Ratings Downgrades Of US Homebuilders Seen Accelerating
Moody’s expects the trend of credit rating downgrades for US homebuilders to accelerate as banks tighten credit restrictions on them.
In its September Industry Outlook for the industry, Moody’s notes that in both the speculative-grade and investment-grade universes, homebuilders have faced increasing difficulties complying with financial covenants. After one or more rounds of negotiations with banking groups, relaxation and even elimination of certain covenants has become the norm.
Through 2008, Moody’s expects to see additional instances of non-compliance, both with these newly relaxed covenants as well as with additional covenants – principally the debt leverage covenants. Moody’s believes that banks are likely to tighten credit facility restrictions by taking collateral, restricting the borrowing base calculations, and/or reducing the size of the facilities.
Moody’s expects the pace and magnitude of future rating actions to accelerate. Investment grade companies may be among those that are affected.
Moody’s has taken 38 negative rating actions over the past year.
While not expected to be frequent, downgrades of more than one notch at a time cannot be ruled out.
For those companies experiencing company-specific pressures in addition to the more general challenges facing the industry, multi-notch downgrades have been the rule rather than the exception. Examples have included WCI Communities, Tousa, and Beazer Homes. This is likely to be the case going forward for other companies as well.
Moody’s report is available free of charge at Moodys.com (registration required).
Fitch Ratings also predicted a bleak outlook for homebuilders in its latest Housing Update issued Aug 29. That Report: A Challenging 2008 Will Have Repercussions for Homebuilders can be purchased here.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.