CHICAGO--(BUSINESS WIRE)--
Fitch Ratings has assigned a 'CCC+/RR5' rating to Beazer Homes USA,
Inc.'s (NYSE: BZH) proposed offering of $200 million principal amount of
senior notes due 2023. This notes issue will be ranked on a pari passu
basis with the company's existing senior unsecured notes. Net proceeds
from the notes offering will be used to fund or replenish cash that is
expected to be used to fund the redemption of its 6 7/8% senior notes
due 2015 and for general corporate purposes.
The Rating Outlook is Stable. A complete list of ratings follows at the
end of this release.
SENSITIVITY/RATING DRIVERS
The rating for BZH is based on the company's execution of its business
model in the current moderately recovering housing environment, land
policies, and geographic diversity. BZH's rating is also supported by
the company's solid liquidity position.
Risk factors include the cyclical nature of the homebuilding industry,
the company's high debt load and high leverage, BZH's underperformance
relative to its peers in certain operational and financial categories,
and its current over-exposure to the credit-challenged entry level
market (approximately 60% of BZH's customers are first-time home buyers).
The Stable Outlook takes into account the improving housing outlook for
2013. However, the industry growth rate this year reflects a
below-trend-line cyclical rise off a very low bottom. In a slowly
growing economy with somewhat diminished distressed home sales
competition, less competitive rental cost alternatives, and new and
existing home inventories at historically low levels, 2013 single-family
housing starts should improve about 18%, while new home sales increase
approximately 22% and existing home sales grow 7%. However, as Fitch has
noted in the past, recovery will likely occur in fits and starts.
Challenges (although somewhat muted) remain, including continued
relatively high levels of delinquencies, potential of short-term
acceleration in foreclosures, and consequent meaningful distressed
sales, and restrictive credit qualification standards.
IMPROVING FINANCIAL RESULTS
BZH's homebuilding revenues for its 2013 fiscal first quarter (ended
Dec. 31, 2012) increased 30.8% to $244.4 million as home deliveries grew
19.7% to 1,038 homes and the average selling price advanced 9.3% to
$235,500. The company has also reported improved quarterly net sales in
each of the last seven quarters, contributing to a 39% increase in homes
in backlog at Dec. 31, 2012, compared with year ago levels. The
significant increase in backlog, combined with the company's strategy to
grow community count, should result in moderately higher deliveries in
fiscal 2013 compared with 2012. Nevertheless, Fitch does not expect BZH
to be profitable in fiscal 2013.
LIQUIDITY POSITION
The company has taken steps to strengthen its balance sheet and improve
its liquidity position to better participate in the housing recovery. In
July 2012, BZH completed underwritten public offerings of its common
stock, tangible equity units and a private placement of $300 million of
6.625% senior secured notes. Net proceeds from these transactions were
roughly $466 million. Concurrently with the debt offering, BZH called
for redemption of all of its $250 million 12% senior secured notes due
2017 and repaid $20 million under its outstanding cash secured term
loan. These transactions are projected to lower annual interest expense
by approximately $15 million.
In September 2012, BZH also amended and expanded its secured revolving
credit facility from $22 million to $150 million. The credit facility
matures in September 2015.
BZH ended the December 2012 quarter with $396.7 million of unrestricted
cash and no borrowings under its revolving credit facility. The improved
liquidity position provides BZH with some cushion as Fitch expects the
company will continue to have operating losses and negative cash flow
through fiscal 2013. With higher land and development spending expected
this year, unrestricted cash could fall below $300 million by the end of
fiscal 2013.
LAND POSITION
At Dec. 31, 2012, the company controlled 25,104 lots, of which 82% were
owned and the remaining lots controlled through options. Based on the
latest 12-month closings, BZH controlled 5.3 years of land and owned
roughly 4.3 years of land.
BZH spent roughly $185.5 million on land and development during fiscal
2012 compared with $221.6 million during fiscal 2011. During its 2013
fiscal first quarter, land and development spending totaled $90 million.
This compares to $58.2 million expended during the same period last
year. Management expects to spend at least twice as much on land and
development during 2013 as it did during 2012. Fitch is comfortable with
this strategy given the company's enhanced liquidity position. Assuming
that the company is able to redeem all of its 2015 notes, BZH will not
have any major debt maturities until 2016, when $172.9 million of senior
notes become due. Furthermore, management has demonstrated in the past
that it is capable of pulling back on land and development spending when
necessary.
GUIDELINES FOR FURTHER RATINGS ACTIONS
Future ratings and Outlooks will be influenced by broad housing market
trends as well as company specific activity, such as trends in land and
development spending, general inventory levels, speculative inventory
activity (including the impact of high cancellation rates on such
activity), gross and net new order activity, debt levels, especially
free cash flow trends and uses, and the company's cash position.
