S&P lowers Hovnanian

Standard & Poor's said it lowered Hovnanian Enterprises Inc.'s and K. Hovnanian Enterprises Inc.'s corporate credit rating to B- from B+, their senior unsecured debt rating to B- from B+ and their senior subordinated debt rating to CCC from B-. The preferred stock rating remains D.

The ratings were removed from CreditWatch, where they were placed with negative implications on Jan. 16, and outlook is negative.

The downgrades reflect S&P's expectation that Hovnanian's operating trends will continue to be weak and that its already weak credit metrics will continue to deteriorate in fiscal 2008, which ends Oct. 31, 2008.

Significant noncash charges have eroded Hovnanian's tangible net worth, and as a result the company is in the process of amending its credit facility. Although this is the company's first amendment, lenders have become less accommodating and will likely force more restrictive terms, the agency predicted.

S&P said some of its concerns are mitigated by the good cash flow generated in the fourth quarter, by the company's more aggressive inventory management and by Hovnanian's lower level of financial risk within its joint ventures, which are more conservatively leveraged and structured than those of many peers.

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