Fitch Expects to Rate Meritage Homes' $200MM Sr. Unsecured Notes 'BB-/RR3'

NEW YORK--(Business Wire)--
Fitch Ratings expects to assign a 'BB-/RR3' rating to Meritage Homes
Corporation's (Meritage; NYSE: MTH) proposed offering of $200 million of senior
unsecured notes due 2020. The issue will be ranked on a pari passu basis with
all other senior unsecured debt. The proceeds from the offering of notes will be
used to redeem certain of the company's outstanding senior notes. The company
announced today the commencement of cash tender offers to purchase up to $195
million principal amount of selected senior notes. The company is offering to
purchase any and all of its $130 million outstanding 7% senior notes due 2014.
Additionally, in a Dutch Auction Tender Offer, Meritage is offering to purchase
up to $65 million of its outstanding 6.25% senior notes due 2015.

The Rating Outlook is Negative. Fitch's current Issuer Default Rating for
Meritage is 'B+'.

The Recovery Rating (RR) of 'RR3' on the proposed unsecured notes offering and
the company's senior unsecured debt indicate good recovery prospects for holders
of these debt issues. Meritage'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 debt holders. The 'RR6' on Meritage's
preferred stock indicates poor recovery prospects in a default scenario. Fitch
applied a liquidation value analysis for these RRs.

The ratings and Outlook reflect the company's conservative land policies,
geographic and product line diversity, acquisitive orientation, capital
structure and the still challenging U.S. housing environment. Housing apparently
bottomed during 2009, and a so far anemic recovery has begun. During the next
12-15 months off the bottom, the recovery may appear jaw-toothed as substantial
foreclosures now in the pipeline present as distressed sales and as meaningful
new foreclosures arise from Alt-A and option ARM resets. High unemployment rates
and the tightening of certain Federal Housing Administration loan standards will
be notable headwinds early in the upcycle. The continuation and expansion of the
scope of the national housing credit may boost sales in spring of this year. And
the Federal government's continuing efforts to modify foreclosures may finally
show some success in 2010.

Future ratings and Outlooks will be influenced by broad housing market trends as
well as company specific activity, such as 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 and free cash flow trends and uses.

Meritage's sales are reasonably dispersed among its 12 metropolitan markets
within six states. The company ranks among the top ten builders in such markets
as Houston, Dallas Fort Worth and Austin, TX, and Phoenix, AZ. The company also
builds in Sacramento, East Bay and Riverside/San Bernardino, CA, Las Vegas, NV,
Denver, CO, Tucson, AZ and Orlando, FL. Historically, about 70-75% of home
deliveries are to first and second time trade up buyers, 10-15% to entry level
buyers, 5% are to luxury home buyers and 5-10% to active adult (retiree) buyers.
Currently, 60-65% of sales are to entry level and first time move-up buyers.

Meritage employs conservative land and construction strategies. The company
typically options or purchases land only after necessary entitlements have been
obtained so that development or construction may begin as market conditions
dictate. Under normal circumstances Meritage extensively uses lot options, and
that is expected to be the strategy in markets where it is able to do so. The
use of non-specific performance rolling options gives the company the ability to
renegotiate price/terms or void the option which limits down side risk in market
downturns and provides the opportunity to hold land with minimal investment. As
of Dec. 31, 2009, 22.6% of its lots were controlled through options - a much
lower than typical percentage due to considerable option abandonments and
write-offs of recent years. Total lots, including those owned, were
approximately 12,906 at Dec. 31, 2009. This represents a 3.2 year supply of
total lots controlled and 2.5 year supply of owned land based on trailing 12
months deliveries.

The company has ample liquidity with $249.3 million of unrestricted cash and
$125.7 million of marketable securities. Meritage also has a $53 million letter
of credit facility. In September 2009, Meritage voluntarily terminated its $150
million revolving credit facility.

Applicable criteria available on Fitch's web site at 'www.fitchratings.com'
include: 'Corporate Rating Methodology', dated Nov. 24, 2009.

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings
Robert Curran, +1-212-908-0515 (New York)
Robert Rulla, +1-312-606-2311 (Chicago)
Sandro Scenga, +1-212-908-0278 (Media Relations, New York)
sandro.scenga@fitchratings.com

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