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Rating Action:

Moody's assigns a B3 rating to Beazer's proposed $350 million unsecured notes

10 Sep 2019

Approximately $350 million of debt securities rated

New York, September 10, 2019 -- Moody's Investors Service ("Moody's") assigned a B3 rating to Beazer Homes USA, Inc.'s ("Beazer") proposed $350 million senior unsecured notes due 2029. The company's ratings including its B3 Corporate Family Rating, B3-PD Probability of Default Rating, B3 ratings on its senior unsecured notes and SGL-2 Speculative Grade Liquidity Rating remain unchanged. The stable outlook is also unchanged.

In a refinancing transaction, Beazer is issuing $350 million of senior unsecured notes due 2029 and a new $150 million senior unsecured term loan due 2022 (unrated), the proceeds of which along with cash on hand will be used to retire $500 million of the company's 8.75% senior unsecured notes due 2022 and to fund the premium. We estimate Beazer's homebuilding debt to capitalization ratio pro forma for the transaction at 72.5%, slightly above the leverage level at the end of third fiscal quarter. The company's debt maturity profile is enhanced with the nearest senior note maturity not occurring until 2025 following the transaction. Beazer's credit profile is also expected to benefit from the lower interest expense associated with the new debt.

The following rating actions were taken:

Issuer: Beazer Homes USA, Inc.:

Proposed $350 million senior unsecured notes due 2029, assigned a B3 (LGD4)

RATINGS RATIONALE

Beazer's B3 CFR reflects Moody's consideration of: 1) financial strategies that result in high debt leverage, as measured by Moody's adjusted homebuilding debt to book capitalization; 2) GAAP gross margins of about 16%, which are below most B-rated homebuilding peers; 3) cost pressures faced by the homebuilding industry, including land, labor and materials costs, which together with the reduced pricing power of homebuilders will weigh on gross margin performance; 4) the recent reduction in the company's tangible net worth given the incurred land impairments in the second fiscal quarter of 2019; and 5) active share repurchase authorization.

At the same time, Beazer's credit profile is supported by the company's: 1) large size and scale within its B3-rated homebuilding peer group; 2) focus on the first-time homebuyer segment for about half of total closings, which is expected to grow faster than other product categories given the supportive demographic trends; 3) debt reduction strategy and the repayment of nearly $300 million in debt since fiscal 2015 with further repayments expected; 4) increasing investment in shorter duration land.

The stable rating outlook reflects Moody's expectation that homebuilding industry conditions will continue to be healthy and translate into a gradual improvement of the company's credit metrics.

The Speculative Grade Liquidity Rating of SGL-2 reflects Beazer's good liquidity profile, supported by Moody's expectation of positive free cash flow and maintenance of ample availability under its revolving credit facility, and a $68 million cash balance at June 30, 2019.

The ratings could be upgraded if the company's total adjusted homebuilding debt to book capitalization trends towards 60% and EBIT to interest coverage approaches 2.0x, while gross margins improve and good liquidity profile is maintained.

The ratings could be downgraded if the company's total adjusted homebuilding debt to book capitalization is sustained above 70%, if EBIT interest coverage weakens below 1.0x, if the company experiences bottom line net losses on an annual basis or a deterioration in its liquidity profile.

The principal methodology used in this rating was Homebuilding And Property Development Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Beazer Homes, USA, Inc., headquartered in Atlanta, Georgia, is a US homebuilder operating across three geographic regions: West, East and Southeast. The company has presence in 13 states, including Arizona, California, Nevada, Texas, Indiana, Maryland, Delaware, Tennessee, Virginia, Florida, Georgia, North Carolina and South Carolina. Beazer targets entry-level, move-up, and active adult homebuyers, and in fiscal 2018, the company delivered 5,767 homes. Total revenues and net income for the LTM period ended June 30, 2019 were approximately $2.1 billion and $(21) million, respectively.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Natalia Gluschuk
Asst Vice President - Analyst
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

Dean Diaz
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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