Moody’s downgrades luxury homebuilder’s credit rating to junk
Posted on Friday, July 4, 2008
Toll Brothers Inc., the largest U. S. luxury homebuilder, had its credit rating cut to junk by Moody’s Investors Service as weak demand deepens the housing slump.
The rating on the Horsham, Penn.-based company’s senior unsecured notes was reduced to Ba 1 from Baa 3, Moody’s said Thursday in a statement. The cut affects $ 1. 1 billion of debt, said Joseph Snider, a senior credit officer at Moody’s in New York.
“While the company is one of the only remaining homebuilders that is currently generating earnings before impairment charges, Moody’s does not expect this to continue, as falling prices and lower absorption rates continue to impact margins,” Moody’s said in the statement.
Toll Brothers reported its third straight quarterly loss Thursday as tumbling demand forced the company to write down land values. The net loss for the fiscal second quarter that ended April 30 was $ 93. 7 million.
The five largest U. S. builders have reported a combined $ 3. 3 billion in losses in their most recent quarters, hurt by what Chief Executive Officer Robert Toll described last month as a “downward spiral” of home prices.
Home prices in 20 U. S. metropolitan areas fell in April by the most on record and new home sales declined 40 percent in May from a year ago. Rising foreclosures are adding to the glut of unsold properties, while higher mortgage rates and tighter lending standards are keeping buyers out of the market.
A weakening economy and slumping demand for new homes were among the factors cited by Moody’s for the downgrade. Moody’s also expects that an increase in the inventory of condominiums for sale will hurt the company’s high-rise business in the Northeast, which has been a bright spot for the company.
“The only source of strength for the company to date has been their tower business in the Northeast,” Snider said. “We expect that to slow.”
The average price of a Toll Brothers home fell 26 percent in the second quarter to $ 534, 000 from a year earlier. The price dropped 7. 9 percent than the previous three months. The declines were partly due to fewer sales in expensive markets such as California and Manhattan.
Toll Brothers got the most revenue in the quarter from Delaware, Maryland, Pennsylvania, Virginia and West Virginia.
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