Tuesday, March 27, 2007

Bad Day for Builders

Tomorrow is going to be a bad day for home builders. Beazer's stock is down 15% in after hours trading.

NEW YORK, March 27 (Reuters) - U.S. authorities are investigating the lending practices and some other dealings at Beazer Homes USA Inc. (BZH.N: Quote, Profile , Research), one of the largest U.S. home builders, BusinessWeek reported on Tuesday, and Beazer's stock fell nearly 17 percent in after-hours trading.

Beazer Homes said in a statement it could not comment on or verify any investigation, but added, "However, we will fully cooperate with any investigation by any government agency."

Full article...


Anonymous Anonymous said...

I find it very interesting & amusing that approx. one year ago, the collapse of the RE market was being freely discussed on this (& other) blog(s) as an inevitability. The so-called "experts" dismissed this talk as no more than the witless ramblings of online know-nothings. Well, here we are, just as predicted, proving once again you do not need a degree or an official title to see major trends develop right in front of your eyes.

Wednesday, March 28, 2007 12:54:00 PM  
Anonymous Anonymous said...

Hovnanian Enterprises Inc
Hovnanian Ratings Lowered by Moody's on Negative Cash Flow

By Dan Levy

April 10 (Bloomberg) -- Hovnanian Enterprises Inc., the sixth-largest U.S. homebuilder by revenue, had its debt rating lowered and its outlook downgraded by Moody's Investors Service on the company's negative cash flow amid unsold inventories.

The corporate family rating for Red Bank, New Jersey-based Hovnanian's was lowered to Ba2 from Ba1, ratings on senior notes were lowered to Ba2 from Ba1, ratings on subordinated notes to B1 from Ba2, and ratings on trust preferred stock to B1 from Ba2, Moody's said in a statement.

Homebuilders including Hovnanian have inventories of unsold properties while speculators who propelled the five-year housing boom cancel contracts. Hovnanian took charges of $93 million in the first quarter on canceled contracts for homes in southwest Florida and to write off its 2005 purchase of a Florida homebuilder.

``The negative outlook reflects Moody's expectation of continuing weakening in Hovnanian's earnings-based metrics, including interest coverage, gross margins and return to assets,'' Moody's said.

Hovnanian experienced negative cash flow in the first quarter on a rolling 12-month basis, the rating company said. Moody's does not expect the company to pay down its revolving credit facility's outstanding balance by the end of fiscal 2007.

The rating company projected Hovnanian's debt-to- capitalization ratio to be 55 percent at the end of 2007, ``too high for a Ba1 credit, especially at this point of the housing cycle,'' Moody's said.

Hovnanian's ratings could be lowered again if cash flow remains negative for the full 2007 fiscal year, if debt leverage exceeds 55 percent at the end of fiscal 2007 or if earnings before land impairment and option abandonment charges turn negative in any quarter, Moody's said.

To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net .

Last Updated: April 10, 2007 20:04 EDT

Tuesday, April 17, 2007 12:48:00 AM  
Anonymous Anonymous said...

U.S. Homebuilders Face Bankruptcy Risk in '08, Lawyers Say

By Steven Church

April 14 (Bloomberg) -- The collapse of the subprime mortgage market may push some big U.S. homebuilders toward Chapter 11 beginning next year, according to bankruptcy advisers and lawyers who specialize in the real estate industry.

The weakest publicly held builders are staying out of bankruptcy by relying on the profits they made when sales boomed and on the public debt they sold in those years, said Ronald Greenspan, a lawyer and financial adviser to the creditors of four bankrupt subprime mortgage lenders. Homebuilders issued $3.6 billion in public debt in 2005 and 2006, though only $600 million of that comes due this year, Greenspan said.

``There is no sword over the industry's head yet,'' said Greenspan today at a conference of the American Bankruptcy Institute in Washington. ``That doesn't mean the industry is not wounded. Instead, the breaking point could come in 2008 or 2009.''

The real estate market has been powered the past few years by subprime homebuyers who typically have shaky credit histories. Now that those loans are no longer being made, demand for new homes will plunge, pushed down even further by the more than 1 million homes currently in foreclosure, Greenspan said. At least 30 home lenders halted operations or sought buyers in the past 12 months, including five that went bankrupt since last November, according to Bloomberg data.

Signs of Trouble

None of the major, publicly traded homebuilders have declared bankruptcy, though there are signs many are in financial trouble, Greenspan said, declining to name specific companies. The value of shareholder's equity for some companies equals or exceeds the value of the undeveloped land the companies have under contract, he said. As the housing downturn continues, that land will fall in value.

The perceived risk of owning the bonds of some of the biggest U.S. homebuilders has increased since a wave of bankruptcies hit the mortgage industry that caters to homebuyers with poor credit histories.

Credit default swaps have more than doubled in price since Feb. 1 for the second-biggest builder by revenue, D.R. Horton, Inc.; the fourth biggest, Pulte Homes Inc.; and the biggest luxury home builder, Toll Brothers Inc.

The cost of swaps on $10 million worth of Toll Brothers debt, for example, jumped to $136,750 Friday from $58,500 on Feb. 1, according to according to CMA Datavision.

Credit default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They were conceived to protect bondholders against default.

Kara Homes Inc., the New Jersey builder known for so-called McMansions, became one of the first major, closely held home builders to file for Chapter 11 protection in October. Such regional builders are likely to precede any of the big public companies into bankruptcy, Kara's bankruptcy lawyer, David L. Bruck, said today in an interview at the conference.

``You are going to see the smaller companies get bit earlier,'' Bruck said. By next year, or the year after, some of the larger companies will be forced to restructure as the housing crunch continues, he said.

``It's only a matter of time,'' Bruck said.

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net .

Last Updated: April 14, 2007 15:44 EDT

Tuesday, April 17, 2007 12:51:00 AM  

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