TEXT-Fitch rates Toll Brothers proposed notes 'BBB-'

Sept 4 - Fitch Ratings has assigned a 'BBB-' rating to Toll Brothers, Inc.'s
(NYSE: TOL) proposed offering of $250 million aggregate principal amount
of exchangeable senior notes due Dec. 1, 2032. The Rating Outlook is Stable.

The notes will be issued by Toll Brothers Finance Corp., a wholly-owned
subsidiary, and will be guaranteed on a senior basis by Toll Brothers, Inc. and
certain of its subsidiaries that guarantee its current bank credit facilities.
The issue will be ranked on a pari passu basis with other senior unsecured debt,
including the company's $885 million unsecured revolving credit facility.
Proceeds from the new debt issue will be used for general corporate purposes.
Fitch expects leverage to remain within or below Toll's historic debt to
capitalization range of 45 - 55%. The net debt to capitalization ratio should be
meaningfully lower than its historic range.

Toll's ratings and Outlook reflect the company's well-entrenched market position
as the pre-eminent public builder of luxury homes, the successful execution of
its operating model that has produced one of the better margins within the
industry over a cycle and relatively stable debt-protection measures despite
significant erosion in profitability during the extended downside of this cycle.
The company's liquidity position provides a buffer and supports the current
ratings. Significant insider ownership of approximately 14% aligns management's
interests with the long-term financial health of Toll.

Risk factors include the cyclical nature of the homebuilding industry; the
volatility in the value of Toll's extensive land holdings (some of which will be
developed over an extended period of time); and the company's primary focus on
the luxury housing segment of the market which, although diversified
geographically and by product type across many niches within the urban and
suburban luxury market, is not as broad as the first-time and first-step
trade-up segments.

Builder and investor enthusiasm have for the most part surged so far in 2012.
However, national housing metrics have not entirely kept pace. Year-over-year
comparisons have been solidly positive on a consistent basis. However, month to
month the national statistics (single-family starts, new home, and existing home
sales) have been erratic and, at times, below expectations. In any case, year to
date these housing metrics are well above 2011 levels. As Fitch has noted in the
past, recovery will likely occur in fits and starts. (Toll reported contract
growth of 43% for the nine months ended July 31, 2012 far exceeding national
data, implying market share gain.)

Fitch's housing forecasts for 2012 have been raised since early spring but still
assume only a moderate rise off a very low bottom. In a slowly growing economy
with relatively similar distressed home sales competition, less competitive
rental cost alternatives, and new home inventories at historically low levels,
single-family housing starts should improve about 12%, while new home sales
increase approximately 10.5% and existing home sales grow 5.6%. Further moderate
improvement is forecast for 2013.

Toll successfully managed its balance sheet during the severe housing downturn,
allowing the company to accumulate cash as it pared down its inventory. At July
31, 2012, Toll had cash and equivalents of $601.4 million and marketable
securities totaling $275.9 million. During the past three years Toll added to
its land position, supported by its strong liquidity. During the third quarter
(ended July 31, 2012), the company's lot count increased by 3,023 lots
year-over-year. At the end of the July 2012 quarter, Toll controlled 39,208
lots, 80.4% of which are owned with the remaining 19.6% controlled through
options. This represents a 13.3-year supply of total lots controlled and a
10.7-year supply of owned land based on trailing 12-month deliveries.

Despite its long land position, the company continues to look for opportunities
to tie-up land at attractive prices. Fitch is comfortable with this strategy
given the company's 45-year track record, cash and liquidity position, debt
maturity schedule, proven access to the capital markets, and management's
demonstrated discipline in pulling back on its land and development activities
and improving liquidity as the economy and housing contract.

Toll reported positive cash flow from operations in fiscal 2011 ($52.8 million,
including a second quarter tax refund of $154.3 million), as the company
continued its land acquisition activities. For the first nine months of 2012
cash flow was negative $234.1 million.

Negative cash flow is typical in the early stages of a housing recovery for most
of the large public builders. For fiscal 2012, Fitch expects the company to be
cash flow negative (in excess of $250 million), reflecting substantial land and
development spending during the year. Core land and development spending was
approximately $525 million in 2011. Fitch estimates $725 - 775 million of land
and development expenditures in 2012.

In addition to its strong cash position, Toll has access to an $885 million
revolving credit facility that matures in October 2014. At July 31, 2012, the
company had no borrowings under the revolver, but had $65.8 million of letters
of credit outstanding under the facility. Toll had borrowing availability under
the revolver of $819.2 million. At the end of the third quarter, the company had
sufficient room under the facility's financial covenants.

Toll's debt maturities are well-laddered. $59.1 million of 6.875% senior notes
mature in November 2012. The next major debt maturity is in September 2013, when
$104.7 million of 5.95% senior notes become due.

Leverage has typically been 46% or lower as of fiscal year end over the past
eight years. At the end of its fiscal 2012 third quarter, leverage as measured
by homebuilding debt to total capitalization was 41.3%. Taking into account its
unrestricted cash position and marketable securities, net debt to capitalization
was 27.4%. These leverage ratios are appropriate for the rating category, taking
into account Toll's cash flow generation and operating risk profile.

The company's inventory to net debt ratio, at present 3.7 times (x), has
consistently remained in excess of 2.0x, providing a healthy buffer during this
housing downturn.

A positive rating action would be considered if the recovery in housing is
significantly better than our current outlook and the company's credit metrics
are above our current projections for 2012 and 2013. A negative rating action
could be triggered if Toll's operating and financial performance for this year
and next are well below Fitch's current forecasts and its cash and securities
position falls below $500 million and the credit line is largely exhausted.

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, free cash flow trends and uses, and the company's cash
position.

Additional information is available at 'www.fitchratings.com'. The ratings above
ere solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).

Applicable Criteria and Related Research:
Corporate Rating Methodology
Liquidity Considerations for Corporate Issuers