Moody's downgrades debt ratings for Beazer Homes, cites possibility of operating losses, increased use of debt as housing market troubles continue
September 9, 2011
– Moody's Investors Service said Friday it has downgraded debt ratings for Beazer Homes USA Inc. It expects the homebuilder will see further operating losses and increased use of debt as the nation's housing market woes drag on.
The rating agency also anticipates the Atlanta builder will continue to see a decline in its home closings and revenue next year.
Like other homebuilders, Beazer has seen demand for new homes slow this year as concerns over the U.S. economy and the state of the housing market continue to keep many would-be homebuyers on the sidelines. U.S. sales of new homes declined in May, June and July, and some economists are already forecasting 2011 sales will be worse than last year's.
Last month, the builder reported a wider third-quarter loss and a 49 percent drop in revenue as home closings tumbled sharply versus a year earlier.
In addition, Beazer has had to grapple with a change in management following the ouster of CEO Ian McCarthy in June. McCarthy was fired about three months after he agreed, in a deal with federal regulators, to give back $6.5 million in bonuses and profits from the sale of company stock. The executive had accrued those gains at a time when investigators said Beazer was committing accounting fraud.
Moody's said it expects the weak housing market sales trends will weigh on Beazer, resulting in operating losses, negative cash flow, elevated debt usage and declines in equity over the next two years.
The firm also anticipates that the company will continue burning cash on land purchases.
Moody's lowered Beazer's corporate family and probability of default ratings to "Caa2" from "Caa1." That's three notches above a default rating under Moody's ratings scale.
Moody's also cut the rating for Beazer's senior secured notes to "B2" from "B1," and its senior unsecured notes to a rating of "Caa3" from "Caa2. The firm's rating outlook for Beazer remains stable.
Roughly $1.1 billion of rated debt securities are affected by the ratings action.
Beazer is the nation's ninth-largest homebuilder, based on homes closed last year.
Shares fell 12 cents, or 6.5 percent, to $1.73 in afternoon trading.
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