Moody’s cuts Centex, Lennar, Pulte to junk status

[h82rent]

I’ve posted about these types of articles in the past, just because I’m astonished by the stock market’s reaction to them. So know that this article was posted yesterday afternoon, and the three housing stocks are UP 2-3% today, and two were over 4% at some point today. I don’t get it… even with short covering. My brain hurts. Here’s the article…

NEW YORK, Oct 11 (Reuters) – Moody’s Investors Service on Thursday cut its ratings on home builders Centex Corp (CTX) Lennar Corp (LEN) and Pulte Homes (PHM) to junk status, saying it expects bleak housing industry conditions to linger at least until 2009.

The downgrades affect about $9.4 billion of debt and $3.25 billion of commercial paper authorizations, Moody’s said.

Key problems facing home builders include rapidly declining orders, high housing inventories, disruptions in the mortgage market and heavy cancellations, Moody’s said in a statement.

Affordability issues are also weighing on key markets while confidence is ebbing among potential home buyers, it added.

It will be challenging for the three companies, as well as for much of the entire industry, to stay in compliance in the coming year with debt leverage covenants, the rating agency said. Covenants are restrictions in borrowing agreements.

Moody’s lowered Lennar’s senior unsecured rating by two notches to “Ba1,” the highest junk rating, from “Baa2,” Pulte’s senior unsecured rating by one notch to “Ba1” from “Baa3” and Centex’s senior unsecured rating by two notches to “Ba1” from “Baa2.” The outlook on all three companies is negative, meaning another rating cut is likely over the next 12 to 18 months.

The cost to insure the home builders’ debt rose on the downgrade. Centex and Lennar’s credit default swaps spreads widened 10 basis points each to 277 basis points and 293 basis points respectively. Pulte’s default swap spreads were around 13 basis points tighter at around 320 basis points, or $320,000 per year for five years to insure $10 million in debt.

“A lot of people have been playing the bad news, I think there was a little short covering, that’s why it didn’t widen as much as you might expect,” said Christopher Brown, analyst at Bank of America in New York.

Moody’s had said it may cut Lennar and Centex two notches to junk territory when it placed the ratings on review in August.

However, “I think the market was thinking 50/50 whether they went one notch or two notches, so it’s a bit of a surprise they went down right away,” Brown said.

Centex’s 6.5 percent notes due in 2016 fell 2.78 cents to 90.35 cents on the dollar, according to MarketAxess. (Additional reporting by Karen Brettell in New York).

[nostradamus]

Walmart sales have increased, leading to another DJIA rally to a record high. That must mean we’ve hit bottom and can only go up from here. 😉

What people don’t realize is that more people shopping at walmart means they can no longer afford the finer things!

[nostradamus]

Walmart sales have increased, leading to another DJIA rally to a record high. That must mean we’ve hit bottom and can only go up from here. 😉

What people don’t realize is that more people shopping at walmart means they can no longer afford the finer things!

[HereWeGo]

IMO, the market has entered a bubble phase. I wouldn’t fight it at this point.

[HereWeGo]

IMO, the market has entered a bubble phase. I wouldn’t fight it at this point.

[bubba99]

Unbelievable, September sales were well below expectation, almost across the board, and the market hits new highs. Walmart cost cutting was the only bright spot and the market rallys on news of “reduced payroll expense”. Bubble does not capture it

[bubba99]

Unbelievable, September sales were well below expectation, almost across the board, and the market hits new highs. Walmart cost cutting was the only bright spot and the market rallys on news of “reduced payroll expense”. Bubble does not capture it

[bsrsharma]

Speaking of Walmart, I visited one last weekend and it was so crowded I had to rub shoulders with many shoppers. {Before anyone criticizes me for patronizing Walmart – I have to rely on Walmart for a couple of essentials e.g. Our cat’s preferred litter and my pre-electric shave lotion}

[bsrsharma]

Speaking of Walmart, I visited one last weekend and it was so crowded I had to rub shoulders with many shoppers. {Before anyone criticizes me for patronizing Walmart – I have to rely on Walmart for a couple of essentials e.g. Our cat’s preferred litter and my pre-electric shave lotion}

[snail]

”
I have to rely on Walmart for a couple of essentials e.g. Our cat’s preferred litter and my pre-electric shave lotion}”

Diapers and underwears for me…However I loved Walmart. They are about lower prices and rollback, Just like houses in Temecula area.

[snail]

”
I have to rely on Walmart for a couple of essentials e.g. Our cat’s preferred litter and my pre-electric shave lotion}”

Diapers and underwears for me…However I loved Walmart. They are about lower prices and rollback, Just like houses in Temecula area.

[lendingbubblecontinues]

“I loved Walmart. They are about lower prices and rollback”

I just had an epiphany: Wal-Mart can be just the company to help this country out of the mess we are in.

If they would just loan that little whistling yellow smiley faced guy to the N.A.R., we might begin to see prices rolling back in earnest…;)

[lendingbubblecontinues]

“I loved Walmart. They are about lower prices and rollback”

I just had an epiphany: Wal-Mart can be just the company to help this country out of the mess we are in.

If they would just loan that little whistling yellow smiley faced guy to the N.A.R., we might begin to see prices rolling back in earnest…;)

[snail]

Walmart + NAR = (Fill the blank)

[snail]

Walmart + NAR = (Fill the blank)

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