The high leverage used by Brazilian construction companies Gafisa and Tenda led ratings agency Fitch to cut its long-term credit notes to BBB+ (Gafisa) and BBB (Tenda). According to the rating report signed by Jose Roberto Romero and Fernanda Rezende says the “outlook is negative.”

Fitch said that the downgrade reflects the weakening of the companies’ financial health, which is a result of increasing costs and the high volume of purchase cancellations, particularly in the low-income segment operated by Tenda. “The sharp decline in operating margins, increased inventory levels and deterioration of credit indicators were higher than Fitch’s initial expectations,” the two analysts said.

In an interview last week, the Gafisa’s president reiterated that the priority is to reduce leverage. “Our biggest goal is to reduce our leverage. And for that, we need to reduce substantially the risk exposure of [the low-income division] Tenda. Until then, we will not promote new project launches,” said Duilio Calciolari.

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