July 11 - Fitch Ratings has assigned a 'B+/RR1' rating to Beazer Homes USA,
Inc.'s (NYSE: BZH) proposed offering of $275 million principal amount of
second lien senior secured notes due 2018. Proceeds from the notes offering will
be used to fund or replenish the cash that is expected to be used to fund the
redemption of the company's $250 million 12% senior secured notes due 2017.
A full list of ratings follows at the end of this press release.
The ratings for BZH are influenced by the company's execution of its business
model, land policies, geographic diversity, and adequate liquidity position.
While Fitch expects better prospects for the housing industry this year, there
are still significant challenges facing the housing market, which are likely to
meaningfully moderate the early stages of this recovery. Nevertheless, BZH has
the financial flexibility to navigate through the still challenging market
conditions and continue to selectively and prudently invest in land
Fitch has raised its housing forecasts for 2012 since the beginning of the year.
However, the forecast still assumes a relatively modest rise off a very low
bottom. Fitch forecasts single-family housing starts to increase about 12%, with
single-family new home sales to expand approximately 10%.
During the past four quarters, the company has demonstrated significant
improvement in new home orders, closings and backlog. For its fiscal third
quarter ending June 30, 2012, BZH expects to report a 28% improvement in net
orders, a 40% growth in home closings, and a 33% increase in unit backlog.
As of March 31, 2012, BZH had adequate liquidity with unrestricted cash of $257
million. The company recently enhanced its liquidity position with the offering
of $164 million of common stock and tangible equity units. The company issued 22
million shares of its common stock at a price of $2.90 per share, resulting in
net proceeds of $60.1 million. Additionally, the company issued 4 million shares
of 7.5% tangible equity units at $25 each, resulting in net proceeds of $96.5
million. The company has granted the underwriters a 30-day option to purchase up
to an additional 600,000 tangible equity units and 3.3 million shares of common
stock. BZH intends to use the proceeds from these offerings for growth capital,
including for approximately $100 million of potential land investments in
Florida, California, Texas, North Carolina and Arizona, and for general
corporate purposes, including the repayment of outstanding debt.
In addition to the equity offerings, BZH has also negotiated a commitment letter
with four financial institutions for a proposed $150 million secured revolving
credit agreement, which would replace the company's existing $22 million
BZH increased land and development expenditures in 2011 following four years of
reduced spending. The company spent approximately $221.6 million on land and
development during fiscal 2011 compared with $182.7 million expended in fiscal
2010. Through the first half of fiscal year 2012 (ending March 31, 2012), BZH
spent roughly $100 million on land and land development compared with $123.7
million spent during the first half of fiscal 2011. Given the improvement in the
overall housing market, BZH expects to pursue growth in new communities more
aggressively going forward. Fitch is comfortable with this strategy given the
company's enhanced liquidity position and the fact that BZH has no major debt
maturities until 2015, when $172.5 million of senior notes become due.
Furthermore, management has demonstrated in the past that it is capable of
pulling back on land and development spending when necessary.
At March 31, 2012, the company controlled 25,617 lots, of which 83.8% were owned
and the remaining lots controlled through options. Based on the latest 12 month
closings, BZH controlled 6.6 years of land and owned roughly 5.6 years of land.
The company's owned lot position includes 5,079 finished lots (or 23.7% of total
owned lots), giving the company some discretion and flexibility in controlling
its land and development spending.
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. Negative rating actions could occur if the anticipated
recovery in housing does not materialize and the company prematurely steps up
its land and development spending, leading to consistent and significant
negative quarterly cash flow from operations and diminished liquidity position.
In particular, Fitch will review the company's ratings if the company's
liquidity position (unrestricted cash plus revolver availability) falls below
$200 million. Beazer's ratings are constrained in the intermediate term due to
weak credit metrics and high leverage.
Fitch currently rates BZH as follows:
--Secured revolving credit facility 'B+/RR1';
--Second lien secured notes 'B+/RR1';
--Senior unsecured notes 'CCC/RR4';
--Convertible subordinated notes 'C/RR6';
--Junior subordinated debt 'C/RR6'.
The Recovery Rating (RR) of 'RR1' on Beazer's secured credit revolving credit
facility and second-lien secured notes indicates outstanding recovery prospects
for holders of these debt issues. The 'RR4' on Beazer's senior unsecured notes
indicates average recovery prospects for holders of these debt issues. Beazer's
exposure to claims made pursuant to performance bonds and joint venture debt and
the possibility that part of these contingent liabilities would have a claim
against the company's assets were considered in determining the recovery for the
unsecured debtholders. The 'RR6' on the company's mandatory convertible
subordinated notes and junior subordinated notes indicates poor recovery
prospects for holders of these debt issues in a default scenario. Fitch applied
a liquidation value analysis for these RRs.
Additional information is available at 'www.fitchratings.com'. The ratings above
were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 26, 2011)
Applicable Criteria and Related Research:
Corporate Rating Methodology