Moody’s rates Meritage notes Ba2

Moody's Investors Service said it assigned a Ba2 (LGD4) rating to Meritage Homes Corp.'s proposed $300 million of senior notes due 2027.

The proceeds will be used to repay the company's $126.5 million of convertible notes due 2032, to pay down outstanding revolver advances and to add cash to the balance sheet to be used for general corporate purposes. The convertibles are putable and callable in September. With Meritage's stock price below the $58.14 strike price, a potential put is expected and Meritage intends to call the notes to avoid any equity dilution, the agency said.

Meritage's Ba2 corporate family rating reflects Moody's expectation of continued good operating performance and prudent balance sheet management coupled with disciplined land investment.

At the same time, the rating considers Meritage's gross margins, which are weak for its rating category and will continue to be under pressure in 2017 and 2018, the agency said.

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