TEXT-Fitch affirms MDC Holdings ratings

Sept 10 - Fitch Ratings has affirmed its ratings for M.D.C. Holdings, Inc.
(NYSE: MDC), including the company's Issuer Default rating (IDR)
at 'BBB-'. The Rating Outlook is Stable. A complete list of rating actions
follows this release.

MDC's ratings are based on the company's execution of its business model in the
current moderately recovering housing environment, cautious land policies and
solid liquidity. During the past cycle the company noticeably improved its
capital structure, pursued conservative capitalization policies, and positioned
itself to withstand the recently concluded sharp, long-lasting housing
correction. Significant insider ownership of 26% aligns management's interests
with the long-term financial health of MDC.

MDC underperformed relative to other low investment-grade industrial companies
in recent years in an admittedly very harsh housing environment and trailed its
homebuilding peers for much of 2011 in certain metrics. However, the company has
come up with an effective strategy to close its relative performance gap and
move to profitability. Its financial and operating execution during the past
three quarters indicates clear progress in meeting its expense containment and
profitability objectives.

Builder and investor enthusiasm have for the most part surged so far in 2012,
but housing metrics have not entirely kept pace. Year-over-year (yoy)
comparisons have been solidly positive on a consistent basis. However, month to
month the 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.

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.

The company employs conservative land and construction strategies. MDC's
priority is to acquire finished lots using rolling options, finished lots in
phases for cash or, if the potential returns justify the risk, land for
development. MDC does not typically buy more than a three-year supply of land in
any market and when it acquires lots, the company currently focuses on land that
it can start building on within a short time. The long-term goal is to maintain
a 2.0-2.5-year supply of land, increase land under option and reduce land owned.
At the end of the June 2012 quarter, MDC controlled 10,218 lots, a 14.8%
decrease from the year-ago period. Approximately 85% of the total lots are owned
with the remaining 15% controlled through options. This represents a 3.4-year
supply of total lots controlled and a 2.9-year supply of owned land based on
trailing 12-month deliveries.

The company's policy of, whenever possible, purchasing predominantly finished
lots and lots available for immediate development enhances balance sheet
liquidity, which has been reflected in solid inventory turnover averaging 1.4x
over the 2002 to 2011 period.

MDC successfully managed its balance sheet during the severe housing downturn,
allowing the company to accumulate cash as it pared down its inventory. As of
June 30, 2012, MDC had unrestricted cash of $298.3 million and marketable
securities totaling $454.8 million compared to total debt of $744.5 million.

MDC has been re-building its land position, supported by its strong liquidity.
MDC spent approximately $227 million on land and development in 2009. The
company purchased about $380 million of land and expended $40 million on land
development in 2010, and $280 million on land and development in 2011. Fitch
estimates that MDC could spend about $250 million on land and development in
2012 and could potentially invest as much as $450 million in 2013, mostly for
land purchases. The average community count is currently up 8% yoy and the
community count should average higher for the full year of 2012 as compared to
2011, aiding order comparisons in 2012.

MDC had negative cash flow from operations ($26.6 million) for the latest 12
months ended June 30, 2012 as the company continued with reasonably substantial
land acquisition activities. For all of 2012, Fitch expects the company to be
cash flow negative by $75 million-$100 million.

Fitch is comfortable with MDC's growth strategy given the company's cash
position, existing land supply, debt maturity schedule and proven access to the
capital markets. Even with the projected sizable land and development spending
in 2012 and 2013, the company's cash (and marketable securities) position is
still forecast to be similar to its debt levels. Fitch expects management to
pull back on its land spending if market conditions deteriorate from current
levels. Additionally, management is expected to be disciplined with the uses of
its cash, refraining from significant share repurchases or one-time dividends to
its stockholders that would meaningfully deplete its liquidity position.

During 2011 the company completed a debt tender offer and redemption of its
7.00% senior notes due 2012 and 5.50% senior notes due 2013. As a result of
these transactions, MDC paid $537.7 million to extinguish $500 million in debt
principal with a carrying amount of $498.9 million and recorded a $38.8 million
expense for loss on extinguishment of debt. The next debt maturity is $249.5
million in 2014. This is followed by $249.9 million due in 2015 and $245.1
million maturing in 2020.

Effective June 30, 2010, MDC voluntarily terminated its $50 million revolving
credit facility. Consistent with Fitch's comment on certain homebuilders'
termination and reduction of revolving credit facilities, in the absence of a
revolving credit line a consistently higher level of cash and equivalents than
was typical should be maintained on the balance sheet, especially in these still
uncertain times.

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

MDC's ratings are constrained in the intermediate term because of relatively
high leverage metrics. However, positive rating action may be considered if the
recovery in housing is significantly stronger than the agency's current outlook,
if the company's operating and credit metrics are well above Fitch's
expectations for 2012 and 2013, and liquidity is largely maintained. A negative
rating action could be triggered if the industry recovery dissipates; MDC's
operating performance for this year is well below Fitch's current forecast for
revenues ($1.1 billion) and modest pretax profits; and 2013 revenues drop
mid-teens while the pretax loss approaches levels of 2010 and 2011; and MDC's
liquidity position falls sharply, perhaps below $500 million.

Fitch has affirmed the following ratings for MDC with a Stable Outlook:

--IDR at 'BBB-';
--Senior unsecured debt at 'BBB-'.