Meritage Homes Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

LOANS PAYABLE AND OTHER BORROWINGS

LOANS PAYABLE AND OTHER BORROWINGS

3 Months Ended

Mar. 31, 2016

Loans payable and other borrowings consist of the following (in thousands):



	As of
	March 31, 2016		December 31, 2015
Other borrowings, real estate note payable ⁽¹⁾	$	25,734	$	23,867
$500 million unsecured revolving credit facility, maturing July 2019, with interest approximating LIBOR (approximately 0.44% at March 31, 2016) plus 1.75% or Prime (3.50% at March 31, 2016) plus 0.75%	—		—
Total	$	25,734	$	23,867


(1)	Reflects balance of non-recourse notes payable in connection with land purchases, with interest rates ranging from 0% to 6%.

In July 2012, we entered into an unsecured revolving $125.0 million credit facility ("Credit Facility"). From time to time, we have increased the Credit Facility and extended its maturity date. Most recently, in the first quarter of 2015, we increased the capacity to $500.0 million. In July 2015, the maturity date of the credit facility was extended to July 9, 2019 and the accordion feature was amended to permit the size of the facility to be increased by $100.0 million up to a maximum of $600.0 million. In addition to the extended maturity date, various terms were modified and interest rates and commitment fees were reduced. Borrowings under the Credit Facility are unsecured but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $670.3 million (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) of an amount not less than our consolidated interest incurred during the trailing 12 months. We had no outstanding borrowings under the Credit Facility as of March 31, 2016 or December 31, 2015. During the three months ended March 31, 2016 we did not have any borrowings from or repayments to the Credit Facility. During the three-month period ended March 31, 2015, we had $100.0 million of gross borrowings and $73.0 million of repayments. As of March 31, 2016 we had outstanding letters of credit issued under the Credit Facility totaling $28.1 million, leaving $471.9 million available under the Credit Facility to be drawn.

SENIOR AND CONVERTIBLE SENIOR NOTES, NET

Senior and convertible senior notes, net consist of the following (in thousands):



	As of
	March 31, 2016			December 31, 2015
4.50% senior notes due 2018	$	175,000		$	175,000
7.15% senior notes due 2020. At March 31, 2016 and December 31, 2015 there was approximately $2,275 and $2,418 in net unamortized premium, respectively	302,275			302,418
7.00% senior notes due 2022	300,000			300,000
6.00% senior notes due 2025	200,000			200,000
1.875% convertible senior notes due 2032 ⁽¹⁾	126,500			126,500
Net debt issuance costs ⁽²⁾	$	(10,116	)	$	(10,745	)
Total	$	1,093,659		$	1,093,173


(1)	The Convertible Notes may be redeemed by the note-holders on the fifth, tenth and fifteenth anniversary dates of the issuance date of the Convertible Notes (September 18, 2012).


(2)	As discussed in Note 1, the adoption of ASU 2015-03 resulted in a retrospective reclassification of our debt costs from Prepaids, other assets and goodwill to Senior and convertible senior notes, net on our December 31, 2015 balance sheet in the amount of $10.7 million.

The indentures for all of our senior notes contain covenants including, among others, limitations on the amount of secured debt we may incur, and limitations on sale and leaseback transactions and mergers. We believe we are in compliance with all such covenants as of March 31, 2016. Our convertible senior notes do not have any financial covenants.

The convertible senior notes are convertible into shares of our common stock at an initial conversion rate of 17.1985 shares of our common stock per $1,000 principal amount of convertible senior notes. This corresponds to an initial conversion price of $58.14 per share and represented a 47.5% conversion premium based on the closing price of our common stock on the issue date of the convertible senior notes.

Obligations to pay principal and interest on the senior and convertible notes are guaranteed by substantially all of our wholly-owned subsidiaries (each a “Guarantor” and, collectively, the “Guarantor Subsidiaries”), each of which is directly or indirectly 100% owned by Meritage Homes Corporation. Such guarantees are full and unconditional, and joint and several. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the equity interests of any Guarantor then held by Meritage and its subsidiaries, then that Guarantor may be released and relieved of any obligations under its note guarantee. There are no significant restrictions on our ability or the ability of any Guarantor to obtain funds from their respective subsidiaries, as applicable, by dividend or loan. We do not provide separate financial statements of the Guarantor Subsidiaries because Meritage (the parent company) has no independent assets or operations and the guarantees are full and unconditional and joint and several. Subsidiaries of Meritage Homes Corporation that are nonguarantor subsidiaries are, individually and in the aggregate, minor.