Fitch Expects to Rate Standard Pacific's $200MM Senior Unsecured Notes Offering 'CC/RR5'

The Rating Outlook is Negative.

The 'RR5' on the proposed unsecured notes offering and the company's unsecured debt indicate below-average recovery prospects for holders of these debt issues. Standard Pacific's exposure to claims made pursuant to performance bonds and joint venture debt and the possibility that part of these contingent liabilities would have a claim against the company's assets were considered in determining the recovery for the unsecured debt holders. Fitch applied a liquidation value analysis for these RRs.

The ratings and Outlook for Standard Pacific reflect the current very difficult U.S. housing market and Fitch's expectations that the housing environment remains challenging for the remainder of the year. Nevertheless, there are more positive signals and developments for housing and related industries now than at any time previously in the downturn. Of course, challenges remain or are on the horizon that may not prevent a near-term bottom, but are likely to meaningfully moderate the early stages of a recovery.

The company had $568.8 million of cash on June 30, 2009. Standard Pacific generated $263.2 million of cash flow from operations during fiscal year 2008 ($65.2 million during the fourth quarter), which included $235.6 million of tax refunds received during the first quarter of 2008. Through the first half of 2009, the company generated $197.6 million of cash from operations, including a first quarter tax refund of $114.5 million. For all of fiscal 2009, Fitch expects the company to be slightly cash flow positive, excluding the first quarter tax refund. The company has some near term debt maturities, which will deplete some of its cash balance. Standard Pacific has the following near-term debt maturities: $148.5 million in August 2010, and $170.6 million in May 2011. The company intends to repurchase a portion of these notes with the proceeds of the private notes offering.

Standard Pacific recently amended its revolving credit agreement and reduced the total commitment from $361.4 million to $50 million, with future extensions of credit under the agreement being limited (subject to certain limited exceptions) to the issuance of letters of credit. Consistent with Fitch's comment on certain homebuilders' termination of revolving credit facilities, in the absence of a revolving credit line, a consistently higher level of cash and equivalents than was typical should be maintained on the balance sheet, especially in these still uncertain times.

Standard Pacific and its joint venture (JV) partners generally provide credit enhancements in connection with JV borrowings in the form of loan-to-value maintenance agreements. While the company has reduced its joint venture exposure, Standard Pacific's liquidity may be negatively impacted by potential re-margining contributions as well as cash outflow from unwinding certain JVs. During the six months ended June 30, 2009, Standard Pacific made a $9.1 million loan remargin payment to one of its JVs. Subsequent to the end of the second quarter, the company unwound two JVs, resulting in the acquisition of $80.3 million of real estate inventories and the assumption of $52 million of secured project debt, of which $22.9 million was paid off. As of Sept. 8, 2009, the company's unconsolidated JVs had approximately $46.8 million of recourse debt, which was subject to loan-to-value maintenance agreements.

Future ratings and Outlooks will be influenced by broad housing market trends as well as company specific activity, such as trends in land and development spending, general inventory levels, speculative inventory activity (including the impact of high cancellation rates on such activity), gross and net new order activity, debt levels and especially free cash flow trends and uses, and the company's cash position.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

SOURCE: Fitch Ratings

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