Jan 4 () - (The following statement was released by the rating agency)
-- Taylor Morrison Home Corp. has filed a registration statement to raise
equity through an initial public offering, the proceeds of which it will use
to purchase a partnership interest in TMM Holdings L.P.
-- Taylor Morrison intends to use proceeds from the proposed offering for
working capital and general corporate purposes, which may include the
repayment or repurchases of debt and to fund acquisitions.
-- We placed our 'B+' corporate credit rating on Taylor Morrison on
CreditWatch with positive implications. Our 'BB-' issue-level ratings on the
company's unsecured senior notes remain unchanged.
On Jan. 4, 2012, Standard & Poor's Ratings Services placed its 'B+' corporate
credit rating (CCR) on TMM Holdings L.P. (Taylor Morrison) on CreditWatch with
positive implications (see list). Our 'BB-' issue-level rating on the
company's unsecured senior notes remains unchanged. Since our recovery
criteria generally limits recovery ratings on unsecured debt issued by
corporate entities with corporate credit ratings of 'BB-' or higher to no
higher than a '3' recovery rating, we would not expect Taylor Morrison's
issue-level ratings to change if we raise our CCR on the company. However,
while we expect that Taylor Morrison will likely implement capital structure
changes in conjunction with its IPO that may impact recovery prospects, we do
not currently expect these changes to affect our issue-level ratings,
including a downgrade below the corporate credit rating.
The positive CreditWatch placement follows the recent filing of an S-1
registration statement with the SEC, indicating the homebuilder's intention to
raise equity through an initial public offering (IPO). The company will use
proceeds from the proposed equity offering for working capital and general
corporate purposes, which may include the repayment or repurchases of debt and
to fund acquisitions.
In our view, we expect the successful completion of an IPO to be positive for
credit quality. Taylor Morrison will be subject to SEC reporting requirements
and disclosures as a public company, which will further bolster transparency,
particularly surrounding financial policy. Longer term, completion of the IPO
transaction could also provide a potential exit strategy for the company's
current private equity sponsors that would not impair credit quality, and
would bolster liquidity by providing access to additional capital sources. We
do not expect an IPO to cause significant deleveraging since we believe the
company will use the majority of the IPO proceeds to fund investment in land
and inventory in anticipation of higher revenue growth over the next several
We plan to resolve the CreditWatch placement once Taylor Morrison has
completed its IPO and finalized its capital structure. The CreditWatch
placement reflects our expectation that we could raise our CCR on Taylor
Morrison by one notch if the proposed IPO transaction closes as planned.
Issue-level ratings on the homebuilders' senior unsecured notes, which we
currently rate 'BB-' (one notch higher than the corporate credit rating),
would likely remain unchanged since Standard & Poor's general criteria
guidelines generally limit recovery ratings on unsecured debt issued by
corporate entities with CCRs of 'BB-' or higher to no higher than a '3'
recovery rating. This limitation is designed to account for the risk that
recovery prospects for higher rated issuers are at greater risk of being
impaired by the issuance of additional secured or pari passu debt prior to
default. (Please see "Criteria Guidelines For Recovery Ratings On Global
Industrials Issuers' Speculative-Grade Debt," published on Aug. 10, 2009.) At
this time, we do not expect any potential capital structure changes to cause
our issue-level ratings on Taylor Morrison to be notched down below the CCR,
but we will monitor the company's progress toward completion of the IPO and
potential additional capital markets activities over the next few months.
Temporary telephone contact numbers: Susan Madison (201-259-1034); Jaime
Related Criteria And Research
-- Industry Report Card: U.S. Homebuilders Pivot Toward Growth, Oct. 17,
-- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, Oct. 12, 2012
-- Credit FAQ: Knowing The Investors In A Company's Debt And Equity,
April 4, 2006
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
-- Key Credit Factors: Global Criteria For Single-Family Homebuilders,
Sept. 27, 2011
TMM Holdings L.P.
Corporate Credit Rating B+/Watch Pos/-- B+/Stable/--