Beazer Homes Inc. (BZH)

[Zephyr]

13:16:00 BZH Fitch Affirms Beazer's IDR at 'CCC'; Outlook Stable


Fitch Affirms Beazer's IDR at 'CCC'; Outlook Stable

CHICAGO, Apr 20, 2010 (BUSINESS WIRE) -- Fitch Ratings has affirmed Beazer Homes
USA, Inc.'s (Beazer) ratings as follows:

--Issuer Default Rating (IDR) at 'CCC';

--Secured revolving credit facility at 'B+/RR1';

--Second lien secured notes at 'B+/RR1';

--Senior unsecured notes at 'CC/RR5';

--Convertible senior notes at 'CC/RR5';

--Convertible subordinated notes at 'C/RR6';

--Junior subordinated debt at 'C/RR6'.

The Rating Outlook is Stable.

The Recovery Rating (RR) of 'RR1' on Beazer's secured credit revolving credit
facility and second-lien secured notes indicates outstanding recovery prospects
for holders of these debt issues. The 'RR5' on Beazer's senior unsecured notes
indicates below-average recovery prospects for holders of these debt issues.
Beazer's exposure to claims made pursuant to performance bonds and joint venture
debt and the possibility that part of these contingent liabilities would have a
claim against the company's assets were considered in determining the recovery
for the unsecured debtholders. The 'RR6' on the company's mandatory convertible
subordinated notes and junior subordinated notes indicates poor recovery
prospects for holders of these debt issues in a default scenario. Fitch applied a
liquidation value analysis for these RRs.

The ratings and Outlook for Beazer reflect the company's healthy liquidity
position, moderately improved prospects for the housing sector this year, but
still substantial indebtedness. The company ended its 2010 first quarter (ended
Dec. 31, 2009) with unrestricted cash of $432.7 million. The company also
recently filed an application for a federal income tax refund of approximately
$101 million as a result of the tax legislation enacted in November 2009. In
January 2010, the company completed an equity offering of 22.4 million shares and
the issuance of $57.5 million of convertible senior notes. The company received
net proceeds of $153.8 million from the offerings, including the full exercise of
over-allotment option for each offering, after underwriting discounts and
commissions. Proceeds from these offerings were used to redeem $127.3 million of
senior notes due May 15, 2011. Following the redemption of these notes, Beazer
will not have any major debt maturities until April 2012, when $304 million of
senior notes become due. (Note: Holders of Beazer's $154.5 million convertible
senior notes have the right to require the company to purchase all or any portion
of this debt issue for cash on June 15, 2011.)

The company reported revenues of $218.8 million during the first quarter of 2010
(1Q'10), flat compared to the same period last year. Total deliveries increased
8% while the average sales price fell 8.8% during the quarter. Gross margins,
excluding impairment charges, improved 160 basis points to 12.9% during the first
quarter. SG&A expenses as a percentage of sales remain elevated at 20.9% during
the 1Q'10 but are lower than the 24.7% recorded last year. Beazer reported a
pre-tax loss of $49.5 million during the 1Q'10, which included $8.8 million of
inventory impairment charges. The pre-tax loss for the 1Q'09 was $81.1 million,
including $12.4 million of inventory impairment charges. Net orders for the
quarter increased 36.6% to 728 homes and the company had 960 homes in backlog
with a value of $232.3 million at the end of the first quarter. Cancellation
rates improved to 26.9% during the 1Q'10 from 46.1% last year and 34.7% during
the prior quarter.

Housing apparently bottomed during 2009, and a so far anemic recovery has begun.
During the next 12-15 months off the bottom, the recovery may appear jaw-toothed
as substantial foreclosures now in the pipeline present as distressed sales and
as meaningful new foreclosures arise from Alt-A and option ARM resets. High
unemployment rates and the tightening of certain Federal Housing Administration
loan standards will be notable headwinds early in the upcycle. The continuation
and expansion of the scope of the national housing credit may boost sales in
spring of this year. Also the Federal government's continuing efforts to modify
foreclosures may finally show some success in 2010.

Beazer generated cash flow from operations of negative $59.3 during the 1Q'10.
Cash flow from operations totaled $146.4 million for the latest 12 months from
Dec. 31, 2009. For all of fiscal 2010, Fitch expects Beazer to be cash flow
negative, excluding the expected second-quarter tax refund of $101 million, as
the company starts to rebuild its land position (through land purchases and
development spending).

Beazer amended its secured revolving credit facility in 2009, reducing the size
from $150 million to $22 million, and the facility is provided by one lender. The
amended facility will continue to provide for working capital and letter of
credit needs collateralized by either cash or assets of the company. Beazer also
entered into three stand-alone, cash-secured, letters of credit agreements with
banks to maintain pre-existing letters of credit that had been outstanding under
the $150 million revolver. Consistent with Fitch's comment on certain
homebuilders' termination of revolving credit facilities, in the absence of a
traditional revolving credit line, a consistently higher level of cash and
equivalents than was typical should be maintained on the balance sheet,
especially in these still uncertain times.

Future ratings and Outlooks will be influenced by broad housing market trends as
well as company specific activity such as trends in land and development
spending, general inventory levels, speculative inventory activity (including the
impact of high cancellation rates on such activity), gross and net new order
activity, debt levels and especially free cash flow trends and uses, and the
company's cash position.

Applicable criteria available on Fitch's website at 'www.fitchratings.com':
(http://www.fitchratings.com%27:) 'Corporate Rating Methodology', dated Nov. 24,
2009.

Additional information is available at 'www.fitchratings.com'
(http://www.fitchratings.com%27).

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SOURCE: Fitch Ratings

Fitch Ratings
Robert Curran, [phone] (New York)
Robert Rulla, [phone] (Chicago)
Media Relations:
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