While the biggest builders are obtaining most of their financing from the public debt and equity markets, where enthusiasm about a housing market recovery is running high, they are also re-establishing revolving lines of credit with banks, in many cases for the first time in several years.
On Sept. 7, D.R. Horton said it had entered into a five-year, $125 million senior unsecured revolving credit facility with Royal Bank of Scotland. Initially, RBS is providing the entire commitment, but the facility has an uncommitted $375 million accordion feature that could increase it to $500 million, subject to the availability of additional bank commitments, among other conditions. The bank had terminated its previous facility in 2009.
D.R. Horton is rated BB- by Standard & Poor's, Ba2 by Moody's Investors Service and BB by Fitch Ratings.
"We are excited about the profitable growth opportunities we are seeing across our home building markets, and we believe this is an opportune time to add a revolving credit facility to our capital structure," Donald R. Horton, the company's chairman, said in a press release.
As reported by National Mortgage News recently, six years after the bottom dropped out of the housing market, builders are finally starting to reclaim their traditional share of sales.
In July, Beazer Homes negotiated a commitment letter with four financial institutions for a $150 million secured revolving credit agreement, replacing a much smaller, $22 million facility. Beazer is rated B- by S&P, Caa2 by Moody's and B- by Fitch.
And Lennar entered a new, unsecured revolving credit facility, effective May 2, 2012. The $410 million facility, which matures May 2, 2015, has an accordion feature under which it can increase to a maximum of $525 million, subject to certain conditions and the availability of additional bank commitments.
Lennar is rated B+ by S&P, B1 by Moody's and BB+ by Fitch.
Builders are going to need the financial flexibility, especially if they accelerate their spending on land and development. Fitch anticipates that such spending will rise moderately to sharply this year versus 2011, meaning most builders will burn more cash than they generate from home sales. As a result the ratings agency expects at least a few more public builders will re-establish revolvers.
A majority of the public builders that Fitch tracks negotiated amendments to revolving credit agreements late in 2007, 2008, and 2009, and many builders then terminated their facilities during the past two and a half years.
At the time, many builders didn't need revolvers because they were generating more cash than they were spending on new land and didn't want to pay the fees for facilities they weren't using.