Fitch Ratings placed Hovnanian Enterprises Inc. (HOV) on negative ratings watch Thursday, claiming the homebuilder's recent $220 million debt exchange offer "represents a material reduction" in the quality of the notes offered. The negative  outlook also reflects the company's current liquidity position and the challenging housing environment and overall economy, Fitch said. Hovnanian Enterprises announced it would exchange senior unsecured notes for $220 million of new 2% senior secured notes due 2021. The distressed debt exchange raised a red flag for analysts, prompting the ratings agency to place the company's issuer default rating, senior secured and unsecured notes and series A preferred stock on negative ratings watch. "The exchange offer is being initiated as part of an ongoing restructuring of the company's capital structure to increase financial flexibility," according to Fitch. Write to Kerri Panchuk.