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Rating Action:

Moody's revises M.D.C. Holdings' outlook to stable; affirms ratings

17 Dec 2009

Approximately $1 billion of debt securities affected

New York, December 17, 2009 -- Moody's Investors Service revised the outlook of M.D.C. Holdings, Inc. ("MDC") to stable from negative and affirmed the Baa3 rating on the company's four issues of senior unsecured notes.

The outlook revision reflects the fact that MDC has done a good job of managing its operations and balance sheet through an extremely challenging period and is poised to grow sales and improve margins in 2010. Our expectations for MDC are consistent with Moody's belief that the U.S. homebuilding industry has begun showing signs of stability, as reflected in our move to a stable outlook for the industry on December 15, 2009. While we expect MDC to increase its land spend in 2010, which may cause cash flow to go negative, we expect the company will remain in a net cash position throughout 2010.

The Baa3 rating considers MDC's strong liquidity position, conservative land strategy, and its possession of one of the cleanest, most transparent balance sheets in the industry. The company had $1.6 billion of cash at September 30, 2009 as compared to about $1 billion of total homebuilding debt outstanding, has not drawn on its revolver since March 2006, and has a three-year window before facing a relatively small debt maturity. This liquidity gives the company significant financial flexibility to deploy cash back into the business as opportunities arise. With regard to land strategy, the company typically holds the shortest total land supply in the industry (both owned and optioned combined), and its current supply is calculated by Moody's to be approximately two years. Its financial statements currently reflect zero off-balance sheet joint ventures, no specific performance lot options (and only $8.1 million of total non-refundable lot option deposits in the form of either cash or letters of credit still outstanding), no related party liabilities, and no goodwill.

At the same time, the company's rating balances its large cash position and cash generation track record against Moody's expectation that its future cash flow generation will decline from prior robust levels. MDC has been cash flow positive on a trailing 12-month basis for thirteen straight quarters and in a net positive cash position since the end of 2007. However, cash flow is expected to turn negative in 2010, as the company is projected to increase its land purchases and land development expenditures in anticipation of renewed growth. In addition, most of the company's traditional credit metrics will remain subpar for its rating in 2010, and the company faces the same daunting industry challenges as its peers.

Going forward, the outlook and/or ratings could improve if the company were to maintain its strong liquidity position, stem the erosion of its net worth and restore its growth, become profitable before charges, and reduce its impairment charges to a minimum.

The outlook and/or ratings could come under pressure if the company's liquidity position deteriorates significantly such that it would be in a net debt position within the next year. Further, the ratings and or outlook could be lowered if the company began experiencing large pre-impairment quarterly losses, made a sizable debt-financed acquisition, and/or instituted a material share repurchase program.

Moody's last rating action for MDC occurred on December 19, 2008, at which time Moody's affirmed the company's Baa3 rating and changed the outlook to negative from stable. The principal methodology used in rating MDC was Moody's Global Homebuilding Industry rating methodology, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Based in Denver, Colorado, M.D.C. Holdings, Inc., whose subsidiaries build homes under the name "Richmond American Homes," is the twelfth largest homebuilder in the United States, based on trailing 12-month period ended September 30, 2009 revenues. The company also provides mortgage financing, primarily for MDC's homebuyers, through its wholly owned subsidiary, HomeAmerican Mortgage Corporation. MDC has homebuilding divisions across the country, including Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, California, Northern Virginia, Maryland, Philadelphia/Delaware Valley and Jacksonville. Total homebuilding revenues and consolidated net income for the trailing 12-month period ended September 30, 2009 were $843 million and $(191 million), respectively.

New York
Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Oman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's revises M.D.C. Holdings' outlook to stable; affirms ratings
No Related Data.
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