UPDATE 1-S&P cuts Hovnanian preferred stock to default

Wed Jan 16, 2008 2:18pm EST

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NEW YORK Jan 16 (Reuters) - Standard & Poor's on Wednesday cut Hovnanian Enterprises Inc's (HOV.N) preferred stock to default after the home builder failed to pay a scheduled quarterly dividend.

The rating agency also placed Hovnanian's debt ratings on review for downgrade, pending the result of negotiations between the builder and its bank to amend its credit facility.

The company failed to pay a quarterly dividend on its $140 million series A preferred stock on Tuesday due to terms in its bonds that restrict dividend payments when its breaks certain ratios, in this case known as fixed-charge coverage.

Fixed charge coverage refers to a company's ability to pay fixed financing expenses. Hovnanian was required under terms of its debt to keep this coverage at minimum two times, which it breached in the 12 months ending Oct. 31, S&P said.

Hovnanian was granted a temporary waiver from its bank lenders after it violated its tangible net worth and leverage covenants in its fourth quarter, S&P said.

The company's debt is on review for downgrade "pending the completion of the company's negotiations with its bank group to amend its credit facility and receive adequate covenant relief to operate through this housing cycle," S&P said.

S&P has a corporate credit and senior unsecured debt rating of "B-plus" on Hovnanian, four levels below investment grade. (Reporting by Karen Brettell; Editing by Dan Grebler)

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