U.S. home builder shares plunge on credit concerns
NEW YORK (Reuters) - U.S. home builder shares fell sharply on Wednesday as credit concerns mounted because of the widening effect of the crumbling U.S. housing market, and Beazer Homes USA Inc. (BZH.N) dropped more than 40 percent before bouncing off its lows.
Several sources, there were rumors in the market earlier in the day that Beazer was facing a possible bankruptcy or that a U.S. Securities and Exchange Commission investigation was becoming more serious than initially expected.
The company later smacked down the rumors.
"We have become aware of rumors circulating in the market about Beazer Homes' liquidity and a prospective bankruptcy filing," the company said in a release. "We do not know where these scurrilous and unfounded rumors started."
After plunging to a new low of $8.10, Beazer shares closed down 18 percent at $11.48 on the New York Stock Exchange.
Wednesday's stock drop was Beazer's biggest one-day slide since the company went public in February 1994, according to Reuters Data, and was bringing the broader market lower.
Other names in the sector were also lower in Wednesday trade. Hovnanian Enterprises Inc. (HOV.N) closed down 10 percent at $11.95. Lennar Corp. (LEN.N) which had lost nearly 3 percent, closed down 13 cents at $30.37. D.R. Horton Inc. (DHI.N), the largest U.S. home builder, had been off 2 percent but closed up 8 cents at $16.40. Standard Pacific Corp. (SPF.N) which fell 17 percent regained ground to close at $13.99, down 5.5 percent.
The Dow Jones Home Construction index .DJUSHB had fallen 3 percent but closed down less than 1 percent.
CASH IS KING
Beazer entered into a new, four-year $500 million revolving credit facility in July, boosting its cash position. That replaced its existing $1 billion facility. The new facility can be expanded to $1 billion under certain conditions.
Over the past year, Beazer's stock has taken a double hit: one from the deteriorating housing market and the other from federal investigations of mortgage lending practices.
Last month, Beazer said the SEC had raised its informal inquiry into violations of securities laws at the company to a formal investigation, a move that gives investigators subpoena power.
Beazer acknowledged it was the subject of several lawsuits and a U.S. Attorney's investigation into practices related to its mortgage-origination business.
The investigation began about the time the Charlotte Observer reported in March that federal housing officials were investigating Beazer for questionable loans arranged by the mortgage unit for buyers in a North Carolina development.
Beazer fired Chief Accounting Officer Michael Rand due to violations of the company's ethics policy stemming from attempts to destroy documents.
SPREADING IT AROUND
The cost to insure the debt of investment-grade home builders jumped by an average 30 to 40 basis points on Wednesday on concerns about further weakness in the housing sector.
Lennar's credit default swap spreads, for example, widened to around 250 basis points, or $250,000 per year for five years to insure $10 million in debt, from around 215 basis points on Tuesday.
Shares of many of the publicly traded real estate investment trusts were also trading lower.
Tighter credit has dragged down commercial real estate, with the publicly traded real estate investment trusts down 15 percent year to date, as measured by the MSCI U.S. REIT Index, a benchmark for REIT share performance.
"That's causing people to reevaluate ... what the real estate is really worth that these companies own. That's the conversation that's going on right now," said BMO Capital analyst Richard Anderson.
Despite recently reporting strong results and raising their forecast for the year, shares of companies such as Simon Property Group Inc. (SPG.N), the largest U.S. mall and outlet center owner, and office building owner SL Green Realty Corp. (SLG.N) have been pummeled, down 14 percent and 9 percent respectively, year to date. During the day, Simon was off about 3 percent but it closed up 18 cents to $86.71. SL Green, which had been off about 2 percent, closed at $120.73, down 69 cents.
(Additional reporting by Ilaina Jonas, Doris Frankel and Karen Brettell)
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