Homebuilders' debt ratings cut on grim sector outlook

Fitch Ratings on Tuesday slashed its issuer default ratings for eight homebuilders, bumping three--Ryland Group Inc., D.R. Horton and Centex Corp.--into "junk" status.

Fitch said its ratings reflect its expectation that the housing slump will extend into next year and hurt prospects for a recovery in the homebuilding sector.

The firm downgraded Ryland Group Inc., D.R. Horton, and Centex Corp., from investment grade "BBB-" to noninvestment grade "BB+." The lower the rating, the higher the interest rate the builders have to offer investors to compensate for the risk the companies might default.

Fitch also lowered its ratings for Pulte Homes Inc. and Lennar Corp. by one notch to "BBB-," the lowest investment grade rating.

Beazer Homes USA Inc., M/I Homes Inc., and Meritage Homes Corp., which already had non-investment grade rating, were lowered further.

Fitch affirmed its "BBB" rating for Toll Brothers Inc., NVR Inc., and MDC Holdings Inc.

The firm also affirmed its "BB+" rating for KB Home and its "B-" rating for Hovnanian Enterprises Inc.

Several of the homebuilders had their ratings lowered Monday by Moody's Investors Service.

Moody's also cited concerns that the companies will have a tough time returning to profitability given the likelihood that the housing slump will continue to be a drag on sales into next year.