Fitch Affirms Urbi Desarrollos Urbanos IDRs at 'BB'; Outlook Stable

--Local currency IDR at 'BB';

--Foreign currency IDR at 'BB';

--US$150 million senior notes due 2016 at 'BB';

--Long-term national scale at 'A(mex)';

--Short-term national scale at 'F2(mex)'.

The Rating Outlook is Stable.

Urbi's ratings reflect its strong market position in the highly fragmented Mexican homebuilding industry, being the third largest homebuilder in Mexico in terms of homes sold; its geographic diversification; significant land reserve; and its financial profile. Urbi's ratings are constrained by dependency of financing of government-related mortgage funding of low-income homes, and the high working capital requirements related with the operation of the company.

The Stable Outlook reflects Urbi's consistent operating performance over the last several years and its proven ability to weather current difficult environment affecting the Mexican homebuilding sector and pursue its operating strategies without compromising its capital structure. Further, Fitch considers that there is significant room for consolidation and Urbi is competitively positioned to benefit as a result of its market share and liquidity positions, and management commitment to sustainable growth while maintaining leverage similar to current levels. The ratings incorporate Fitch's expectations that URBI's total debt to EBITDA to be approximately 1.9 times (x) considering the adoption of INIF-14, starting 2010, which recognizes revenues under the title-method rather than Urbi's historical use of percentage-of-completion method. Additionally, Fitch incorporates a gradual strengthening of its debt to EBITDA indicator during 2010; otherwise the current rating could be notched downward.

Fitch views URBI's focus on cash flow generation as a positive. Since early 2009, Urbi's financial strategy is focused on growing liquidity, and favoring financial strength and free cash flow generation over growth. The company reduced its target revenue growth for fiscal year end (FYE) 2009 from +10% to -13%, which will allow the company to reduce its working capital needs and generate positive free cash flow. Urbi's free cash flow had been negative during the last several years as cash flow was used to fund significant increases in working capital, particularly account receivable.

In line with these goals, Urbi has generated positive free cash flow over the last two quarters and increased liquidity, due to better working capital management. During the last 12 month period ended in September 2009, the company has been able to reduce working capital and generate positive free cash flow of MXN 444 million and during the first nine month of the 2009, Urbi's free cash flow was MXN 946 million, Further improvements are expected in working capital management during the fourth quarter of 2009 and should result in free cash flow generation of MXN 2,000 million through the full year.

Manageable Debt Schedule:

Urbi's leverage, measure as the total debt/EBITDA ratio, was 2.1x by the end of September 2009, and it was 1.8x by the end of December 2008. By the end of September 2009, company's debt was MXN8.3 billion, and it was composed mostly of local and international bonds (MXN3.1 billion), bank loans (MXN2.8 billion); factoring transactions (MXN2 billion), and leasing transactions (MXN335 million). Urbi faces debt amortizations of MXN1.3 billion million and MXN1.8 billion during 2009 and 2010, respectively, which is comfortably covered by its current cash and marketable securities balance of MXN3 billion by the end of September 2009. Urbi has good access to credit through capital markets and banks, and financial flexibility resulting from its strong cash position. The company is exploring options to improve its average debt maturity profile, which is, currently, approximately four years.

Consistent Diversification Strategy:

Urbi has an important geographic diversification with operations in 10 states of Mexico, which diminishes operating and funding risks. Baja California has traditionally been one of the most important locations for Urbi, nonetheless, other regions have started to become increasingly important, most notably Mexico City, Sinaloa and the Monterrey region. This strategy follows the company's diversification strategy away from the border region of Baja California towards densely populated regions with more attractive growth prospects. In terms of product diversification, Urbi's strong growth in low-middle income housing for the last year is the result of the company's decision to focus on these market segments, to take advantage of the mortgage availability for this type of housing mainly through Mexican government agencies, i.e. Infonavit, Fovissste and SHF's Rent-to-Own program. For the third quarter 2009 (3Q'09), the Affordable Entry-Level segment account for 73% and 88% of URBI's total revenues and unit sold; while during 3Q'08 this segment represented only 53% and 76%, respectively.

Sizable Land Reserve:

Urbi's land reserve is adequate, well-distributed, and reduces the need for major land acquisitions in the medium term; an adequate land bank provides the company with additional operating and financial flexibility. By the end of September 2009, Urbi's land reserve of 4,765 hectares represented approximately 6.5 years of production at current run rates, equivalent to 259,095 housing units. Urbi has land reserves in more than 10 states, providing to the company a strong platform to support its growth without requiring the need to complete major land acquisitions. Urbi's policy and operating strategy are to maintain land reserves of approximately 2.5 to 3 years of future production in medium-sized cities and from 5 to 7 years in major metropolitan areas. Of this reserve, approximately 4,332 hectares, 90% of Urbi's total land reserve is suitable for the development of affordable entry level and low middle-income housing, which is sufficient to build 239,983 units. Additionally, 433 hectares are classified for high middle-income and upper-income housing, with construction capacity of 19,112 units.

Strong Long Term Sector Fundamentals:

Despite difficult economic environment resulting from Mexico's recession, the Mexican homebuilding sector maintains strong fundamentals in the long term based on its underlying strengths, positive demographic trends, and the housing deficit. It is important to note, a full recovery will depend on the future health of the Mexican economy and the government's continued support of the housing sector.

The affordable entry or low-income segment remains the primary growth driver in the sector. The strength in the low-income sector remains supported by government efforts to make lenders shift their focus towards it. Government agencies, Infonavit will issue 500 thousand and 570 thousand mortgages in 2009 and 2010, while Fovissste, Infonavit's equivalent for public sector employees, will issue 100 thousand and 121 thousand, respectively. However, growth prospects for homebuilding remain limited as new construction financing is scarce. Consolidation in the industry continues, as small homebuilders find it increasingly difficult to fund construction and are forced to walk away from projects. Main players, as Urbi, are well positioned to weather the recession over the intermediate term based on their operational efficiency, financial strengthen; and, purchase power with supplier.

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