Taylor Wimpey Share News (TW.)

Thu, 19th Apr 2012 15:45

(The following statement was released by the rating agency)

April 19 - Fitch Ratings has upgraded UK house builder Taylor Wimpey plc's (TW) Long-term Issuer Default Rating (IDR) and senior unsecured rating to

'BB-' from 'B+'. Its Short-term IDR is affirmed at 'B'. The Outlook is Stable.



'Taylor Wimpey is now predominantly focused on UK house building following the

disposal of its North American business in the second quarter of 2011, focusing

management attention on increasing margins and developing its strategic land

bank for sustained medium term profitability,' says Anil Jhangiani, Director in

Fitch's EMEA Corporate Finance team. 'Whilst benefiting from a solid capital

structure with long-term capital intensive land bank development activities well

supported by its equity position and only modest debt to fund measured working

capital growth. In Fitch's view, all these positive elements have contributed

towards a rating upgrade.'



TW's solid recovery is most evident from continued margin growth. At FY11 EBITDA

margins improved to 8.8% from 5.0% and 1.7% for FY10 and FY09 respectively. This

reflects a combination of lower build costs, overhead rationalisation and lower

land bank costs. Fitch's forecasts have been revised to show improved expected

performance with adjusted net debt/EBITDAR leverage now estimated at around

1.5x. Fitch expects TW to maintain a leverage ratio of around 1.5x on a

sustained basis (or around 3.5x if land creditors are also included as debt).



Fitch currently estimates that UK house prices could fall by a further 5%-10% in

the medium term. This will mask some regional disparities, particularly in

central London, where it is expected that foreign (cash) buyers will continue to

underpin prices with annual low signal digit growth expected in the medium term.

The long term view on UK residential property volumes is relatively robust with

a structural under-supply of homes in the UK. However, constrained mortgage

financing, high unemployment and relatively high house prices (when based on

affordability models) are likely to keep new housing sales significantly below

pre-crisis levels. Positively, low interest rates, relatively low arrears (when

compared to past recessions) and attractive rental yields (compared to UK gilt

rates) have supported prices from falling further.



TW, to some extent, is restricted by the low volume UK housing market and its

inherent high cyclicality. However, it benefits from being one of the market

leaders, enjoying reasonable market share and solid diversification across the

UK. That said, more exposure to the favourable London market would be viewed as

a positive for the rating. TW has also taken steps to enhance their product mix

moving away from weak demand housing units such as lower priced apartments

towards building higher priced houses with stronger demand dynamics.



TW's liquidity position remains strong with a fully undrawn GBP600m committed

debt facility and no debt maturities until Q414. High debt funding costs were

further reduced during FY11 with a GBP85m debt buyback of the 10.375% Senior

unsecured note due 2015.



All debt facilities benefit from a shortfall guarantee from Taylor Wimpey UK

Ltd, the main operational and asset-owning entity of the TW group (representing

over 90% of consolidated assets, revenue and EBITDA). This reduces the senior

lenders' structural subordination, as any shortfall of recovery by the

guaranteed senior lenders ranks equally as an unsecured liability of the

guarantor. However, the pension funds benefit from the Pension Protection Fund

standard guarantee, which increases their recovery.





Additional information is available at www.fitchratings.com.



The ratings above were solicited by, or on behalf of, the issuer, and therefore,

Fitch has been compensated for the provision of the ratings.



Applicable criteria, 'Corporate Rating Methodology', dated 12 August 2011 are

available at www.fitchratings.com.



Applicable Criteria and Related Research:

Corporate Rating Methodology



(New York Ratings Team)

(e-mail: pam.niimi@reuters.com; Reuters Messaging: pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;)

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