In the wake of the announcement by Beazer Homes USA that it plans to sell 12.5 million shares, three million tangible equity units and $300 million in new senior unsecured notes, Fitch Ratings has rasied its outlook for the company's debt and given it a rating outlook of "stable." The proceeds of the offerings will be used to pay off existing debt, with the new notes going to retire the Beazer's outstanding senior notes due in 2012, the company said.
The upgrade in outlook to "stable," Fitch said, was due to "the company's healthier liquidity position,improving home closing and order trends, as well as better prospects forthe housing sector this year."
Fitch took Beazer's issuer default rating (IDR) up one grade to a 'B-' from 'CCC.' Additionally, it took the company's secured revolving credit facility to 'BB-/RR1' from 'B+/RR1'; second-lien secured notes to 'BB-/RR1' from 'B+/RR1'; senior unsecured notes to 'B-/RR4' from 'CC/RR5'; convertible senior notes to 'B-/RR4' from 'CC/RR5'; convertible subordinated notes to 'CC/RR6' from 'C/RR6'; and junior subordinated debt to 'CC/RR6' from 'C/RR6.' Any rating below a 'BBB' is considered non-investment grade, or junk, with a 'B-" defined as "highly speculative" and a 'BB-' as "speculative." The RR, or recovery ratings, indicate Fitch's view of ability to recover investments in the event of default, with an 'RR 1' an "extremely high" likelihood of recovery and an 'RR 6' a "poor" chance of recovery.
Fitch added, "Nevertheless, the company will continue to have a substantialdebt position and high leverage following these transactions."
Regarding the overall home building market, Fitch said, "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 appearjaw-toothed as substantial foreclosures now in the pipeline present asdistressed sales and as meaningful new foreclosures arise from Alt-A andoption ARM resets. High unemployment rates and the tightening of certainFederal Housing Administration loan standards will be notable headwindsearly in the upcycle. The Federal government's continuing efforts to modifyforeclosures may finally show some success in 2010."