Fitch expects that customer segment will be more vibrant during the remainder of the upcycle and help spur growth for MTH. The company has been buying land over the past two years and designing and offering town homes and smaller detached dwellings to serve the more affluent entry-level/first-time buyer under its Entry Level Plus and LiVE.NOW product offerings.
Credit Metrics: MTH's Fitch-calculated net debt/capitalization ratio (excluding $75 million of cash classified by Fitch as not readily available for working capital) has consistently ranged from 40% to 45% for the past eight quarters and was 43% as of Dec.
MTH had negative cash flow from operations (CFFO) of $103.4 million in 2016 and $87.1 million in 2017.
Based on LTM closings, MTH controlled 4.5 years of land and owned roughly 3.0 years of land.
31, 2017, MTH had 2,086 spec homes, of which 31% were completed.
MTH's rating reflects the company's execution of its business model in the current moderately recovery housing environment, its conservative land policies, geographic diversity and healthy liquidity position.
MTH's credit metrics, including net debt/capitalization of 43%, debt/EBITDA of about 4.0x and interest coverage of 4.0x, are modestly weaker than that of Lennar (BB+/Positive), including net debt/capitalization of 36%.
--There is sustained erosion of profits due to either weak housing activity, meaningful and continued loss of market share, and/or ongoing land, materials and labor cost pressures (resulting in margin contraction and weakened credit metrics, including net debt/capitalization sustained above 45%) and MTH maintains an overly aggressive land and development spending program that leads to consistent negative cash flow from operations, higher debt levels and diminished liquidity position.
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