Research Update: Shea Homes L.P. Ratings Affirmed On Increased Cash Position; Outlook Stable

We now expect Walnut, Calif.-based homebuilder Shea Homes L.P.'s 2019 EBITDA to be about 25% below our prior forecast, in part, because the company is opening fewer new communities as it reaches an optimal community count for its existing geographic footprint. We revised our assessment of the company's financial risk to aggressive from significant on our expectation for debt to EBITDA to be above 4x in 2019. On April 5, 2019, S&P Global Ratings affirmed its 'B+' issuer credit rating on Shea Homes and 'BB-' issue-level rating on the senior unsecured notes. The recovery rating on these notes remains '2', reflecting our expectation for substantial (70% to 90%, rounded estimate: 80%) recovery in the event of default. The stable outlook

...+ We now expect Walnut, Calif.-based homebuilder Shea Homes L.P.'s 2019 EBITDA to be about 25% below our prior forecast, in part, because the company is opening fewer new communities as it reaches an optimal community count for its existing geographic footprint. + We revised our assessment of the company's financial risk to aggressive from significant on our expectation for debt to EBITDA to be above 4x in 2019. + On April 5, 2019, S&P Global Ratings affirmed its 'B+' issuer credit rating on Shea Homes and '##-' issue-level rating on the senior unsecured notes. The recovery rating on these notes remains '2', reflecting our expectation for substantial (70% to 90%, rounded estimate: 80%) recovery in the event of default. + The stable outlook reflects our expectations for debt to EBITDA to increase above 4x because of a significant drop in EBITDA, reflecting anticipated volume and margin declines. However, we also expect significantly higher cash balances, which we expect to remain largely...

Research Update