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Builders' DebtGrades Cut On Grim Prognosis

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The Associated Press

Published: June 11, 2008

LOS ANGELES - Credit-rating agencies are betting that the housing downturn will deepen well into next year, dragging out homebuilders' woes.

Fitch Ratings on Tuesday slashed its issuer default ratings for eight homebuilders, bumping three - Ryland Group, D.R. Horton and Centex Corp. - into "junk" status.

Fitch said its ratings reflect its expectation that the housing slump will extend into next year and hurt prospects for a recovery in the homebuilding sector.

The firm downgraded Ryland Group, D.R. Horton, and Centex from investment grade "BBB-" to noninvestment grade "BB+." The lower the rating, the higher the interest rate the builders have to offer investors to compensate for the risk the companies might default.

Fitch also lowered its ratings for Pulte Homes and Lennar Corp. by one notch to "BBB-," the lowest investment grade rating.

Beazer Homes USA, M/I Homes and Meritage Homes, which already had noninvestment grade rating, were lowered further.

Fitch affirmed its "BBB" rating for Toll Bros., NVR Inc. and MDC Holdings.

The firm also affirmed its "BB+" rating for KB Home and its "B-" rating for Hovnanian Enterprises.

Several of the homebuilders had their ratings lowered Monday by Moody's Investors Service.

Moody's also cited concerns that the companies will have a tough time returning to profitability given the likelihood that the housing slump will continue to be a drag on sales into next year.

Moody's downgraded the ratings on five builders - Centex, D.R. Horton, KB Home, Pulte Homes and Ryland Group - by one notch from the highest junk rating "Ba1" to "Ba2."

The firm also cut Lennar's rating by two levels from "Ba1" to "Ba3."

Moody's has a negative ratings outlook for the six homebuilders.

Joseph Snider, Moody's lead analyst for the companies, said he didn't expect the builders, which are all losing money, to return to profitability this year "given Moody's expectations of declining deliveries, revenues, and prices in 2008."

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