BZH's ratings are constrained in the intermediate term due to weak
credit metrics and high leverage. However, positive rating actions may
be considered if the recovery in housing is maintained and is
meaningfully better than Fitch's current outlook, BZH shows continuous
improvement in credit metrics (particularly debt to EBITDA consistently
below 8x and interest coverage above 2x), and preserves a healthy
liquidity position.
Negative rating actions could occur if the recovery in housing
dissipates, resulting in revenues and operating losses approaching 2011
levels, and the company maintains an overly aggressive land and
development spending program. This could lead to consistent and
significant negative quarterly cash flow from operations and diminished
liquidity position. In particular, Fitch will review BZH's ratings if
the company's liquidity position (unrestricted cash plus revolver
availability) falls below $200 million.
Fitch currently rates BZH as follows:
--Long-term Issuer Default Rating 'B-';
--Secured revolver 'BB-/RR1';
--Second lien secured notes 'BB-/RR1';
--Senior unsecured notes 'CCC+/RR5';
--Junior subordinated debt 'CCC/RR6'.
The Rating Outlook is Stable.
The Recovery Rating (RR) of 'RR1' on BZH's secured credit revolving
credit facility and second-lien secured notes indicates outstanding
recovery prospects for holders of these debt issues. The 'RR5' on BZH's
senior unsecured notes indicates below-average recovery prospects for
holders of these debt issues. BZH's exposure to claims made pursuant to
performance bonds and joint venture debt and the possibility that part
of these contingent liabilities would have a claim against the company's
assets were considered in determining the recovery for the unsecured
debtholders. The 'RR6' on the company's mandatory convertible
subordinated notes and junior subordinated notes indicates poor recovery
prospects for holders of these debt issues in a default scenario. Fitch
applied a liquidation value analysis for these recovery ratings.
Additional information is available at 'www.fitchratings.com'.
The ratings above were unsolicited and have been provided by Fitch as a
service to investors.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate
Issuers' (Aug. 14, 2012).
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE.
Fitch Ratings Primary Analyst Robert Rulla, CPA,
+1-312-606-2311 Director Fitch, Inc. 70 W. Madison Street Chicago,
IL 60602 or Secondary Analyst Bob Curran, +1-212-908-0515 Managing
Director or Committee Chairperson Craig Fraser,
+1-212-908-0310 Managing Director or Media Relations Brian
Bertsch, +1 212-908-0549 (New York) brian.bertsch@fitchratings.com
Press Release $BZH Beazer Homes USA Inc.
CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'CCC+/RR5' rating to Beazer Homes USA, Inc.'s (NYSE: BZH) proposed offering of $200 million principal amount of senior notes due 2023. This notes issue will be ranked on a pari passu basis with the company's existing senior unsecured notes. Net proceeds from the notes offering will be used to fund or replenish cash that is expected to be used to fund the redemption of its 6 7/8% senior notes due 2015 and for general corporate purposes.
The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.
SENSITIVITY/RATING DRIVERS
The rating for BZH is based on the company's execution of its business model in the current moderately recovering housing environment, land policies, and geographic diversity. BZH's rating is also supported by the company's solid liquidity position.
Risk factors include the cyclical nature of the homebuilding industry, the company's high debt load and high leverage, BZH's underperformance relative to its peers in certain operational and financial categories, and its current over-exposure to the credit-challenged entry level market (approximately 60% of BZH's customers are first-time home buyers).
The Stable Outlook takes into account the improving housing outlook for 2013. However, the industry growth rate this year reflects a below-trend-line cyclical rise off a very low bottom. In a slowly growing economy with somewhat diminished distressed home sales competition, less competitive rental cost alternatives, and new and existing home inventories at historically low levels, 2013 single-family housing starts should improve about 18%, while new home sales increase approximately 22% and existing home sales grow 7%. However, as Fitch has noted in the past, recovery will likely occur in fits and starts.
Challenges (although somewhat muted) remain, including continued relatively high levels of delinquencies, potential of short-term acceleration in foreclosures, and consequent meaningful distressed sales, and restrictive credit qualification standards.
IMPROVING FINANCIAL RESULTS
BZH's homebuilding revenues for its 2013 fiscal first quarter (ended Dec. 31, 2012) increased 30.8% to $244.4 million as home deliveries grew 19.7% to 1,038 homes and the average selling price advanced 9.3% to $235,500. The company has also reported improved quarterly net sales in each of the last seven quarters, contributing to a 39% increase in homes in backlog at Dec. 31, 2012, compared with year ago levels. The significant increase in backlog, combined with the company's strategy to grow community count, should result in moderately higher deliveries in fiscal 2013 compared with 2012. Nevertheless, Fitch does not expect BZH to be profitable in fiscal 2013.
