S&P ups Meritage to BB, rates note B+

Standard & Poor's said it raised its corporate credit rating on Meritage Homes Corp. to BB from BB- and revised its outlook to stable from positive. The ratings on about $479 million of senior unsecured notes were raised to BB from BB- and a B+ rating was assigned to a $150 million senior subordinated note offering.

The upgrade acknowledges the company's demonstrated investment discipline through the early stages of the housing downturn and a commitment to conservative financial policies, the agency said. Meritage's modest exposure to owned land, a focus on rapid inventory turnover and solid balance sheet should enable the homebuilder to weather a material contraction in sales, S&P said, and positions the company to improve its operating platform when the market recovers.

While the agency said it expects earnings to contract materially in the near term, Meritage's superior debt-to-EBITDA and EBITDA-to-interest measures provide ample cushion above covenant thresholds relative to similarly rated peers.

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