S&P Sees No Near-Term Builder Relief
Monday December 3, 11:07 am ET
S&P Expects Mortgage Troubles, Write-Offs to Continue to Weigh on Home Builders
NEW YORK (AP) -- Standard & Poor's Ratings Services on Monday said the same problems that led it to cut ratings on various home builders 11 times since August still exist, making prospects for near-term improvement "dim."
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The agency currently has only five of the 24 builders it rates at investment-grade levels, with the rest at various levels of "junk" status. Ratings indicate a company's expected ability to repay outstanding debt. They are used in large part by banks to set the borrowing terms for corporate lending.
Homebuilders took massive charges -- estimated at $6 billion by S&P -- in the latest fiscal quarter to write down the value of inventory and land they own as prices continue to fall across the country.
"Impairments have taken a toll on each company's net worth," said credit analyst Lisa Sarajian. She expects several companies to try to amend the terms of their debt agreements to stave off default.
The builders are stuck will a glut of unsold homes as buyers hesitate to invest in properties that may lose value. Meanwhile, mortgages are getting more expensive and harder to come by as lenders cannot raise financing amid a crisis on the credit markets.
"The recent rating actions follow our warnings that continued dislocation in the mortgage market would result in sharper downgrade activity," said credit analyst James Fielding. "These trends continue to weigh on key credit metrics, and prospects for improvement in the near future are dim," S&P said.
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