Fitch Ratings downgrades PulteGroup on shaky housing market
The lackluster housing market prompted Fitch Ratings to downgrade two ratings on homebuilder PulteGroup Inc. (PHM) this week. The firm also revised the Bloomfield Hills, Mich.-based company's outlook from stable to negative. Fitch moved PulteGroup's issuer default and senior unsecured debt ratings from BB+ to BB on Monday, citing signs of a softening economy and subdued growth expectations in housing for the rest of 2011 and 2012. Any rating lower than BBB is considered noninvestment grade. While home sales did pick up in the spring, Fitch noted the economic environment may only support a modest recovery in the next 18 months. "Moreover, (Pulte's) underperformance relative to its peers in certain operational and financial categories penalizes the ratings and influences the outlook," Fitch analysts said. Overall, the ratings agency said new and existing home sales, as well as housing starts, remained relatively weak in June and July. "If the economy continues its currently lackluster advance and a relatively modest number of jobs are added, housing metrics should moderately decline this year, a more bearish forecast than earlier in the year," analysts said. "Fitch is projecting a modest improvement for housing off a very low bottom in 2012." Still, analysts warned negative developments could further dampen the agency's forecast for a modest recovery. In the first half, Pulte spent $640 million acquiring land and executing development activities. The company expects to spend $1.08 billion on land and development this year, up from $980 million in 2010. PulteGroup recently reported a second-quarter loss of $55.4 million, or 15 cents a share, as it took significant organizational restructuring and debt repurchase charges for the quarter. That compares to income of $76 million, or 20 cents per share, for the year-ago second quarter. PulteGroup's ratings downgrade puts it inline with other builders. In June, Fitch Ratings affirmed D.R. Horton's issuer default rating of BB, giving the builder a stable outlook. Toll Brothers Inc.'s issuer default rating was affirmed at BBB- in June with a stable outlook. Write to: Kerri Panchuk.