S&P ups Meritage Homes, notes

S&P said it raised its corporate credit rating on Meritage Homes Corp. and its issue-level rating on the company's senior unsecured notes to BB from BB-. The recovery rating is unchanged at 3, reflecting expectations for meaningful (50%-70%; rounded estimate: 65%) recovery in the event of default.

The outlook is stable.

The agency said the upgrade reflects Meritage's ability to maintain debt to EBITDA below 4x for over four years while expanding its community count, closings, and EBITDA during this period. S&P said it expects that leverage will continue to remain below 4x and that Meritage will maintain its position as a top-10 builder in the United States.

“The outlook is stable based on our view that Meritage will consistently maintain leverage between 3x and 4x on a year over year basis,” S&P said in a news release.

“Over the next 12 months, we expect that Meritage will rapidly expand its platform with a continued emphasis on entry level product, make steady progress on its operating initiatives, and stabilize the decline in its gross margin.”

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