Beazer Homes Inc. (BZH)

[Wildbilly]

Fitch Rates Beazer's Proposed $200MM Sr. Notes Offering 'CCC+/RR5'


Feb 01, 2013 (Close-Up Media via COMTEX) -- Fitch Ratings has assigned a
'CCC+/RR5' rating to Beazer Homes USA, Inc.'s proposed offering of $200 million
principal amount of senior notes due 2023.

This notes issue will be ranked on a pari passu basis with the company's
existing senior unsecured notes. Net proceeds from the notes offering will be
used to fund or replenish cash that is expected to be used to fund the
redemption of its 6 7/8 percent senior notes due 2015 and for general corporate
purposes.

The Rating Outlook is Stable. A complete list of ratings follows below.

SENSITIVITY/RATING DRIVERS

The rating for BZH is based on the company's execution of its business model in
the current moderately recovering housing environment, land policies, and
geographic diversity. BZH's rating is also supported by the company's solid
liquidity position.

Risk factors include the cyclical nature of the homebuilding industry, the
company's high debt load and high leverage, BZH's underperformance relative to
its peers in certain operational and financial categories, and its current
over-exposure to the credit-challenged entry level market (approximately 60
percent of BZH's customers are first-time home buyers).

The Stable Outlook takes into account the improving housing outlook for 2013.
However, the industry growth rate this year reflects a below-trend-line cyclical
rise off a very low bottom. In a slowly growing economy with somewhat diminished
distressed home sales competition, less competitive rental cost alternatives,
and new and existing home inventories at historically low levels, 2013
single-family housing starts should improve about 18 percent, while new home
sales increase approximately 22 percent and existing home sales grow 7 percent.
However, as Fitch has noted in the past, recovery will likely occur in fits and
starts.

Challenges (although somewhat muted) remain, including continued relatively high
levels of delinquencies, potential of short-term acceleration in foreclosures,
and consequent meaningful distressed sales, and restrictive credit qualification
standards.

IMPROVING FINANCIAL RESULTS

BZH's homebuilding revenues for its 2013 fiscal first quarter (ended Dec. 31,)
increased 30.8 percent to $244.4 million as home deliveries grew 19.7 percent to
1,038 homes and the average selling price advanced 9.3 percent to $235,500. The
company has also reported improved quarterly net sales in each of the last seven
quarters, contributing to a 39 percent increase in homes in backlog at Dec. 31,
compared with year ago levels. The significant increase in backlog, combined
with the company's strategy to grow community count, should result in moderately
higher deliveries in fiscal 2013 compared with 2012. Nevertheless, Fitch does
not expect BZH to be profitable in fiscal 2013.

LIQUIDITY POSITION

The company has taken steps to strengthen its balance sheet and improve its
liquidity position to better participate in the housing recovery. In July 2012,
BZH completed underwritten public offerings of its common stock, tangible equity
units and a private placement of $300 million of 6.625 percent senior secured
notes. Net proceeds from these transactions were roughly $466 million.
Concurrently with the debt offering, BZH called for redemption of all of its
$250 million 12 percent senior secured notes due 2017 and repaid $20 million
under its outstanding cash secured term loan. These transactions are projected
to lower annual interest expense by approximately $15 million.

In September 2012, BZH also amended and expanded its secured revolving credit
facility from $22 million to $150 million. The credit facility matures in
September 2015.

BZH ended the December 2012 quarter with $396.7 million of unrestricted cash and
no borrowings under its revolving credit facility. The improved liquidity
position provides BZH with some cushion as Fitch expects the company will
continue to have operating losses and negative cash flow through fiscal 2013.
With higher land and development spending expected this year, unrestricted cash
could fall below $300 million by the end of fiscal 2013.

LAND POSITION

At Dec. 31, the company controlled 25,104 lots, of which 82 percent were owned
and the remaining lots controlled through options. Based on the latest 12-month
closings, BZH controlled 5.3 years of land and owned roughly 4.3 years of land.

BZH spent roughly $185.5 million on land and development during fiscal 2012
compared with $221.6 million during fiscal 2011. During its 2013 fiscal first
quarter, land and development spending totaled $90 million. This compares to
$58.2 million expended during the same period last year. Management expects to
spend at least twice as much on land and development during 2013 as it did
during 2012. Fitch is comfortable with this strategy given the company's
enhanced liquidity position. Assuming that the company is able to redeem all of
its 2015 notes, BZH will not have any major debt maturities until 2016, when
$172.9 million of senior notes become due. Furthermore, management has
demonstrated in the past that it is capable of pulling back on land and
development spending when necessary.

GUIDELINES FOR FURTHER RATINGS ACTIONS

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, especially free cash flow trends and uses, and the
company's cash position.

BZH's ratings are constrained in the intermediate term due to weak credit
metrics and high leverage. However, positive rating actions may be considered if
the recovery in housing is maintained and is meaningfully better than Fitch's
current outlook, BZH shows continuous improvement in credit metrics
(particularly debt to EBITDA consistently below 8x and interest coverage above
2x), and preserves a healthy liquidity position.

Negative rating actions could occur if the recovery in housing dissipates,
resulting in revenues and operating losses approaching 2011 levels, and the
company maintains an overly aggressive land and development spending program.
This could lead to consistent and significant negative quarterly cash flow from
operations and diminished liquidity position. In particular, Fitch will review
BZH's ratings if the company's liquidity position (unrestricted cash plus
revolver availability) falls below $200 million.

Fitch currently rates BZH as follows:

--Long-term Issuer Default Rating 'B-';

--Secured revolver 'BB-/RR1';

--Second lien secured notes 'BB-/RR1';

--Senior unsecured notes 'CCC+/RR5';

--Junior subordinated debt 'CCC/RR6'.

The Rating Outlook is Stable.

The Recovery Rating (RR) of 'RR1' on BZH's secured credit revolving credit
facility and second-lien secured notes indicates outstanding recovery prospects
for holders of these debt issues. The 'RR5' on BZH's senior unsecured notes
indicates below-average recovery prospects for holders of these debt issues.
BZH'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 recovery ratings.

Additional information is available at 'fitchratings.com'. The ratings above
were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8,);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers'
(Aug. 14,).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773

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