Fitch upgrades Toll Brothers

Fitch Ratings said it upgraded the long-term issuer default rating of Toll Brothers, Inc. to BBB from BBB-. The agency also raised the issue ratings on Toll Brothers Finance Corp.'s senior unsecured notes and First Huntingdon Finance Corp.'s revolving and term loan facilities that Toll guarantees to BBB from BBB-.

“The upgrade of the IDR to BBB reflects Toll's more conservative posture in recent years by meaningfully reducing debt and pivoting to a more land-light strategy. This has resulted in improved credit metrics and more stable free cash flow (FCF). Fitch expects Toll will generate solid FCF in most periods during the housing cycle as it executes its land-light strategy,” the agency said in a statement.

Fitch noted Toll’s, “solid EBITDA margins and Fitch expects only a modest decline in margins despite elevated (although stable) incentives and price adjustments to drive demand. Fitch expects EBITDA margins will settle around 20% in 2023 and 18%-19% in 2024 compared with 20.5% for the LTM ending July 31, 2023 and 17.7% in FY2022.”

The outlook is stable.

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