60 days to present a debt restructuring plan to its creditors, which then must vote to approve or reject it. Under Brazil’s bankruptcy procedures, the company is protected from lawsuits for six months, a period known as a “stay of execution.”

During the in-court restructuring, PDG said it would do its best to keep up commercial and operation activities and follow through on commitments to clients.

$1 = 3.0788 reais Reporting by Ana Mano and Gabriela Mello; Editing by Brad Haynes and Lisa Von Ahn

Our Standards:The Thomson Reuters Trust Principles.
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