KB Home Engineers Interest Cost Cut

111603lmwkellymasuda.gifKB Home has completed a new four-year, $1 billion revolver in an effort to lower its overall interest costs, replacing an old facility that included a $644 million revolver and a $183 million term loan. Under the former facility, given the cash flows of the company's business, "We found that we were sitting on a lot of cash," explained Kelly Masuda, v.p., capital markets and treasurer.

Because the company only needs the flexibility of being able to draw on a revolver when needed, it eliminated the term loan from the new credit. Without the term loan, the company is able to reduce its weighted interest cost on its debt, including $925 million of public debt with a weighted-interest cost of 8.5%, said Masuda.

KB Home is focused on using more floating-rate debt and is looking to tap about 20-35% of the new facility. It is also focused on becoming an investment-grade company. Like the previous facility, pricing on the new loan is influenced by two different measures. It is linked to a leveraged-based grid and will also improve if the company reaches investment-grade status with two of the three rating agencies. KB Home's corporate credit rating is currently BB+, according to Standard & Poor's and Fitch Ratings. Masuda declined to comment on the spread.

Bank of America leads the new revolver as the incumbent lead on KB Home's previous facility. B of A is "one of the largest lenders to the builders' market," noted Masuda. Bank One, Fleet Bank, Credit Lyonnais, Wachovia Bank, Key Bank, SunTrust Bank and 15 other banks participated in the facility. The new loan is set to mature in 2007.