S&P rates Landsea, notes B

S&P said it assigned B ratings to Landsea Homes Corp. (LSEA) and its planned $300 million of senior unsecured notes. The recovery rating on the notes is 3, indicating meaningful (50%-70%; rounded estimate: 50%) recovery to noteholders if Landsea defaults. The outlook is stable.

LSEA plans to widen its presence in the largest housing market in the U.S. On Jan. 9, LSEA announced it agreed to acquire Antares Homes, a Dallas-Fort Worth-based homebuilder. The transaction will expand LSEA's Dallas-Fort Worth metropolitan area presence by adding 2,298 of owned or controlled lots to its portfolio, increasing the lots in Texas to 31% of its lots pro forma for the transaction as of year-end 2023 from 17%, the agency noted.

“LSEA's relative lack of size and scale compared to other rated homebuilders makes it more vulnerable to weaknesses within local economies because it is more exposed to cyclical downturns or secular changes in competitive conditions that affect specific regional markets,” S&P said in a press release.

LSEA plans to use the proceeds to refinance part of its revolver draws, bolster its liquidity and extend its debt maturity profile.

“The stable outlook reflects our expectation that the company will grow via organic growth and acquisitions funded with internally generated cash and incremental debt as the company seeks to increase scale. It also incorporates our expectation that over the next 12 months, debt to EBITDA will decline to 4.5x-5x,” S&P said.

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