Research: Rating Action: Moody’s assigns B3 CFR to Five Point Holdings, LLC; affirms all other ratings; outlook stable


Approximately $625 million of rated debt affected

New York, June 29, 2022 — Moody’s Investors Service, (“Moody’s”) assigned a B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR) and SGL-2 Speculative Grade Liquidity rating to Five Point Holdings , LLC (Five Point). Concurrently, Moody’s withdrew Five Point Operating Company, LP’s B3 CFR, B3-PD Probability of Default Rating, and SGL-2 Speculative Grade Liquidity rating. All other ratings are affirmed. The outlook has been changed to stable from positive.

“The change in outlook reflects Moody’s expectations for increased operating and financial volatility stemming from higher inflation, heightened geopolitical risks and moderating housing demand,” said Emile El Nems, VP – Senior Credit Officer at Moody’s. “The change in outlook also considers lower sales during 2022, as the new management team requires time to develop a new multi-year strategy.”

At the same time, Moody’s outlook takes into consideration Five Point’s commitment to maintaining a conservative approach to balance sheet management and liquidity. For year-end 2022, Moody’s projects total-debt-to-capitalization (inclusive of Moody’s adjustments) will be around 25%. Governance risks we consider in Five Point include the recent changes among the senior management team and the lack of tangible progress in scaling up the company’s land development business.

Assignments:

..Issuer: Five Point Holdings, LLC

…. Corporate Family Rating, Assigned B3

…. Probability of Default Rating, Assigned B3-PD

…. Speculative Grade Liquidity Rating, Assigned SGL-2

Affirmations:

..Issuer: Five Point Operating Company, LP

….Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD4)

Withdrawals:

..Issuer: Five Point Operating Company, LP

…. Corporate Family Rating, Withdrawn, previously rated B3

…. Probability of Default Rating, Withdrawn , previously rated B3-PD

…. Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-2

Outlook Actions:

..Issuer: Five Point Holdings, LLC

….Outlook, Assigned Stable

..Issuer: Five Point Operating Company, LP

….Outlook, Changed To Stable From Positive

RATINGS RATIONALE

Five Point’s B3 CFR reflects the company’s valuable land portfolio of about 40,000 owned and controlled lots in two of the most desirable and supply constrained cities in California (CA). In addition, Moody’s rating is supported by the company’s conservative capital structure, and good liquidity. At the same time, the rating considers the volatile and discrete transactional nature of the company’s land development business and its geographic concentration.

Five Point’s SGL-2 Speculative Grade Liquidity Rating reflects Moody’s expectation that the company will maintain good liquidity over the next 12 months, including maintaining revolver availability. Five Point’s good liquidity is supported by (i) $203 million in cash, and (ii) a $125 million revolving credit facility expiring April 2024. The principal financial covenants under the revolving credit facility are (all calculated as of March 31, 2022) (i) a minimum net worth requirement of $1.1 billion (vs. $1.8 billion actual), (ii) a minimum liquidity test of $25 million ( vs. $203 million in cash), and (iii) a maximum leverage test ratio of 40% (vs. 21% actual). The company’s liquidity position is further supported by a valuable unencumbered land portfolio from which Five Point can generate additional cash proceeds should a need arise.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if: the company maintains its liquidity and improves its free cash flow (including distributions from its Great Park joint venture), increases revenue and diversification, total debt-to-capitalization is below 30%, and the company’s EBIT- to-interest expenses approaches 2.0x.

The rating could be downgraded if: the company’s liquidity deteriorates, total debt-to-capitalization is above 40%, EBIT-to-interest expense is below 1.0x, and the company fails to deliver on expectations of reaching critical mass due to operational delays impacting its credit quality.

The principal methodology used in these ratings was Homebuilding And Property Development published in January 2018 and available at https://ratings.moodys.com/api/rmc-documents/66220. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Headquartered in Irvine, CA, Five Point is an owner and developer of three mixed-use, master-planned communities (MPCs) in coastal California. Five Point’s revenue for the last twelve months ending March 31, 2022, was about $216 million.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK . Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Emile El Nems
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Gretchen French
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
USA
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Leave a Comment