TEXT-S&P raises Hovnanian rating to 'CCC+'
OVERVIEW -- Hovnanian Enterprises Inc. completed the issuance of $797 million of secured notes and $100 million of exchangeable notes to refinance existing higher cost secured debt due in 2016. -- We raised our corporate credit rating on Hovnanian two notches to 'CCC+' from 'CCC-' and removed it from CreditWatch positive to reflect the benefit of the refinancing that addresses the bulk of Hovnanian's 2016 maturities and reduces the company's interest burden. We also acknowledge recently improved operating performance, which has narrowed losses for the builder. -- We also raised our issue ratings on the builder's senior secured notes due 2021 to 'CCC' from 'CC' and our rating on the senior unsecured notes due 2014-2017 to 'CCC-' from 'CC' and removed them from CreditWatch positive. We also withdrew our rating on the existing $797 million senior secured notes due 2016 that the company fully redeemed on Nov. 1, 2012. -- Our outlook on Hovnanian is stable. We believe the company has sufficient liquidity to meet near-term capital needs. Nov. 5 - Standard & Poor's Ratings Services today raised its corporate credit rating on Hovnanian Enterprises Inc. to 'CCC+' from 'CCC-' and removed it from CreditWatch positive. We also raised our issue rating on the company's existing senior secured debt (due 2021) to 'CCC' from 'CCC-' and removed it from CreditWatch positive. The recovery rating remains unchanged at a '5' indicating our expectation for a modest (10%-30%) recovery in the event of a payment default. We also raised our issue rating on the company's existing senior secured debt (due 2021) to 'CCC' from 'CCC-' and removed it from CreditWatch positive. The recovery rating remains unchanged at a '6' indicating our expectation for a negligible (0%-10%) recovery in the event of a payment default. Lastly, we withdrew our rating on the existing $797 million senior secured notes that the company will fully redeem by Nov. 1, 2012. The outlook is stable. "We raised our corporate credit rating to reflect operating performance that is better than we expected, resulting in narrowing pretax losses," said credit analyst George Skoufis. "It also reflects improved liquidity following the recent debt issuances that will extend the bulk of the company's 2016 maturities to 2020 and reduce its overall interest burden." The stable outlook reflects our view that Hovnanian has sufficient liquidity to meet near-term capital needs. We would raise our ratings if Hovnanian can sustain recently improved operating trends and support a return to consistent profitability and maintain adequate liquidity to fund its capital needs including land investments to support growth. We would lower our ratings if housing operations deteriorate and the company aggressively invests in land resulting in a cash position below the low end of the company's cash target or we believe a distressed debt exchange or debt restructuring is likely. RELATED CRITERIA AND RESEARCH -- Industry Report Card: U.S. Homebuilders Pivot Toward Growth, Oct.17, 2012 -- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, Oct. 12, 2012 -- Key Credit Factors: Global Criteria For Single-Family Homebuilders, published Sept. 27, 2011 -- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, published Sept. 8, 2011 -- Criteria Guidelines For Recovery Ratings On Global Industrial Issuers' Speculative Grade Debt, Aug. 10, 2009 -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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