TEXT-S&P rates Beazer Homes USA's proposed notes 'B'
July 11 - Standard & Poor's Ratings Services today assigned its 'B' rating and '2' recovery rating to Beazer Homes USA Inc.'s proposed $275 million senior secured notes due 2018. Our '2' recovery rating indicates our expectation for a substantial recovery (70%-90%) in the event of default. The company intends to use proceeds from the debt offering to refinance existing, higher-cost secured debt. The proposed financing follows a recent equity offering of common equity and tangible equity units that raised an aggregate $164 million. Substantially all of the company's existing subsidiaries will jointly and severally guarantee the proposed senior secured notes. The collateral for the notes and guarantees will be secured by most of the company's tangible and intangible assets and will be effectively subordinated to the company's existing revolving credit facility. The company intends to use proceeds from both note offerings to fund or replenish cash that we expect Beazer to, in turn, use to redeem Beazer's 12% senior secured notes due 2017. Our current ratings on Beazer reflect the homebuilder's "vulnerable" business risk profile, which mirrors our expectations for a slow and uneven recovery in the U.S. housing sector that we believe will constrain profitability over the next 12 months. We consider Beazer's financial risk profile to be "highly leveraged," given the company's heavy debt load. The company's currently adequate liquidity position has been further supported by the recent equity offering, in our view, and the proposed debt refinancing could moderately reduce Beazer's current heavy interest burden. Our current rating outlook on Beazer is negative. We would consider a downgrade if the company's EBITDA growth fails to meet our expectations or if the downturn in the housing market lingers longer than we expect and unit volume remains depressed. Alternatively, we would consider a stable outlook if Beazer comfortably meets our base-case expectations for operating results, addresses any potential covenant pressures, and maintains adequate liquidity. For additional information on Beazer, please see "Summary: Beazer Homes USA Inc.," published June 29, 2012, and "Recovery Report: Beazer Homes USA Inc.'s Recovery Rating Profile," published July 9, 2012, on RatingsDirect on the Global Credit Portal, at www.globalcreditportal.com RELATED CRITERIA AND RESEARCH -- The Credit Overhang: The Differing Recovery Trajectories Of U.S. Auto Companies and Homebuilders, published May 21, 2012. -- Capital markets Update: Homebuilder Bond Spreads May Foretell U.S. Housing Price Trends, published April 20, 2012. -- Industry Report Card: Operating Performance For U.S. Homebuilders Is On The Mend, But Risks Remain, published April 10, 2012. -- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, published April 10, 2012. -- Key Credit Factors: Global Criteria For Single-Family Homebuilders, Sept. 28, 2011. Ratings List Beazer Homes USA Inc. Corporate credit rating B-/Negative New Ratings Beazer Homes USA Inc. $275 million sr secured notes due 2018 B Recovery rating 2 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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