Shea Homes L.P. Corporate Credit Rating Raised To 'B+' From 'B', Outlook Stable; Unsecured Notes Rated 'B+'

          NEW YORK (Standard & Poor's) March 9, 2015--Standard & Poor's Ratings Services said today it raised its corporate credit rating on Shea Homes L.P. to 'B+' from 'B'. The outlook is stable. At the same time, we assigned our 'B+' issue-level rating to the company's proposed senior unsecured notes. The
recovery rating is '3', indicating our expectation of meaningful (50% to 70%) recovery for lenders in the event of a payment default. Our recovery expectations are in the upper half of the 50% to 70% range.
          The upgrade reflects the company's outperformance relative to our prior expectations, notably lower leverage, and stronger coverage measures. Shea plans to refinance its single bullet secured notes by splitting the debt into two separate unsecured tranches. The refinancing will significantly reduce annual interest costs, enhance financial flexibility, increase liquidity, and extend/stagger the debt maturity profile. We have also revised our assessment of Shea Homes' financial risk profile to "significant" from "aggressive."
          "The stable outlook incorporates our view that Shea Homes will continue to increase EBITDA in a slowly recovering housing market through an expanding community count that will drive further improvement in its credit measures," said Standard & Poor's credit analyst Thomas O'Toole.
          We would consider lowering the rating by one notch if leverage exceeded our expectations, such that debt to EBITDA trended above 4x and debt to capital were sustained materially above the low-50% area. We would also consider lowering the rating if an outcome to the potential CCM tax liability required
a large cash outlay that strained liquidity or required additional debt funding.
          Given the company's size, scale, and book leverage relative to larger builder peers, we view an upgrade as unlikely in the near term. Longer-term, we could consider raising the rating one notch if Shea could sustain book leverage to the low 40% area, better diversify its market exposure, and demonstrate less volatility in its cash flow measures.