conciliador: thomas heather - casas geostorage.casasgeo.com/presenta-ingles/geo... · conciliador:...

Conciliador: Thomas Heather

Restructuring Proposal April 8, 2015

Conciliador: Thomas Heather Disclaimer

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This presentation constitutes a confidential working paper made by the Conciliador considering negotiations and meetings held during GEO’s restructuring proceedings. This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Final terms and conditions may differ from those stated herein. Any estimates or projections as to events that may occur in the future (including, without limitation, those regarding GEO’s financial position, business strategy, plans and objectives) are forward looking statements, and are based on knowledge and information made available by certain financial advisors. Actual results may differ materially from such estimates or projections and no liability shall arise for failure to achieve any such projections. No responsibility is assumed for any loss or damage of any kind arising from the use of such information, either in whole or in part. This presentation should not be construed as legal, tax, accounting or investment advice or a recommendation. This presentation does not purport to be all-inclusive.


1. Introduction

2. Plan Sponsors' industry perception

3. Plan Sponsors' adjusted business plan

4. Restructuring proposal

5. Why support the proposed plan?

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Conciliador: Thomas Heather Introduction

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The Conciliador has prepared a Plan of Reorganization (the “Plan”) based on a capital injection proposal from a group of institutional Mexican investors (the “Plan Sponsors”)

− Such capital injection proposal is subject to a final Commitment ; Plan Sponsors will require internal formal authorizations and regulatory approvals

The Plan considers a capital injection of P$3.5bn The capital injection proposal is based on a more conservative business plan than the business plan developed by GEO in January 2015 The Plan considers some changes vis a vis GEO’s pre-packaged plan. This is mainly the result of a smaller capital injection than contemplated in the pre-packaged plan


1. Introduction





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Conciliador: Thomas Heather Plan Sponsors’ Industry Outlook

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The Mexican housing industry has undergone a major structural change Sales volumes of new homes have decreased compared to the peak reached in 2008; the main reasons are:

Higher mortgage volumes relative weight in the used homes market vs. previous years

Higher mortgage volumes relative weight for home improvement and remodeling vs. previous years

Lower demand in certain regions

Infonavit’s projections consider stable sale volumes going forward

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Conciliador: Thomas Heather Market size adjustment

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The “New Normal” volume level of new homes is 40% lower vs. the pre-crisis volume: a smaller market results in Plan Sponsors’ strategy to be a smaller company

Sources: CONAVI Note : 1 Includes Infonavit and Fovissste figures only

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2007 2008 2009 2010 2011 2012 2013 2014

PHYSICAL IMPROVEMENT

USED

NEW

Number of mortgages by type M

ort

gage

s

Conciliador: Thomas Heather Industry Outlook

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Infonavit’s projections consider stable sale volumes going forward Subsidies will continue to be available; however, they may be subject to changes in the federal budget

50 50 50 50 50

266 266 267 274 276

114 114 114 118 118

0

50

100

150

200

250

300

350

400

450

500

2014 2015E 2016E 2017E 2018E

New Fovissste New Used

$2,000

$4,000

$6,000

$8,000

$10,000

2010 2011 2012 2013 2014 2015E

Un

its

Estimated units titled (‘000)1 Federal subsidies for new and used homes acquisition

P$

m

Sources: INFONAVIT, CONAVI Note : 1 2014 breakdown and relative weight assumed to remain constant in all of the projection period


1. Introduction





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Conciliador: Thomas Heather Key Assumptions

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Company reaches a stabilized annual sales volume of 25,000 homes in year 5 Margins and working capital metrics aligned with the vision that Plan Sponsors’ have about current industry comparables No land repurchases at exit related to the factoring and liquidity transactions Payment-in-kind for non-strategic projects

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2

3

4


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2016 2017 2018 2019 2020 2021 2022 2023

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Plan Sponsors’ Long Term View

Business Plan aligned with Plan Sponsors’ view of market volumes

Projected sales Existing / new projects mix

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2015 2016 2017 2018 2019 2020 2021 2022 2023

