Bankruptcies and Rating Downgrades For Homebuilders [Housing Tracker]

by: Judy Weil

Quotes of the Day

"Nothing is selling at all. That means we’re not building anything at all. We’ve reduced prices to the point where we’re in the hole just to move them." - Virginia homebuilder Dave Hepler. Hepler says this downturn is unusually long, three years so far. The goal for local homebuilders, he says is just to break even, no one is thinking of making a profit. (Winchester Star, June 10th)

"It's a small investment." – Pat Macht, spokeswoman for the $245.4 billion California Public Employees' Retirement System on the $947 million they invested in the now bankrupt LandSource, and which they are in danger of losing entirely as a result. (Sacramento Bee via Big Builder Online, June 10th)

Homebuilder Stocks

Newland Communities’ Briar Chapel Sells Out Of Initial Homesite Offerings. Chapel Hill, N.C.: “Newland Communities’ Briar Chapel, a new 1,589 acre mixed-use, master-planned community in Chapel Hill, signed 15 contracts for new homesites from May 31 to June 6. During this private preview period, Briar Chapel welcomed the community’s first home owners. The initial homesites were released by Briar Chapel’s builder team of Chatham Builder Guild, LLC, McNeill Burbank Homes, Vanguard Homes and M/I Homes, Inc. (NYSE:MHO).” (Carolina Newswire, June 11th)

Board Has Concerns About Water Runoff. NJ: “The storm-water management plan for the proposed Wildflower at Marlboro community was under scrutiny when the Planning Board continued hearing testimony about the application on May 21. Wildflower is an application filed by Orleans Home Builders (OHB), which is expected to contain 168 detached homes that will be age-restricted, along with two three-story buildings that will contain a total of 50 apartments that will be rented to people whose income meets regional guidelines established by the state Council on Affordable Housing.” (News Transcript, June 11th)

Homebuilders Rebound, TOL CEO Suggests Price Decline Nearly Done. “Homebuilders (NYSEARCA:XHB) are up 2.8% with Toll Brothers (NYSE:TOL) a leader with a 5% advance. Robert Toll, Chairman and CEO of Toll Brothers, told CNBC. "If prices stabilize here, and I think there is a good chance that they may (stabilize), because the spec inventory has largely been pushed through..." He added, "I think you can pretty well expect the bottom to have been hit, by prices, but who knows?" (Knobias via, June 11th)

Fitch Affirms Toll Brothers' IDR at 'BBB'; Outlook Remains Negative. “Fitch Ratings has affirmed Toll Brothers, Inc.'s Issuer Default Rating and other outstanding debt ratings as follows: IDR at 'BBB'; Senior unsecured at 'BBB'; Unsecured bank credit facility at 'BBB'; Senior subordinated debt at 'BBB-'. The Rating Outlook remains Negative.” (Press Release, June 10th)

Fitch Cuts Ratings On Major Homebuilders. “Fitch Ratings downgraded the ratings on a series of major homebuilders Tuesday, saying it expects the housing market to perform worse than previously expected through 2008. Fitch cut the issuer default ratings on D.R. Horton Inc. (NYSE:DHI), Beazer Homes USA Inc. (NYSE:BZH), Centex Corp. (CTX), Lennar Corp. (NYSE:LEN), Meritage Homes (NYSE:MTH) Corp., Pulte Homes (NYSE:PHM) Inc. and M/I Homes.” (Forbes, June 10th)

Hovnanian Ratings Affirmed With Negative Outlook – Fitch. “Fitch Ratings affirmed Hovnanian Enterprises Inc.'s (NYSE:HOV) ratings with a negative outlook, saying the ratings reflect the current difficult housing environment and Fitch's expectations that housing activity will be even more challenging than previously anticipated during the balance of calendar 2008 and that new home activity will still be on the decline well into 2009. The issuer default rating stands at 'B-', senior secured revolving credit facility and senior secured notes at 'BB-/RR1'. The recovery rating of '1' indicates outstanding 90%-100% recovery prospects for holders of these debt issues.” (Forbes, June 10th)

ARGUS Downgrades Hovnanian Enterprises (HOV) to SELL. “Argus: “HOV has been suffering from declining growth in new unit orders and deliveries and is likely to suffer in the near term from continued weakness in the housing market. However, excluding charges, the company has performed even worse than some of its competitors, reporting a loss for the latest quarter with gross margins on home sales near an industry low…Our financial strength rating for HOV is Low, the bottom of our five-point scale. HOV’s long-term debt is rated B3 by Moody’s, B- by S&P and B- by Fitch. The company ended 2Q08 with an average net recourse debt/capitalization ratio of 71%, compared to 58% at the close of FY07.” (Street Insider, June 10th)

