S&P downgrades Weekley Homes

S&P said it lowered the corporate credit rating on Weekley Homes LLC to B+ from BB-, along with the rating on the company’s senior unsecured notes due in February 2023 to B+ from BB-.

The recovery rating on these notes is 3, indicating 50% to 70% expected default recovery.

The outlook is stable.

S&P said it lowered the ratings because of the gradual decline in profitability and a rise in total debt over the last two years, which caused debt leverage to climb to 5.5x for the 12 months ended June 30.

Along with leverage, many of the company’s other key credit metrics have deteriorated to a level considered consistent with a financial risk profile of aggressive, the agency said.

Rising land and construction costs and higher overhead costs associated with the company’s rapid community expansion drove leverage higher, the agency said.

Affecting leverage also was the company’s increasing use of its revolving debt facilities, S&P added.

This trend is expected to moderate over the next 12 months and positive closing growth has been seen in the first half of 2016, the agency said.

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