US Homebuilder Bond Investors Enjoy Strong Protections
U.S. homebuilders have been hit hard in the credit crisis and their bonds have suffered downgrades, but because of strong covenants, investors in the sector actually enjoy greater protections than bondholders in other North American industries, said Moody’s Investors Service in a special comment.
Homebuilder bonds show superior protection because the trend toward issuing ‘covenant-lite’ speculative-grade bonds we saw in recent years was somewhat less prevalent among homebuilders than in other corporate sectors.
The strongest protections for homebuilding bondholders, according to Moody’s, are change-of-control puts. These are offered on 53 percent of the homebuilder bonds assessed by Moody’s Covenant Quality Assessment Service.
The following chart assess homebuilder bonds, rated non-investment grade at issuance, that carry change-of-control put options.
Beazer Homes USA (NYSE:BZH), D.R. Horton Inc. (NYSE:DHI), KB Home (NYSE:KBH), and Meritage Homes (NYSE:MTH) are among the homebuilders whose bonds carry change-of-control puts, while Centex Corp. (NYSE:CTX) and Toll Brothers (NYSE:TOL) bonds do not, Moody’s said.
For a full assessment of all U.S. homebuilders, see “Homebuilders’ Bonds Show More Protection than other Sectors’ Bonds.”
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