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Rating Action:

MOODY'S CHANGES OUTLOOK TO POSITIVE FROM STABLE ON M.D.C. HOLDINGS DEBT RATINGS

08 Feb 2000
MOODY'S CHANGES OUTLOOK TO POSITIVE FROM STABLE ON M.D.C. HOLDINGS DEBT RATINGS New York, February 08, 2000 -- Moody's Investors Service confirmed the following ratings for M.D.C. Holdings Inc: its Ba3 rating on its $175 million, 8.375% senior notes due 2008; its senior unsecured rating of (P)Ba3, the senior subordinate rating of (P)B2, and preferred stock rating of (P)"b2"on its $300 million shelf registration. Moody's also confirmed the issuer rating of B1, and its rating on the $300 million senior unsecured bank facility of Ba2. The senior implied rating is confirmed at Ba2, and the outlook is changed to positive from stable.

The ratings confirmation and change in outlook reflect M.D.C.'s record of strong sales and profitability over the past few years; its declining leverage, modest land holdings; and its continuing expansion into regions outside of Colorado, its major market. However, the ratings also reflects MDC's heavy dependence on profits from the Colorado market, and to a limited extent the risks associated with expansion into new markets, its recently announced stock buyback program, of up to one million shares, and the intense competition M.D.C. faces in all markets.

Prospectively, a rating upgrade will depend on the company being able to continue to produce improving financial performance, effectively manage its high growth rate, maintain financial flexibility, and exercise prudent financial management. In addition, Moody's believes additional leverage will occur in fiscal 2000 resulting from a need to replenish its lower than average land supply and to grow, particularly in California. Increased leverage will be monitored closely.

The Ba2 rating on the company's $300 million senior unsecured credit agreement, amended October 1999, with Bank One as agent, takes into consideration the bank's unsecured position. The facility matures in October 2004, and is currently priced at Libor plus 1.35 bps. As of December 31, 1999, $40 million of the bank facility was used. The senior note rating of Ba3 is notched lower than the bank facility rating of Ba2, because the senior notes have a subordinate guarantee.

M.D.C. has consistently strengthened its balance sheet over the past five years with homebuilding and corporate debt of approximately $214 million at year-end 1999, down from $285 million at year-end 1995. The debt to book capitalization ratio was 36% for 1999, a steady decline from 58% in 1995. Interest coverage has improved to 9.4 times in 1999, from 2.3 times in 1995, while debt to EBITDA has improved from 3.6 times in 1995, to 1.1 times in 1999.

MDC's revenues jumped 24% over the past year to $1.6 billion in 1999, from $1.3 billion in 1998, and EBITDA has increased from $145 million to $200 million. The sales increase came mostly from increased deliveries in the Colorado, California, and Phoenix markets in 1999, as well as from increased average sales prices. The average price rose 9% to $211 million, from $194 million.

Gross profit margins have jumped 240 basis points from 16.9% for the year ended December 31, 1998, to 19.3% for the year ended December 31, 1999. This is primarily related to cost reduction and efficiency initiatives, as well as MDC's ability to increase selling prices and reduce buyer incentives, particularly during the first half of the year.

M.D.C. owned or controlled 18,515 home sites as of December 31, 1999, giving it a land supply of approximately 2.6 years based on 1999 deliveries. This represented a dramatic reduction since 1993, when it controlled 24,613 home sites and a land supply of more than seven years based on 1993 deliveries). The percentage of owned land versus total lots controlled equaled 56%.

Lots controlled are broken down in state percentages, as follows: Colorado (47%), Arizona, (20%), California (15%), Virginia/Maryland (13%), and Las Vegas (5%). Backlog at December 31, 1999, by unit is similar to the preceding breakdown, with a slightly greater backlog in Colorado (55%), and slightly less in Arizona (15%). Moody's continues to be concerned with the company's concentration in Colorado. M.D.C. has indicated it will complete more deliveries in California in 2000. However, based on the geographical distribution of land lots noted earlier, the company must buy a considerable amount of land in California soon in order to make substantial deliveries in that state in fiscal 2000. This anticipated purchase could mean increased borrowings, leading to higher leverage.

Moody's believes management has done a good job in making MDC a top performing homebuilder, while improving and maintaining a strong balance sheet. Its financial ratios rank among the best in the industry.

The financial services division accounted for 7.5% of operating earnings in 1999, compared to 15.4% in 1998. Operating profits were up 18% to $13.2 million, from $11.2 million (excluding the $4.5 million gain in 1998 from the company's receipt of final payments for the sale of its asset management business in 1996). The operating profit increase stemmed from record levels of mortgage loans originated and brokered for MDC home buyers. MDC's capture rate was 81%.

M.D.C. Holding, Inc. based in Denver, Colorado, sells homes to the first-time and move-up buyer. The Company is the largest homebuilder in metropolitan Denver; among the top five homebuilders in Northern Virginia, suburban Maryland, Tucson, and Colorado Springs. It is among the top ten homebuilders in Southern California, Phoenix and Las Vegas; and has a growing presence in the San Francisco Bay area and Sacramento. The Company also provides mortgage financing, primarily for MDC's home buyers, through its wholly owned subsidiary, HomeAmerican Mortgage Corporation.
No Related Data.
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