LIQUIDITY POSITION
The company has taken steps to strengthen its balance sheet and improve its liquidity position to better participate in the housing recovery. In July 2012, BZH completed underwritten public offerings of its common stock, tangible equity units and a private placement of $300 million of 6.625% senior secured notes. Net proceeds from these transactions were roughly $466 million. Concurrently with the debt offering, BZH called for redemption of all of its $250 million 12% senior secured notes due 2017 and repaid $20 million under its outstanding cash secured term loan. These transactions are projected to lower annual interest expense by approximately $15 million.
In September 2012, BZH also amended and expanded its secured revolving credit facility from $22 million to $150 million. The credit facility matures in September 2015.
BZH ended the December 2012 quarter with $396.7 million of unrestricted cash and no borrowings under its revolving credit facility. The improved liquidity position provides BZH with some cushion as Fitch expects the company will continue to have operating losses and negative cash flow through fiscal 2013. With higher land and development spending expected this year, unrestricted cash could fall below $300 million by the end of fiscal 2013.
LAND POSITION
At Dec. 31, 2012, the company controlled 25,104 lots, of which 82% were owned and the remaining lots controlled through options. Based on the latest 12-month closings, BZH controlled 5.3 years of land and owned roughly 4.3 years of land.
BZH spent roughly $185.5 million on land and development during fiscal 2012 compared with $221.6 million during fiscal 2011. During its 2013 fiscal first quarter, land and development spending totaled $90 million. This compares to $58.2 million expended during the same period last year. Management expects to spend at least twice as much on land and development during 2013 as it did during 2012. Fitch is comfortable with this strategy given the company's enhanced liquidity position. Assuming that the company is able to redeem all of its 2015 notes, BZH will not have any major debt maturities until 2016, when $172.9 million of senior notes become due. Furthermore, management has demonstrated in the past that it is capable of pulling back on land and development spending when necessary.
GUIDELINES FOR FURTHER RATINGS ACTIONS
Future ratings and Outlooks will be influenced by broad housing market trends as well as company specific activity, such as trends in land and development spending, general inventory levels, speculative inventory activity (including the impact of high cancellation rates on such activity), gross and net new order activity, debt levels, especially free cash flow trends and uses, and the company's cash position.
BZH's ratings are constrained in the intermediate term due to weak credit metrics and high leverage. However, positive rating actions may be considered if the recovery in housing is maintained and is meaningfully better than Fitch's current outlook, BZH shows continuous improvement in credit metrics (particularly debt to EBITDA consistently below 8x and interest coverage above 2x), and preserves a healthy liquidity position.
Negative rating actions could occur if the recovery in housing dissipates, resulting in revenues and operating losses approaching 2011 levels, and the company maintains an overly aggressive land and development spending program. This could lead to consistent and significant negative quarterly cash flow from operations and diminished liquidity position. In particular, Fitch will review BZH's ratings if the company's liquidity position (unrestricted cash plus revolver availability) falls below $200 million.
Fitch currently rates BZH as follows:
--Long-term Issuer Default Rating 'B-';
--Secured revolver 'BB-/RR1';
--Second lien secured notes 'BB-/RR1';
--Senior unsecured notes 'CCC+/RR5';
--Junior subordinated debt 'CCC/RR6'.
The Rating Outlook is Stable.
The Recovery Rating (RR) of 'RR1' on BZH's secured credit revolving credit facility and second-lien secured notes indicates outstanding recovery prospects for holders of these debt issues. The 'RR5' on BZH's senior unsecured notes indicates below-average recovery prospects for holders of these debt issues. BZH's exposure to claims made pursuant to performance bonds and joint venture debt and the possibility that part of these contingent liabilities would have a claim against the company's assets were considered in determining the recovery for the unsecured debtholders. The 'RR6' on the company's mandatory convertible subordinated notes and junior subordinated notes indicates poor recovery prospects for holders of these debt issues in a default scenario. Fitch applied a liquidation value analysis for these recovery ratings.
Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
Fitch Ratings
Primary Analyst
Robert Rulla, CPA, +1-312-606-2311
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Bob Curran, +1-212-908-0515
Managing Director
or
Committee Chairperson
Craig Fraser, +1-212-908-0310
Managing Director
or
Media Relations
Brian Bertsch, +1 212-908-0549 (New York)
brian.bertsch@fitchratings.com
Source: Fitch Ratings