July 11 - Standard & Poor's Ratings Services today assigned its 'B' rating
and '2' recovery rating to Beazer Homes USA Inc.'s proposed $275 million
senior secured notes due 2018. Our '2' recovery rating indicates our expectation
for a substantial recovery (70%-90%) in the event of default. The company
intends to use proceeds from the debt offering to refinance existing,
higher-cost secured debt. The proposed financing follows a recent equity
offering of common equity and tangible equity units that raised an aggregate
Substantially all of the company's existing subsidiaries will jointly and
severally guarantee the proposed senior secured notes. The collateral for the
notes and guarantees will be secured by most of the company's tangible and
intangible assets and will be effectively subordinated to the company's
existing revolving credit facility.
The company intends to use proceeds from both note offerings to fund or
replenish cash that we expect Beazer to, in turn, use to redeem Beazer's 12%
senior secured notes due 2017.
Our current ratings on Beazer reflect the homebuilder's "vulnerable" business
risk profile, which mirrors our expectations for a slow and uneven recovery in
the U.S. housing sector that we believe will constrain profitability over the
next 12 months. We consider Beazer's financial risk profile to be "highly
leveraged," given the company's heavy debt load. The company's currently
adequate liquidity position has been further supported by the recent equity
offering, in our view, and the proposed debt refinancing could moderately
reduce Beazer's current heavy interest burden.
Our current rating outlook on Beazer is negative. We would consider a
downgrade if the company's EBITDA growth fails to meet our expectations or if
the downturn in the housing market lingers longer than we expect and unit
volume remains depressed. Alternatively, we would consider a stable outlook if
Beazer comfortably meets our base-case expectations for operating results,
addresses any potential covenant pressures, and maintains adequate liquidity.
For additional information on Beazer, please see "Summary: Beazer Homes USA
Inc.," published June 29, 2012, and "Recovery Report: Beazer Homes USA Inc.'s
Recovery Rating Profile," published July 9, 2012, on RatingsDirect on the
Global Credit Portal, at www.globalcreditportal.com
RELATED CRITERIA AND RESEARCH
-- The Credit Overhang: The Differing Recovery Trajectories Of U.S. Auto
Companies and Homebuilders, published May 21, 2012.
-- Capital markets Update: Homebuilder Bond Spreads May Foretell U.S.
Housing Price Trends, published April 20, 2012.
-- Industry Report Card: Operating Performance For U.S. Homebuilders Is
On The Mend, But Risks Remain, published April 10, 2012.
-- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, published
April 10, 2012.
-- Key Credit Factors: Global Criteria For Single-Family Homebuilders,
Sept. 28, 2011.
Beazer Homes USA Inc.
Corporate credit rating B-/Negative
Beazer Homes USA Inc.
$275 million sr secured notes due 2018 B
Recovery rating 2
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left