KB Home Affirmed At ‘BB+’; Outlook Negative – Fitch. “Fitch Ratings affirmed KB Home's (NYSE:KBH) issuer default rating with a negative outlook, citing the difficult housing environment and the agency's expectations that housing activity will be even more challenging than previously anticipated and that new home activity will still be on the decline well into 2009. Fitch said the outlook also reflects negative trends in KB's operating margins, further deterioration in credit metrics and erosion in tangible net worth from non-cash real estate charges. However, KB's liquidity position provides a buffer and supports the ratings, the ratings agency added. Fitch also affirmed the company's senior unsecured ratings at 'BB+'.” (Interactive Investor, June 10th)

Major Home Builder Declares Bankruptcy. “Legend Homes, one of Oregon's largest homebuilders, filed Chapter 11 bankruptcy today after its parent company made three ill-timed land investments in once hot housing markets. David Oringdulph, Legend's CEO, said land purchases he made in Vancouver, Riverside, Calif., and Bend prompted the bankruptcy… When the market cooled, projects stopped and the company got stuck holding land worth -- in some cases -- less than they owed on the property. In the bankruptcy, Legend reported assets and liabilities between $100M-$500 million. KeyBank is the largest creditor with a $22M claim. (Oregon Business News, June 10th)

Moody's Lowers Homebuilders. “Moody's downgraded six homebuilders citing cash flow problems and bleak earning prospects in the near-term. These firms have been hurt by the falling home prices and a tight lending environment both of which have contributed to a glut of difficult to sell, and costly to maintain, inventory of new homes. Moody's downgraded its ratings, including corporate family ratings, on Pulte Homes, Centex, Ryland Group (NYSE:RYL), D.R. Horton and KB Home to Ba2 from Ba1. Moody's cut ratings on Lennar two notches to Ba3 from Ba1.” (Forbes, June 9th)

Home Builder Debt Could Be Hurt By Capital Raising. “Capital raising by U.S. homebuilders is supporting their debt valuations even as rating agencies downgrade their credit ratings. However, additional fund raising risks weakening the value of their outstanding bonds… "Bond returns for the major homebuilders were generally better in May, driven by an improved credit tone as several builders embarked on strategic alternatives to secure additional liquidity and operating flexibility," CreditSights analysts Frank Lee and Jeffrey Wichmann said.” (Reuters, June 9th)

LandSource Chapter 11 May Hit Calpers. “LandSource Communities Development LLC [filed for bankruptcy] Sunday… The venture's main investor, the California Public Employees' Retirement System [Calpers] could lose much of its $970 million investment… In February 2007… the venture's land [was] appraised at about $2.6 billion. Earlier this year, the value had shrunk to $1.8B… The 2007 deal allowed homebuilder Lennar Corp. and Cerberus Capital Management's LNR Property Inc. to reduce their ownership in much of the land to 16% each from a 50-50 split. Lennar and LNR also each received $660 million from the deal… The equity holders say they aren't responsible for paying back the nearly $1.2 billion of syndicated debt that was bought by more than 100 banks and institutional investors.” (Wall St. Journal, June 9th)

Big Calif. Land Bankruptcy Won’t Hit Lennar’s O.C. Plans. “Lennar’s Aliso Viejo office… played a role in arranging the bankruptcy filing of major California land owner LandSource. But LandSource’s woes should not impact Lennar’s plans for El Toro and Tustin airbases in O.C. LandSource, troubled by $1 billion in debts and a sick housing market, was created by Lennar to own some of its California projects (such as Newhall Park north of LA and the Mare Island military base near San Francisco) plus property in Ariziona, Florida, Texas and New Jersey. Please note that Lennar’s interests in the El Toro and Tustin airbases in O.C. were not in LandSource.” (OC Register, June 9th)

A Different Coconut Road Quandary Re-Emerges. Florida: “[On] Coconut Road’s western end, developers built a multi-million dollar marina on the shore of Estero Bay, part of it on land they may not own. Coconut Road actually ends short of the bay, but the right of way established in 1931 extends to the water’s edge. At least that’s the Lee County version. Attorneys for WCI Communities (WCI)— and before them, Westinghouse, which developed the 2,800-acre Pelican Landing — claim they own the land, on and around which the company built a marina.”

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