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Rating Action:

Moody's rates CalAtlantic's proposed $300MM Sr. Unsecured Notes Ba2

06 Jun 2017

Approximately $300 million of newly rated debt affected

New York, June 06, 2017 -- Moody's Investors Service assigned a Ba2 rating to CalAtlantic Group, Inc.'s ("CalAtlantic") proposed $300 million Senior Unsecured Notes due 2027. CalAtlantic's Corporate Family Rating is Ba2 and outlook is stable.

The anticipated $298 million in net proceeds of the offering will be used to repay or repurchase the company's 1 1/4% $253 million Convertible Senior Notes due August 2032. For the remaining portion of the net proceeds, CalAtlantic is expected to use the funds for general corporate purposes including land acquisitions. The Convertible Senior Notes become callable on August 5th, 2017 and Moody's anticipates the company to call the Notes on August 7th, 2017 since August 5th, 2017 lands on a Saturday. The holders of the Notes have a put option that they can trigger on August 1st, 2017, requiring the company to purchase all or any portion of the Notes for cash at a price equal to 100% of the principal amount.

The following rating actions were taken:

Proposed $300 million Senior Unsecured Notes due 2027, assigned Ba2 (LGD4).

The Ba2 (LGD4) rating on the 1 1/4% $253 million Convertible Senior Unsecured Notes due 2032 will be withdrawn at the close of this transaction.

RATINGS RATIONALE

CalAtlantic's Ba2 Corporate Family Rating is supported by its significant revenue base, geographic diversification, leading market share position in top MSAs, and a full array of product offerings in various price points. Formed by the merger of Standard Pacific and Ryland Group in 2015, CalAtlantic is the fourth largest homebuilder in the US with $6.5 billion in revenues for the last twelve months (LTM) ended March 31, 2017. The combined entity has a geographic footprint spanning from coast to coast in 17 states and 41 MSAs (metropolitan statistical areas). CalAtlantic also has a wide product offering including entry level, move up, active adult communities, and luxury homes. The company's credit metrics are appropriate for the rating category; for the LTM period ended March 31, 2017 homebuilding debt to capitalization ratio stood at 44.6% and homebuilding EBIT interest coverage of 4.0x. As we projected, the company has deleveraged slightly below 45% and we believe that they will remain slightly below 45% throughout the remainder of this year. Looking into 2018, CalAtlantic's debt leverage could approach 40% if they don't find any juicy investment opportunities. At the same time, the rating considers gross margins that, as for most of the homebuilding industry, will continue to weaken in 2017. CalAtlantic finished 2016 with gross margins of 21.9% and we expect this metric to approach 20% in 2017. In the first quarter of 2017, the company already reported a decline in its gross margin to 20.5%.

CalAtlantic's SGL-2 Speculative Grade Liquidity (SGL) Rating reflects the company's good liquidity profile and takes into consideration internal liquidity, external liquidity, covenant compliance, and alternate liquidity. As of March 31, 2017, the company had $144 million of unrestricted cash on the balance sheet. CalAtlantic has a $750 million revolving credit facility that, as of March 31, 2017, had $643.5 million available to be drawn. The credit facility is subject to a series of covenants including a minimum tangible net worth of $1.97 billion, a maximum net homebuilding leverage ratio of 2.0 to 1.0, and a minimum EBITDA interest coverage of 1.25x. Moody's projects the company to have significant cushion under each of these for the next 12 to 18 months. CalAtlantic's debt capital structure is unsecured, giving it ample alternate liquidity options with its unencumbered land supply.

The stable outlook reflects that the company's credit metrics are anticipated to improve over the next 12-18 months as industry conditions steadily advance.

The ratings could be upgraded if the company's homebuilding debt to capitalization is sustained below 40%, homebuilding interest coverage is close to 6.0x, and homebuilding gross margins are well above 20%.

The ratings could be downgraded if homebuilding debt to capitalization increases above 50% on a sustained basis, homebuilding interest coverage falls below 3.5x, there is a deterioration in profitability or weakening of industry conditions, or if the company engages in any sizable acquisition and/or shareholder friendly activities.

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 Irvine, California and formed by the 2015 merger of Standard Pacific Corp. and The Ryland Group, Inc., CalAtlantic Group, Inc. ("CalAtlantic") constructs and sells single-family attached and detached homes. The company operates in 17 states and 41 MSAs and is in the entry-level, move-up, luxury, and active adult segments. CalAtlantic is the fourth largest homebuilder in the United States with revenues for the LTM period ended March 31, 2017 of $6.5 billion.

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.

Tiina Siilaberg
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

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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