GEO Proposal CI Proposal

Un

its

-

5,000

10,000

15,000

20,000

25,000

30,000

2015 2016 2017 2018 2019 2020 2021 2022 2023

Existing Projects CI New Projects CI

Un

its

GEO Jan/15 Business Plan

Plan Sponsors’ adjusted Business Plan

Existing projects

.07

New projects

Projected EBITDA

P$

m

GEO Jan/15 Business Plan

Plan Sponsors’ adjusted Business Plan


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Financial projections

P&L (P$m, unless otherwise specified)

Note: 1 Includes unit, commercial and land sales 2 Includes additional gross margin adjustments 3 Resulting from the capitalization of liabilities

2015 2016 2017 2018 2019 2020 2021 2022 2023 Units Titled 204 7,451 15,724 20,039 22,697 25,013 25,055 25,053 24,556 Average Price (P$) 409,033 444,765 446,492 486,481 507,350 519,715 540,752 565,874 599,697

EBITDA: Op. income (683) 118 601 1,259 1,569 1,888 1,968 2,073 2,154 Depreciation 302 367 367 232 206 128 127 124 134 Other op. accounts (3) (4) (2) (0) (0) (0) (0) (0) -- Cash minority outflows (3) (67) (78) (93) (131) (123) (123) (123) (122) Capitalized interest 10 252 428 454 450 475 462 447 359

EBITDA (376) 665 1,316 1,852 2,095 2,366 2,433 2,521 2,526

Sales 1 90 3,403 7,274 10,086 11,858 13,339 13,896 14,535 15,113 Net Sales 88 3,290 6,874 9,652 11,407 12,918 13,386 13,986 14,574

Cost of sales2 (54) (2,152) (4,680) (6,592) (7,876) (8,955) (9,310) (9,762) (10,280) Capitalized interests (10) (252) (428) (454) (450) (475) (462) (447) (359) Gross profit 23 887 1,765 2,606 3,080 3,488 3,614 3,776 3,935

SG&A and lease expenses

(404) (402) (798) (1,115) (1,304) (1,473) (1,519) (1,579) (1,646)

Depreciation (302) (367) (367) (232) (206) (128) (127) (124) (134) Operating income (683) 118 601 1,259 1,569 1,888 1,968 2,073 2,154

Financing cost 16 (89) (68) (45) (26) (13) (10) (9) (9) Adjusted Net income

(1,477) (209) 75 438 634 991 1,131 1,221 1,301

Deal adjustments3 20,154 - - - - - - - - Net income 18,737 (209) 75 438 634 991 1,131 1,221 1,301


Notes:

1 Includes investment in properties, derivative instruments, computer software and investment in shares of subsidiaries 2 Includes customer advances, taxes (other than VAT) and service creditors 3 Macropuente, bridge loans and land loans 4 Includes other secured debt and GeoMaq liability. Plan Sponsors’ treatment of GeoMaq to be determined 5 Includes deferred tax liabilities, income tax payable and historical tax de-consolidation liability

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Balance Sheet (P$m)

2015 2016 2017 2018 2019 2020 2021 2022 2023 Total current assets 2,153 1,959 3,529 5,281 6,976 8,493 10,048 11,765 14,051

