Standard & Poor's assigns B+ rating for Meritage Homes' proposed offering of US$100M in convertible senior notes due 2032

NEW YORK , September 12, 2012 (press release) – Standard & Poor's Ratings Services today assigned its 'B+' issue-level rating and '3' recovery rating to Meritage Homes Corp.'s proposed offering of $100 million of convertible senior notes due 2032 (see list). Our '3' recovery rating indicates our expectation for meaningful (50%-70%) recovery prospects in the event of a payment default. The outlook is stable.

The company plans to use the approximately $97 million in net proceeds from the offering for general corporate purposes. Net proceeds could increase to about $111.6 million if the underwriters exercise their option to purchase up to an additional $15 million in convertible notes.

The company is the issuer of the proposed 20-year (with a five-year noncall provision) convertible senior notes which will be unsecured senior obligations. The notes will be fully and unconditionally guaranteed by all wholly-owned subsidiaries on a joint and several basis.

Our ratings on Scottsdale, Ariz.-based Meritage reflect the homebuilder's "aggressive" financial profile as evidenced by EBITDA-based credit metrics that remain weak for the current rating. We do, however, expect these metrics to steadily improve as evidenced in the six months ended June 30, 2012. In our view, the company's adequate liquidity position and manageable capital needs, following the recent refinancing of the company's 2015 senior notes, offset the currently weak EBITDA metrics. We consider the company's business risk profile as "weak," given Meritage's comparatively small and geographically concentrated platform, which is more susceptible to operating volatility relative to some larger, more diversified peers.

For more information on our recovery analysis, please see our recovery report to be published shortly on RatingsDirect on the Global Credit Portal at www.globalcreditportal.com.

The stable outlook reflects our expectations for modest growth in Meritage's unit volume at stable pricing to support current gross margins and strengthen EBITDA. We also expect the company to maintain an adequate liquidity position, including unrestricted cash balances in the $200 million range, at least until such time as EBITDA-derived credit metrics have more fully recovered from their cyclical lows. We would consider an upgrade if strong market conditions hold up and credit metrics continue to improve. We would lower our ratings if EBITDA fails to strengthen from current levels, which would likely be the result of a stalled recovery, to which we currently ascribe a lower probability.



RELATED CRITERIA AND RESEARCH

Industry Economic And Ratings Outlook: U.S. Home Buyers Return, But Can Builders Deliver?, July 20, 2012
Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, July 23, 2012
Key Credit Factors: Global Criteria For Single-Family Homebuilders, Sept. 27, 2011

RATINGS LIST

Meritage Homes Corp.

Corporate credit rating B+/Stable/--

RATINGS ASSIGNED

Meritage Homes Corp.

$100 million convertible notes B+

Recovery rating 3

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

Standard & Poor's Ratings Services, part of The McGraw-Hill Companies (NYSE:MHP), is the world's leading provider of independent credit risk research and benchmarks. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 23 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information and independent benchmarks that help to support the growth of transparent, liquid debt markets worldwide.

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