TEXT-S&P rates M/I homes proposed notes 'CCC'

Wed Sep 5, 2012 11:34am EDT

Sept 5 - Standard & Poor's Ratings Services today assigned its 'CCC' issue
rating and '6' recovery rating to M/I Homes Inc.'s proposed offering of
$50 million convertible senior subordinated notes due 2017. Our '6' recovery
rating on the securities indicates our expectation for a negligible (0%-10%)
recovery for note holders in the event of default. 

The new notes will mature in 2017 and will be subordinated in right of payment 
to M/I Homes' existing debt, including draws under its $140 million secured 
revolving credit facility due 2014 and $230 million 8.625% senior unsecured 
notes due 2018. Holders of the new notes will also have the option to convert 
the securities into shares of M/I Homes' common stock. Concurrent with this 
note offering, we believe the company also intends to issue 2.2 million shares 
of its common stock. 

M/I Homes plans to use proceeds from the offering for general corporate 
purposes, which may include the repayment of debt, home construction, and land 
investments. We expect the new debt and equity capital to bolster M/I Homes' 
liquidity, which on June 30, 2012, comprised: $44 million unrestricted cash 
and $52 million net borrowing availability (based upon currently pledged 
collateral) under the company's secured revolving credit facility. The 
additional capital also modestly strengthens recovery prospects for M/I Homes' 
senior unsecured note holders, although not enough to warrant a revision to 
those ratings at this time.  

Standard & Poor's ratings on Columbus, Ohio-based M/I Homes reflect the 
homebuilder's "aggressive" financial risk profile, marked by five consecutive 
years of operating losses and weak EBITDA-based credit metrics. However, we 
expect M/I Homes' EBITDA-based credit metrics to modestly improve in tandem 
with gradually improving profitability over the next one to two years. We 
characterize M/I Homes' business risk profile as "vulnerable," given the 
homebuilder's comparatively smaller platform and current concentration in 
certain weaker Midwest housing markets.

Our stable outlook acknowledges M/I Homes' recently strengthened liquidity and 
incorporates our view that single-family housing fundamentals are slowly 
improving. We expect M/I Homes to maintain adequate liquidity, while investing 
the bulk of its cash in new communities to bolster sales and gross margins to 
levels that support gradually improving profitability over the next one to two 
years. We could lower our ratings if the single-family housing market takes 
another downward turn such that profitability materially weakens or liquidity 
becomes less than adequate, perhaps due to more aggressive land investment 
activity than we currently anticipate. Upward rating momentum could be driven 
by an expanded, more evenly diversified platform that produces stronger 
EBITDA-based credit metrics.

RELATED CRITERIA AND RESEARCH
     -- Industry Economic And Ratings Outlook: U.S. Home Buyers Return, But 
Can Builders Deliver?, July 20, 2012
     -- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, July 23, 2012.
     -- Key Credit Factors: Global Criteria For Single-Family Homebuilders, 
Sept. 27, 2011.
     -- Methodology And Assumptions: Liquidity Descriptors For Global 
Corporate Issuers, Sept. 28, 2011.
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009.
 
RATINGS LIST

M/I Homes Inc.
 Corporate credit rating             B-/Stable/--


RATINGS ASSIGNED

M/I Homes Inc.
 $50 mil convertible senior 
 subordinated notes due 2017          CCC
 Recovery Rating                      6
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