New York, November 19, 2020 -- Moody's Investors Service ("Moody's") upgraded
the Corporate Family Rating (CFR) and senior unsecured notes of M.D.C.
Holdings, Inc. ("M.D.C.")
to Ba1 from Ba2, senior unsecured shelf to (P)Ba1 from (P)Ba2 and
the Probability of Default Rating (PDR) to Ba1-PD from Ba2-PD.
The company's speculative grade liquidity rating is unchanged at
SGL-2. The outlook remains stable.
The upgrade considers Moody's expectation of continued improvement
in credit metrics through 2021, including leverage trending to 31%
as a result of increased retained earnings and interest coverage increasing
to 8.3x. The upgrade also recognizes substantial improvement
in operating results over the past three years, resulting in a strengthening
of key credit metrics that Moody's expects will be maintained.
The stable outlook reflects Moody's expectation that M.D.C.
will grow organically within its existing markets while maintaining a
conservative capital structure.
Upgrades:
..Issuer: M.D.C. Holdings,
Inc.
.... Corporate Family Rating, Upgraded
to Ba1 from Ba2
.... Probability of Default Rating,
Upgraded to Ba1-PD from Ba2-PD
....Senior Unsecured Notes, Upgraded
to Ba1 (LGD4) from Ba2 (LGD4)
....Senior Unsecured Shelf, Upgraded
to (P)Ba1 from (P)Ba2
Outlook Actions:
..Issuer: M.D.C. Holdings,
Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
The Ba1 CFR reflects M.D.C.'s successful asset-lite
business model and build-to-order strategy, that minimizes
the company's land and home impairment risk through cycles.
The rating also takes into account the company's focus on entry-level
buyers, which has demonstrated strong demand over the past several
years. Demand for new single-family housing across all product
categories has increased as a result of the COVID-19 pandemic,
with families seeking to relocate to suburban areas with more personal
space as they spend more time at home. Finally, with a presence
across ten U.S. states, M.D.C.
has good geographic diversity with exposure to high growth markets in
the west coast, east coast and mountain regions of the country.
These factors are offset by industry cost pressures including land,
labor and materials that could negatively impact gross margin as well
as the cyclical nature of the homebuilding industry that could lead to
protracted revenue declines.
Despite Moody's expectations of negative free cash flow over the
next 12 to 18 months as a result of increased land investment to support
growth, Moody's expects M.D.C. to maintain
good liquidity over the same time period. In addition to over $500
million of unrestricted cash at September 30, 2020, the company
had $965 million availability on its $1 billion senior unsecured
revolver and is expected to maintain ample cushion on its maintenance
covenants.
M.D.C.'s governance risk is low and reflects
the maintenance of a conservative financial policy, with no joint
ventures or off-balance sheet recourse obligations, as well
as low financial leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if M.D.C. demonstrates
maintenance of strong credit metrics, including homebuilding debt
to book capitalization below 35% and EBIT interest coverage in
the high single digits on a sustained basis. An upgrade would also
require maintenance of a very good liquidity profile, including
strong free cash flow generation. Finally, an upgrade would
require a meaningful increase in size and scale while maintaining its
conservative financial policy and demonstrating a commitment to attaining
and maintaining an investment grade rating, both to Moody's
and to the debt capital markets. The ratings could be downgraded
if M.D.C. shifts to a more aggressive financial policy
or if operating results decline such that debt leverage approaches 45%,
EBIT interest coverage declines below 5x or liquidity weakens.
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.
Founded in 1972 and headquartered in Denver, CO, M.D.C.
Holdings, Inc. is a mid-sized national homebuilder
that builds and sells primarily single family detached homes to first
time and first time move up buyers under the name "Richmond American
Homes". The homebuilding divisions operate across three regions,
including the states of Arizona, California, Nevada,
Washington, Oregon, Colorado, Utah, Virginia,
Maryland, and Florida. For the 12 month period ended September
30, 2020, the company's revenue and net income were
approximately $3.8 billion and $313 million,
respectively.
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
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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 entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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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_1133569.
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
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for additional regulatory disclosures for each credit rating.
Griselda Bisono
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.
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