Toll's note sale signals market thaw, for some

By Helen Chernikoff

NEW YORK, April 16 (Reuters) - Luxury homebuilder Toll Brothers Inc's (TOL.N) recent $400 million bond issue marks the first time in two years a homebuilder has tapped the capital markets with an unsecured debt offering, signaling a thawing in the capital markets for at least some homebuilders.

Toll's April 13 offering sold out within hours, said Fred Cooper, the company's senior vice president of finance. It boosts Toll's liquidity position, already one of the most robust in an industry that for the past three years has made balance sheet strength its top priority in an effort to endure a deep downturn.

The company did its last unsecured debt deal in 2005 and has no current plans to do more, Cooper said. The company's next debt maturities arrive in 2011, when its revolving credit facility matures and $343 million of senior debt becomes due.

"The fact that investors are willing to invest in a homebuilder is a positive," said Robert Curran of Fitch Ratings, who rates Toll and this offering BBB-minus, the lowest investment-grade rating. "A part of it is very specific to Toll, their financials and the comfort investors have with Toll."

The last unsecured note offering among the builders happened in the first quarter of 2007, when Meritage Homes Corp (MTH.N) sold $150 million, said primary credit analyst James Fielding of Standard & Poor's.

Before that, Beazer Homes USA (BZH.N), Hovnanian Enterprises (HOV.N) and The Ryland Group (RYL.N) made offerings in the range of $200 million in the second quarter of 2006, said Joseph Snider, a vice president and senior credit officer for Moody's Investor Service.

"The market's been closed to homebuilders and to most companies that are not investment grade," said Snider, who has a Ba1 rating on Toll and the April 13 offering. That is one notch below investment grade.

Like Fitch, Standard & Poor's rates both Toll and the $400 million in notes a BBB-minus, its lowest investment-grade rating.

Moody's downgraded Toll on the risk posed by its high-rise business, which the agency believes will continue to weaken and hurt the company's results. But despite that risk, Snider recognizes with his colleagues at the other two major agencies that Toll boasts strengths, such as its dominance of the luxury market niche, that make its debt an attractive investment relative to most other builders.

"It's the composition of the balance sheet, the strength of the balance sheet, the significant cash they have," said Curran of Fitch Ratings. "If you exclude non-cash real estate charges they're one of the few companies that has been profitable."

At this point, Toll enjoys the privilege of membership in a small club of investment-grade builders, also including NVR Inc (NVR.N) and M.D.C. Holdings (MDC.N), that can sell debt. "It's premature to say that the capital markets are opening up widely to the homebuilders as a group," Snider said. "Very recently they were closed even to companies like Toll." (Editing by Andrea Ricci)