Approximately $1 billion of debt securities affected
New York, October 20, 2022 -- Moody's Investors Service (Moody's) upgraded the ratings for Beazer Homes USA, Inc.'s (Beazer) senior unsecured notes to B2 from B3. Moody's also affirmed Beazer's B2 Corporate Family Rating and B2-PD Probability of Default Rating, and changed the outlook to positive from stable. The company's SGL-2 Speculative Grade Liquidity Rating was maintained.
The upgrade of Beazer's senior unsecured note ratings to B2 from B3 reflects the change in the company's capital structure given the replacement of its $250 million senior secured revolving credit facility maturing in 2023 with a new $265 million unsecured revolving credit facility expiring in 2026. The B2 rating on the company's unsecured notes, at the same level with its Corporate Family Rating, reflects the unsecured nature of the vast majority of its capital structure, with the exception of junior subordinated notes due 2036 that provide loss absorption in a distressed scenario.
The positive outlook reflects Moody's expectation that over the next few quarters Beazer will achieve a deleveraging on a sustainable basis below 50% total debt to capitalization through increasing its net worth, while maintaining interest coverage above 3.0x and good liquidity with positive free cash flow. Beazer's repayment of its $50 million unsecured term loan in September 2022 will contribute to this deleveraging. "The company's leverage, interest coverage and free cash flow to debt metrics are expected to sustain at solid levels despite the weakening in demand conditions for homebuilding due to its disciplined approach to balance sheet management" says Natalia Gluschuk, Moody's Vice President – Senior Credit Officer.
The following rating actions were taken:
Affirmations:
..Issuer: Beazer Homes USA, Inc.
.... Corporate Family Rating, Affirmed B2
.... Probability of Default Rating, Affirmed B2-PD
Upgrades:
..Issuer: Beazer Homes USA, Inc.
....Senior Unsecured Regular Bond/Debenture, Upgraded to B2 (LGD4) from B3 (LGD4)
Outlook Actions:
..Issuer: Beazer Homes USA, Inc.
....Outlook, Changed To Positive From Stable
RATINGS RATIONALE
Beazer's B2 Corporate Family Rating is supported by the company's: 1) considerable size and scale, with revenue of $2 billion and geographic diversity; 2) focus on the first time homebuyer segment for about half of home closings, which is expected to benefit from favorable demographic trends, although pressured by constrained affordability; 3) focus on strengthening the balance sheet and track record of debt reduction and deleveraging; and 4) conservative approach to land investments and good liquidity, including expected positive cash flow from operations.
At the same time the rating reflects: 1) the company's high homebuilding debt to book capitalization ratio of about 55% at June 30, 2022; 2) its share repurchase program, although significant repurchases are not anticipated; 3) risk related to owned land supply of nearly three years and the exposure to potential impairments in an event of meaningful price declines; and 4) exposure to the cyclicality of the homebuilding industry and volatility in demand.
The SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation that Beazer will maintain good liquidity over the next 12 to 15 months. Liquidity is supported by Moody's expectation of positive free cash flow, ample availability under the company's $265 million senior unsecured revolving credit facility, good covenant compliance cushions, as well as alternate sources of liquidity given its land supply and unsecured capital structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if the company's homebuilding debt to book capitalization approaches 50%, tangible net worth exceeds $1 billion, EBIT to interest coverage is maintained above 3.0x, while industry conditions remain favorable, gross margin continues to improve and good liquidity is maintained.
The ratings could be downgraded if the company's homebuilding debt to book capitalization is sustained above 60%, EBIT to interest coverage declines below 2.0x, if industry conditions weaken causing meaningful declines in revenue and gross margin and result in net losses, or if liquidity were to weaken.
The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://ratings.moodys.com/api/rmc-documents/66220. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Beazer Homes, USA, Inc., headquartered in Atlanta, Georgia, is a US homebuilder operating in 13 states across three geographic regions: West, East and Southeast, and constructing homes for entry-level, move-up, and active adult homebuyers. In the last twelve months ended June 30, 2022, Beazer generated $2.1 billion in revenue and $182 million in 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 on https://ratings.moodys.com/rating-definitions.
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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.
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 https://ratings.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 https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Natalia Gluschuk
VP - Senior Credit Officer
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
Gretchen French
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
