OREANDA-NEWS. S&P Global Ratings said today it raised its issue-level ratings on Beazer Homes USA Inc.'s senior unsecured notes to 'B-' from 'CCC+.' We also revised the recovery rating on the unsecured notes to '4' from '5.' The '4' recovery rating indicates our expectation of average (30% to 50%, lower end of range) recovery in the event of payment default.

The upgrade of the unsecured notes follows an announcement that the company has prepaid $50 million of its two-year secured term loan, leaving an outstanding principal balance of $72.5 million.

Our corporate credit rating on Beazer reflects our view of the company's business risk as vulnerable, largely reflecting our view of the sector's cyclical nature and the company's relatively small platform compared with most public homebuilding peers. We assess the company's financial risk as highly leveraged, because debt to EBITDA was about 8.5x as of June 30, 2016.

RECOVERY ANALYSISKey Analytical FactorsThe issue-level rating on the company's senior secured notes is 'B+', (two notches higher than the 'B-' corporate credit rating). The recovery rating is '1', indicating our expectation of very high (90% to 100%) recovery in the event of payment default. We raised the issue-level ratings on the company's senior unsecured notes to 'B-' from 'CCC+' (same as the corporate credit rating). We also revised the recovery rating on the unsecured notes to '4' from '5.' The '4' recovery rating indicates our expectation of average (30% to 50%, lower end of range) recovery in the event of payment default. The rating changes occurred as a result of the prepayment of $50 million of the company's two-year secured term loan, leaving an outstanding principal balance of $72.5 million. We estimate a gross recovery value of $825 million, which assumes a blended 51% discount to the assumed $1.7 billion in book value of inventory. Simulated Default and Valuation AssumptionsOur simulated default scenario contemplates a payment default in 2018. Under this scenario, a U. S. economic recession adversely affects the volume of new home sales and drives average selling prices back to trough levels, at which point liquidity is constrained and the company cannot meet its fixed-charge obligations.

Simplified WaterfallGross recovery value: $825 millionProperty level costs (5%): $41 millionAdministrative costs (5%): $41 millionNet recovery value: $742 millionPriority claims (including outstanding letters of credit outstanding): $16 million*--------------------------------------------------------Collateral available to secured claims: $727 millionSecured claims: $407 million*--Recovery expectations: 90% to 100%Collateral available to unsecured creditors: $320 millionSenior unsecured debt claims: $971 million*--Recovery expectations: 30% to 50% (lower half of the range)*Includes six months of accrued but unpaid interest.