Moody's Investors Service lowered its credit ratings on Pulte Homes Inc. (PHM) one notch further into junk territory following the company's $1.4 billion purchase of Centex Inc.
The ratings agency expects the combined homebuilder's "currently robust cash flow will decline substantially this year and next" as the benefits of inventory liquidation play out.
Once that happens, Moody's said Pulte will need to generate increasing portions of its cash flow from operations. That will pose a "considerable challenge," citing the company's large land position, below-industry-average margins and somewhat-low revenue per employee compared with peers.
The downgrade closes Moody's review of the company's begun in April, after the deal was announced. At the time, Moody's said it was examining whether the new company's larger land portfolio would increase risks to debt holders.
The combined company has nearly 190,000 housing lots in 29 states, one of the largest land supplies in the industry and will be a major builder of homes for first-time home buyers and retirees. By units it will be the nation's largest builder.
Pulte was lowered by Moody's to B1, or four steps into junk territory. The ratings outlook is stable, with Moody's noting that increased risks from its large combined land position are offset by potential cost-savings benefits.
Standard & Poor's Ratings Service and Fitch Ratings last week affirmed their ratings on Pulte but have negative outlooks.
Shares were down 4.1% at $12.78 in recent trading.
No comments:
Post a Comment