Meritage: Housing demand continues in 2021; balance sheet is strong

By Devika Patel

Knoxville, Tenn., April 30 – Meritage Homes Corp. reported a robust balance sheet after selling $450 million of debt last quarter with plans to redeem its $300 million of 7% notes due 2022 using some of the debt sale proceeds.

Demand for housing continued to remain strong in early 2021, after a very solid 2020, and management hopes to garner more market share.

“Our balance sheet remains strong,” executive vice president and chief financial officer Hilla Sferruzza said on the company’s first quarter ended March 31 earnings conference call on Thursday.

“Late in the quarter, we issued $450 million of new senior notes priced at 3 7/8% due in 2029.

“We received approximately $444 million in net proceeds on April 15.

“On March 31, we issued a notice of redemption for all of the $300 million principal outstanding on our 7% senior notes due in 2022, with the redemption date of April 30.

“The early redemption of the 2022 notes will result in approximately $18.2 million of early extinguishment of debt charges in the second quarter of this year,” she said.

The company also saw a boost in its credit ratings last quarter.

“We also received an S&P credit rating upgrade this past February, the third credit rating agency upgrade in the last two quarters,” Sferruzza said.

“We are now one notch below investment-grade from all three rating agencies,” she said.

This year is off to a good start, even after an “exceptional 2020,” with plenty of housing demand.

“2021 is off to a solid start with robust demand that never really slowed down from an exceptional 2020,” executive chairman Steven J. Hilton stated in a Wednesday press release.

“Our closings of 2,890 homes this quarter were 25% higher than the first quarter of 2020,” chief executive officer Phillippe Lord stated in Wednesday’s release.

“For the first quarter of 2021, home closing revenue of $1.1 billion was 21% greater than prior year,” Lord stated.

The company is looking to take market share from its competitors.

“Given our strong performance in 2020, we are now a top five builder in 10 of our 17 markets, and we aim to continue gaining market share in all of our geographies,” Lord said on the call.

On March 31, Meritage priced an upsized $450 million issue of eight-year senior bullet notes (Ba1/BB+/BB+) at par to yield 3 7/8% in a drive-by.

The issue size increased from $400 million.

The yield printed on top of yield talk. Initial guidance was 4 1/8%.

Mizuho Securities USA Inc. was at the left of a syndicate of managers that also included BofA Securities Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC, PNC Capital Markets LLC, RBC Capital Markets LLC, Regions Securities LLC, Truist Securities Inc., U.S. Bancorp Investments Inc., CIBC World Markets Corp., Comerica Securities Inc. and Woodrock.

The Scottsdale, Ariz.-based home builder earmarked a portion of the proceeds to redeem all of its $300 million 7% senior notes due 2022, which was slated to occur Friday.

© 2015 Prospect News.
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