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Related Issuers
Rating Action:

Moody's changes the outlook for KB Home to positive; affirms Ba3 CFR

17 Feb 2021

Approximately $1.75 billion of debt securities affected

New York, February 17, 2021 -- Moody's Investors Service changed the outlook for KB Home to positive from stable. At the same time, Moody's affirmed the company's Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating, and Ba3 ratings on its senior unsecured notes. The company's SGL-2 Speculative Grade Liquidity rating is maintained.

"The positive outlook reflects Moody's expectation that KB Home will see robust revenue expansion toward $5.5 billion in FY 2021 through its strong order trends, significant backlog position of nearly $3 billion at November 2020, and the visibility provided by the company's build-to-order business model," says Natalia Gluschuk, Moody's Vice President -- Senior Analyst. Moody's also expects KB Home to continue deleveraging and improving gross margin, and its interest coverage to rise above 5.0x by year end. Further, Moody's expects the company to continue to maintain a conservative financial strategy with a focus on balance sheet strength and good liquidity, and to successfully address its upcoming debt maturities over the next 18 months. Strong tailwinds in the homebuilding sector over the next 12 to 18 months will support KB Home's growth and credit metric strengthening.

The following rating actions were taken:

Outlook Actions:

..Issuer: KB Home

....Outlook, Changed To Positive From Stable

Affirmations:

..Issuer: KB Home

.... Probability of Default Rating, Affirmed Ba3-PD

.... Corporate Family Rating, Affirmed Ba3

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD4)

RATINGS RATIONALE

KB Home's Ba3 Corporate Family Rating is supported by: 1) a conservative financial policy focused on improving the balance sheet and Moody's expectation for deleveraging through earnings retention and debt reduction; 2) the company's large scale and position as one of the ten largest homebuilders in the US by revenue and homes closed; 3) approximately 60% of product mix represented by the first-time homebuyer category based on home closings and Moody's expectation that the company will benefit from the demand of the millennial population; and 4) the company's built-to-order strategy, which provides visibility into future revenue and reduces inventory risk.

At the same time, the company's credit profile is constrained by: 1) KB Home's revenue and home closings concentration in California; 2) shareholder friendly activities, including ongoing dividends and potential share repurchases; 3) KB Home's supply of inactive land, which tends to generate below company average gross margins, although it now represents a low single digit percent of total inventory; and 4) cyclicality of the homebuilding sector and exposure to significant volatility in results.

KB Home's SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation that the company will maintain good liquidity, supported by its $681 million cash position at November 30, 2020, solid cash flow from operations, substantial availability under its $800 million unsecured revolving credit facility expiring in October 2023, and good cushion under financial covenants. Liquidity is somewhat constrained by the upcoming debt maturities over the next 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if KB Home's homebuilding debt to book capitalization declines below 40%, homebuilding EBIT coverage of interest increases above 5.0x, and gross margin approaches 20%. Maintenance of good liquidity and conservative financial policies, along with favorable homebuilding industry conditions would also be important considerations for an upgrade.

The ratings could be downgraded if the company's homebuilding debt to book capitalization trends toward 50%, homebuilding EBIT coverage of interest is sustained below 4.0x, gross margin declines to less than 18%, or liquidity profile deteriorates.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Los Angeles, KB Home is one of the country's largest homebuilders, with a presence in 45 markets in eight states and four geographic regions. The company builds attached and detached single-family residential homes, townhomes and condominiums for first-time, first move-up, second move-up and active adult homebuyers. In FY 2020 ended November 30, KB Home generated approximately $4.2 billion in homebuilding revenue and $300 million in consolidated net income.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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
Vice President - Senior 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.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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