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.
M/I Homes Inc.
Corporate credit rating B-/Stable/--
M/I Homes Inc.
$50 mil convertible senior
subordinated notes due 2017 CCC
Recovery Rating 6