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