Approximately $1.5 billion of debt securities affected
New York, July 31, 2012 -- Moody's Investors Service assigned a B3 rating to Standard Pacific Corp.'s
proposed $150 million convertible senior note offering due 2032.
In the same rating action, we assigned a (P)B3 rating to the company's
senior unsecured shelf and a (P)Caa2 rating to its senior subordinate
shelf. We also affirmed all of the company's existing ratings,
including B3 corporate family rating, B3 probability of default
rating, B3 senior unsecured note rating, Caa2 convertible
senior subordinated note rating and SGL-2 speculative grade liquidity
assessment. The rating outlook was changed to positive from stable.
The proceeds from the proposed $150 million convertible senior
unsecured note offering, along with the proceeds from the concurrent
offering of 12.5 million shares of common stock, will be
designated for general corporate uses, including land acquisition
and development, and home construction.
RATINGS RATIONALE
The change in the outlook to positive from stable reflects our expectation
that the improvement in the company's operating performance,
including rising new orders and backlog, solid gross margin performance
and positive net income generation, will continue. Additionally,
the positive outlook incorporates the equity offering being a part of
this transaction, which is likely to result in little change to
the company's current adjusted homebuilding debt to capitalization
ratio of 68%.
The convertible senior unsecured notes are being rated B3 given their
equal rank in the right of payment with the existing senior unsecured
notes.
The following rating actions were taken:
Proposed $150 million convertible senior unsecured notes due 2032,
assigned B3 (LGD4, 51%);
Senior unsecured shelf, assigned (P)B3;
Senior subordinate shelf, assigned (P)Caa2;
Corporate family rating, affirmed at B3;
Probability of default rating, affirmed at B3;
Senior unsecured note rating, affirmed at B3 (LGD4, 51%);
Convertible senior subordinated note rating, affirmed at Caa2 (LGD6,
96%);
Speculative grade liquidity assessment, affirmed at SGL-2.
All of Standard Pacific's debt is guaranteed by its principal operating
subsidiaries.
The B3 corporate family rating reflects Moody's expectation that Standard
Pacific has reduced costs sufficiently that it can increase its profitability
as the industry conditions continue to solidify. Impairments and
other charges, which totaled approximately $2.5 billion
over the past five years, are likely to be less material going forward,
given the company's attractive gross margin performance and a stabilizing
pricing environment. In addition, the company has substantially
reduced its off-balance sheet joint venture exposure, eliminating
recourse JV debt of over $500 million that was outstanding in 2007.
Standard Pacific's liquidity is supported by the unrestricted cash
balances of $292 million at June 30, 2012, which will
increase as per the proposed equity and debt offerings, $204
million of availability under its revolving credit facility, and
absence of significant debt maturities until 2016.
At the same time, the company's debt leverage remains elevated,
standing at about 68% homebuilding debt-to-capitalization,
while net worth of $657 million at June 30, 2012, is
relatively moderate to support the company's growth expectations.
In addition cash flow, one of the main sources of strength for the
company during the worst years of the downturn, is likely to remain
negative, as the company pursues land acquisition and development.
Finally, the rate of cash burn, if growth expectations are
met, may leave Standard Pacific with very low cash balances in two
years.
The ratings could improve if the company were to maintain its profitability
and solid liquidity, grow its tangible equity base, and reduce
debt leverage to below 60%.
Ratings pressure could ensue if the company were to deplete its cash reserves
either through sharper-than-expected operating losses or
through a sizable investment or other transaction without some offset
such as an acceleration of earnings growth and improvement in net worth
and debt leverage.
The principal methodology used in rating Standard Pacific was the Global
Homebuilding Industry Methodology published in March 2009. Other
methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
Headquartered in Irvine, California and begun in 1966, Standard
Pacific Corp. constructs and sells single-family attached
and detached homes focusing on the move-up market, which,
together with a modest amount for the luxury market, represents
about 73% of the company's overall product mix, with 27%
represented by the entry level market. The company has homebuilding
operations in California, Texas, Arizona, Colorado,
Florida, North Carolina, and South Carolina, and serves
24 markets. Revenues and net income before declaration of preferred
dividends for the LTM period ending June 30, 2012 were approximately
$1.0 billion and $32 million, respectively.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant 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.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information.
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Please see the ratings disclosure page on www.moodys.com
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for information on (A) MCO's major shareholders (above 5%) and
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the lead rating analyst and to the Moody's legal entity that has issued
the 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: 212-553-0376
SUBSCRIBERS: 212-553-1653
Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns B3 to Standard Pacific's convertible senior unsecured notes; outlook positive
