NEW YORK (Reuters) - Fitch Ratings and Standard & Poor’s on Friday cut their ratings on Beazer Homes USA Inc (BZH.N) deeper into junk territory and said they may cut the ratings again as the company’s balance sheet continues to deteriorate in a weak housing market.
The rating cut also reflects the home builder’s need to restate financial results due to accounting errors, Fitch said.
Beazer said on Thursday it would restate financial results back to 2004 due to accounting errors uncovered by an internal investigation that found violations of federal housing regulations.
The company also reported preliminary results that showed its business fell sharply in the quarter ended September 30.
“The downgrades acknowledge significant internal and external challenges confronting Beazer’s management team and the uncertain economic impact stemming from accusations of fraud in the Beazer Mortgage Co. subsidiary,” S&P said in a statement.
S&P cut Beazer one notch to “B-plus,” four levels below investment grade, from “BB-minus,” and kept the company on watch for a further downgrade.
Fitch cut Beazer one notch to “BB-minus,” three levels below investment grade, from “BB.”
The company remains on review for a further downgrade due to its inability to report earnings for the quarter ended June 30 in a timely manner and because Beazer may be required to negotiate some consent waivers with its bondholders, Fitch said in a statement.
“There is uncertainty as to the financial impact of Beazer’s potential liability as well as regulatory fines related to the violations found in its mortgage subsidiary,” Fitch said.
Beazer’s 8.375 percent bond due 2012 fell half a cent on Friday to 81.75 cents on the dollar, according to MarketAxess.