of which: Cash and Equivalents 1,196 842 2,170 3,755 5,343 6,773 8,296 9,976 12,240 Inventory 12,128 12,333 12,532 12,546 12,216 11,256 10,197 8,255 6,728 PP&E 1,760 1,517 1,293 1,123 1,019 1,016 999 991 982 Other assets (LT) 1 389 389 389 389 389 389 389 389 389 Total assets 16,430 16,198 17,742 19,339 20,599 21,154 21,633 21,400 22,150 Accounts payable 3 386 1,018 1,430 1,681 1,880 1,958 2,054 2,121 Other 2 1,424 1,196 1,253 1,271 1,342 1,398 1,419 1,446 1,465 Total current liabilities 1,428 1,582 2,271 2,700 3,023 3,278 3,378 3,500 3,586 Secured project debt 3 2,925 3,156 4,398 5,616 6,233 5,803 5,157 3,581 2,943 Other 4 1,574 1,320 1,014 682 367 105 0 0 0 Total Debt 4,500 4,476 5,412 6,297 6,600 5,908 5,157 3,581 2,943 Land plot suppliers 120 80 40 0 0 0 0 0 0 Benefits to employees 18 18 18 18 18 18 18 18 18 Taxes payable 5 1,174 1,059 944 829 829 829 829 829 829 Total other liabilities 1,311 1,156 1,002 847 847 847 847 847 847 Total liabilities 7,239 7,215 8,685 9,844 10,470 10,033 9,382 7,928 7,376 Total equity 8,267 8,135 8,297 8,846 9,621 10,737 11,992 13,328 14,720 Minority Interest 925 847 761 649 508 384 259 144 54 Total equity 9,191 8,983 9,057 9,495 10,130 11,121 12,251 13,472 14,773 Total liabilities + equity 16,430 16,198 17,742 19,339 20,599 21,154 21,633 21,400 22,150


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Cash Flow (P$m)

2016 2017 2018 2019 2020 2021 2022 2023 Operating activities:

Net income (209) 75 438 634 991 1,131 1,221 1,301 Depreciation 367 367 232 206 128 127 124 134

Total 158 442 670 840 1,119 1,258 1,345 1,436

Working capital: A/R (136) (221) (156) (98) (82) (31) (36) (32) Other receivables (24) (21) (12) (8) (4) (2) (0) 10 Inventory (205) (199) (14) 330 960 1,059 1,942 1,526 A/P 383 632 412 252 199 78 96 67 Taxes, except ISR (164) - - - - - - - Service creditors (64) 57 17 71 56 22 27 18

Total (211) 249 247 547 1,128 1,126 2,029 1,590

Operating cash flow (53) 690 917 1,387 2,247 2,383 3,374 3,026

Investing activities: Capex (PP&E) (123) (143) (62) (102) (125) (110) (117) (125)

Amortizations/ Issuances of debt: Net financing (63) 896 845 302 (691) (751) (1,577) (637)

Taxes due to de-consolidation: Total (115) (115) (115) - - - - -

Total change in cash (354) 1,329 1,584 1,588 1,430 1,523 1,680 2,264

Beginning cash 1,196 842 2,170 3,755 5,343 6,773 8,296 9,976 (+/-) change in cash (354) 1,329 1,584 1,588 1,430 1,523 1,680 2,264

Ending balance 842 2,170 3,755 5,343 6,773 8,296 9,976 12,240

Free cash flow (918) 965 626 1,532 2,391 2,733 3,444 4,194


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Key Ratios

Key Ratios

Ratios 2016 2017 2018 2019 2020 2021 2022 2023

Gross Margin 26.1% 24.3% 25.8% 26.0% 26.1% 26.0% 26.0% 26.0%

Operating Margin 3.5% 8.3% 12.5% 13.2% 14.2% 14.2% 14.3% 14.3%

EBITDA Margin 19.5% 18.1% 18.4% 17.7% 17.7% 17.5% 17.3% 16.7%

Net Margin (6.1%) 1.0% 4.3% 5.3% 7.4% 8.1% 8.4% 8.6%

Debt / EBITDA 6.73x 4.11x 3.40x 3.15x 2.50x 2.12x 1.42x 1.17x

Net Debt / EBITDA 5.46x 2.46x 1.37x 0.60x (0.37x) (1.29x) (2.54x) (3.68x)


1. Introduction





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Conciliador: Thomas Heather Key Restructuring Premises

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Solid balance sheet and strong liquidity High capitalization of debt Debt levels aligned to cash flow generation Liquidity to support the re-start/ramp-up of the Company’s operations Rational and efficient use of New Money: Develop only profitable projects Operate only in strategic markets

