Moody's/Fitch Cut Home Builder Ratings
June 10, 2008
Moody’s Investors Service and Fitch Ratings have downgraded various home builders, with Moody’s cutting the ratings on six companies, and Fitch downgrading five of those, as well as an additional three.
Moody’s downgraded Centex, Horton, KB Home, Pulte and Ryland to Ba2 from Ba1, and Lennar to Ba3 from Ba1, with the ratings outlooks remaining negative for all six companies. The downgrades reflect “Moody’s expectation that many of the companies’ credit metrics will continue eroding as home-building industry conditions remain challenging into next year,” said Joseph Snider, Moody’s senior credit officer and lead analyst on the six companies the agency downgraded.
In terms of recovery, Snider predicts improvement will be initially sluggish, prolonging underperformance of the companies until early in the next decade. Moody’s has determined that a return to consistent pre-impairment profitability will be difficult given the expected decline in deliveries, revenue, and prices in 2008.
The Fitch downgrades dropped three of these companies to subinvestment grade from investment grade: Ryland and Horton fell to BB+ from BBB-, and Centex fell to BB+ from BBB. Fitch downgraded Lennar and Pulte to BBB- from BBB. All five have a negative outlook.
Additionally, Fitch cut the ratings on Meritage and M/I Homes to B+ from BB-, both with a negative outlook, and Beazer to B from B+, placing it on negative watch. The rating actions reflect the current difficult housing environment and Fitch’s expectations that housing activity will be more challenging for the remainder of 2008 than predicted, according to Fitch analysts. Fitch predicts new home activity will continue to decline well into 2009.
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