William Lyon Homes Inc.

S&P Global Ratings' stable outlook on William Lyon Homes reflects our expectation that the company will improve leverage to below 5x in 2019, somewhat low for the rating. This is based on our forecast for EBITDA to climb above $300 million as recent acquisitions contribute to more closings this year and if margins hold relatively firm. Our view is supported by WLH's solid land pipeline in healthy housing markets. Inventories of land, its largest capital cost, rose considerably over the past year, due mainly to the RSI acquisition in March 2018. Our base-case scenario does not incorporate additional large debt-financed acquisitions over the next 12 months. We could lower the issuer credit rating one notch if debt to EBITDA worsens

...William Lyon Homes (WLH) is a top-20 builder concentrated in the western U.S. Its long land holdings and shift toward more affordable offerings position the company to exploit relatively firm demand across most of its 14 markets. Ongoing integration of its 2018 RSI Communities acquisition accelerates WLH's shift to lower-priced home-buying segments. Much of the company's success depends on its ability to leverage the resulting increased scale via relatively firm absorption rates, better inventory turnover, and greater retention of resulting cash flows. This may be more difficult to achieve in a rising-mortgage-rate environment. Key financial metrics are likely to continue to suggest a highly leveraged risk profile, despite our forecast for moderate improvements. EBITDA will be above $300 million through 2020, our forecast indicates, suggesting adjusted debt to EBITDA will fall to around 4.5x in 2019. This is strong for the rating, but our financial risk assessment also incorporates our...

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