Moody's predicts continued pressure on homebuilder ratings

Moody's Investors Service said U.S. homebuilders' current positive cash flow will be hard to sustain in the coming quarters amid continuing high levels of inventory.

Homebuilders began to report positive cash flow in the March 2007 quarter, but the agency said one-time sources have been driving the positive cash flow, not inventory liquidation - indeed, homebuilders have taken minimum inventory reductions at a time that they continue to face steadily increasing financial and business risk, a combination expected to continue pressuring ratings.

"With business risk sharply rising, financial risk also increasing, and possible mitigants provided by cash flow growth not really measuring up to expectations, what is left to support current ratings? For many homebuilders, precious little," Moody's senior credit officer Joseph Snider said in an agency report.

Since the agency published its previous report on homebuilder cash flows in July, it has taken nine rating actions on homebuilders, all either rating downgrades, negative outlook changes or placing ratings on review for downgrade.

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