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S&P Global Ratings downgraded LGI Homes Inc. (NASDAQ:LGIH) to ’B+’ from ’BB-’ on June 16, 2025, citing weaker-than-expected earnings that have kept leverage metrics above the downgrade trigger. The Woodlands, Texas-based homebuilder received a negative outlook from the ratings agency.
The downgrade reflects S&P’s expectation that leverage will remain elevated over the next six to twelve months despite solid growth in community count and reasonably stable cycle times. S&P projects its adjusted debt to EBITDA ratio for LGI Homes will remain in the 5.5x-6x range at year-end 2025 before potentially improving toward 5x by year-end 2026.
S&P forecasts LGI Homes’ absorption rate will decrease to 3.2 sales per community per month from its previous forecast of 4.0 in 2024. This reduced sales pace stems from affordability challenges in the higher interest rate environment, timing in community count openings, and competition in key markets. The ratings agency expects flat year-over-year average selling prices and gross margins pressured by up to 200 basis points.
The homebuilder’s EBITDA to interest coverage is expected to be approximately 2x-2.5x at year-end 2025, as interest expenses increased with recent refinancings while EBITDA decreased due to macroeconomic headwinds. S&P affirmed its ’BB-’ issue-level rating on LGI Homes’ senior unsecured notes while revising the recovery rating to ’2’ from ’3’, indicating an expected substantial recovery of 70%-90% in a default scenario.
LGI Homes maintains an adequate liquidity position with $302.4 million available on its $1.1825 billion unsecured revolver, with most commitments maturing in April 2029. S&P could lower ratings further if operating performance doesn’t improve as projected, with adjusted debt to EBITDA remaining at or above 5x, or if EBITDA to interest coverage drops below 2x over the next 12 months.
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