GO
Loading...

Moody's Downgrades Home Builders to 'Junk'

Moody's Investors Service on Thursday cut its ratings on home builders Centex, Lennar and Pulte Homes to junk status, saying it expects bleak housing industry conditions to linger at least until 2009.

The downgrades affect about $9.4 billion of debt and $3.25 billion of commercial paper authorizations, Moody's said.

Key problems facing homebuilders include rapidly declining orders, high housing inventories, disruptions in the mortgage market and heavy cancellations, Moody's said in a statement.

Affordability issues are also weighing on key markets while confidence is ebbing among potential homebuyers, Moody's said.

It will be challenging for the three companies, as well as for much of the entire industry, to stay in compliance in the coming year with debt leverage covenants, the rating agency said. Covenants are restrictions in borrowing agreements.

Moody's lowered Lennar's senior unsecured rating by two notches to "Ba1," the highest junk rating, from "Baa2"; Pulte's senior unsecured rating by one notch to "Ba1" from "Baa3"; and Centex's senior unsecured rating by two notches to "Ba1" from "Baa2." The outlook on all three companies is negative, meaning another rating cut is likely over the next 12 to 18 months.

Moody's had previously cut credit ratings for builders K. Hovnanian Enterprises and Beazer Homes USA. Standard & Poor's also has notified more than a dozen builders that their credit ratings are in jeopardy.

Contact Real Estate

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More
  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

Latest Special Reports

  • Inside the market's biggest sectors with a look at the trends, companies and trades netting profits for investors.

  • Profiles of philanthropists and entrepreneurs who are addressing huge global challenges—from climate change to hunger.

  • From family-run companies to public companies with family ownership, we tackle challenges and rewards facing family businesses.