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Rating Action:

Moody's Rates Ashton Woods' Senior Unsecured Notes Caa1

24 Jul 2017

Approximately $250 million of debt securities affected

New York, July 24, 2017 -- Moody's Investors Service assigned a Caa1 rating to the new $250 million of senior unsecured notes due 2025 of Ashton Woods USA, LLC. ("Ashton Woods") and of its co-issuer, Ashton Woods Finance Co. Proceeds will be used to fund a tender offer and/or redemption of up to $100 million of the company's existing senior unsecured notes due 2021, to pay down approximately $84.4 million of the company's senior secured revolver debt that was outstanding as of May 31, 2017, and to augment working capital.

Ashton Woods' B3 Corporate Family Rating, B3-PD Probability of Default, and Caa1 rating on the company's existing issue of senior unsecured notes are unchanged by this transaction. The rating outlook is stable.

The following rating action was taken:

Proposed new $250 million of senior unsecured notes due 2025 rated Caa1 (LGD4)

RATINGS RATIONALE

The B3 Corporate Family Rating reflects Ashton Woods' relatively smalize and scale compared to the national builders, thin tangible net worth position, and a liquidity position that often includes zero cash balances and, until recently, negative cash flows. Additionally, the company's adjusted homebuilding debt leverage is elevated at approximatelyally 63% as of May 31, 2017, although it is expected to trend gradually lower over the next three years from continued earnings retention and more moderate increases in land spend.

At the same time, the rating acknowledges the company's positive net income generation and our expectation that new order rates, backlog and modestly rising prices will result in a respectable earnings performance and continued modest improvement in credit metrics. Additionally, the rating incorporates the company's relatively conservative land strategies and occasional equity contributions by its Canadian owners.

The company currently has a liquidity profile that is adequate, supported by a $350 senior secured borrowing base revolver due December 31, 2020. As of May 31, 2017, $84.4 million was drawn and $4 million of letters of credit were outstanding, leaving, subject to the borrowing base, $187.4 million available. Pro forma for the note offering and pay down of the revolver, the revolver will be undrawn, and availability, constrained by the borrowing base, will increase to $271.8 million. However, the company's liquidity position is somewhat lessened by projected reliance on the revolving credit facility, as well as by frequent zero cash balances. The company is also required to maintain compliance with a number of financial covenants in its credit agreement, including minimum tangible net worth, a maximum debt leverage ratio, a minimum interest coverage ratio, minimum liquidity, and maximum level of land supply. As of May 31, 2017, Ashton Woods was in compliance with all its covenants, and Moody's expects the company will remain in compliance with all its financial covenants over the next 12 to 18 months.

The stable outlook reflects Moody's expectation that positive momentum in the homebuilding industry will result in growth and modest improvements in many of the company's credit metrics over the next 12 to 18 months.

Moody's would consider an upgrade in the company's Corporate Family Rating to B2 from B3 if tangible net worth were to grow above $500 million, Moody's-adjusted debt to book capitalization were to fall and stay below 55%, the company were to grow its size and scale, and if it can improved its liquidity.

Alternatively, Moody's would consider a downgrade in the company's Corporate Family rating to Caa1 from B3 if adjusted debt leverage were to rise above 70%, net income were to turn into net losses, and/or liquidity were to be weakened.

Ashton Woods' new and existing notes will be guaranteed by the company's principal operating subsidiaries. The notes are notched below the Corporate Family Rating because of the presence -- either actual or possible -- of a large amount of secured debt in the capital structure.

The principal methodology used in this rating was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Atlanta, Georgia and established in 1989, Ashton Woods USA, LLC was the third largest private homebuilder and the 18th largest among both public and private homebuilders in the U.S. in 2016. It constructs single-family detached and attached homes, largely for move-up buyers in Texas, Arizona, North Carolina, South Carolina, Georgia, and Florida. For the fsical year ending May 31, 2017, Ashton Woods generated approximately $1.2 billion in revenues and $41.6 million in both pretax and net income (an LLC does not include a provision for income taxes). The company is majority-owned by an affiliate of the Great Gulf Group Limited of Canada.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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