− 32 projects preliminary identified as non-strategic − GEO will have 18 months to select strategic projects

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Conciliador: Thomas Heather Secured Creditors

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Treatment

Construction Loans (bridge loans and other)

Secured debt in non-strategic projects will be “paid-in-kind”

Continued funding of construction loans and revolving credit lines to ensure project completion

Maintenance of original payment formulas

Grace period on interest until projects are re-started

Interest rate of TIIE + 200 bps for existing bridge loans

Macro Puente (Banamex)

Other Secured Debt To be determined

Conciliador: Thomas Heather Factoring, Liquidity transactions, Land JVs and Other

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Treatment

Factoring Transactions

No land repurchase

Land will be developed under a “Land JV” scheme

Only strategic projects will be developed

Land share percentage of 15% of sales to be paid to banks

Liquidity Transactions

No land repurchase

Land will be developed under a “Land JV” scheme

Terms and conditions will be negotiated

Land JV Partners Only strategic projects will be developed

Non-strategic projects may be disposed by Land JV Partners, with no recourse to GEO

Current payment terms based on IRRs will be converted to fixed land share percentages for the life of the project

5 year exclusivity period for development

Securitization, GeoMaq and Leases

To be determined

Conciliador: Thomas Heather Unsecured creditors, Existing Equity and Management treatment

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Treatment

Unsecured creditors Receive 88% of New Equity pre-dilution of New Money and warrants

Right to subscribe to the New Money equity offering at the Discounted Value (see next page)

Vesting/barrier Warrant for 9.70% of the New Equity (fully diluted)

− Vesting price equity value of P$21.907bn

− Strike price equity value of P$4.175bn

− 5-year vesting period and a 7-year option period

Existing Equity Receive 8% of New Equity pre-dilution of New Money

Existing Management

Receive 4% of New Equity pre-dilution of New Money and warrants

Terms of existing management warrants:

− 3% of fully diluted shares

− Strike price equity value of P$24.097bn

− 12 year tenor

Conciliador: Thomas Heather New Money

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Treatment

New Money Equity injection of P$3.5bn. Shareholders will have right of first refusal to subscribe to this equity issuance at an equity value of P$4.175bn (the “Discounted Value”). Plan Sponsors’ will backstop the capital injection

− Plan Sponsors’ Plan Equity Value of P$10.213bn

The Plan Sponsors’ will receive a back-stop fee comprised of warrants for 17.46% of fully diluted shares structured as follows:

Tranche 1: − 1.25% fully diluted equity ownership − Vesting price equity value of P$11.557bn − Strike price equity value of $4.175bn − 5-year vesting period and a 7-year option period



Conciliador: Thomas Heather New Money (cont’d)

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Treatment

Use of Proceeds Exit costs

Legacy costs in first few months of operation (fiscal liabilities and other)

Working capital

Restructuring costs

Corporate Governance

Board of Directors: comprised of 8 to 12 members to be allocated as follows: (i) Chairman of the Board to be appointed by the Plan Sponsors, (ii) two thirds shall be Independent Directors, and (iii) Plan Sponsors’ will appoint 50% plus 1 of the Directors

Management: Chief Executive Officer and Chief Financial Officer to be appointed by Plan Sponsors. Other members of senior management to be appointed by the Board

New Management Incentive Plan

Up to 1.75% of fully diluted shares to be allocated for a management incentive plan. These shares may be distributed as warrants, stock grants, options or other means


1. Introduction





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Conciliador: Thomas Heather Why support the proposed plan?

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This is the only available restructuring plan. The alternative would be the liquidation of the Company. The Conciliador has not received any other viable proposal and the statutory period for the workout period will terminate in a matter of weeks The New GEO will be well capitalized and is expected to have sufficient liquidity to execute the proposed Business Plan and continue to be one of the key players in the Mexican housing market Plan Sponsors have significant industry experience, extensive local relationships and a solid reputation in the market

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conciliador: thomas heather - casas geostorage.casasgeo.com/presenta-ingles/geo... · conciliador:...

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