Moody's cuts Hovnanian

Moody's Investors Service said it lowered K. Hovnanian Enterprises, Inc.'s corporate family and probability-of-default ratings to B3 from B2, senior unsecured notes to Caa1 (LGD4, 63%) from B2 (LGD3, 45%), senior subordinated notes to Caa2 (LGD6, 94%) from Caa1 (LGD6, 92%) and preferred stock to Caa3 (LGD6, 97%) from Caa2 (LGD6, 96%).

The agency assigned a liquidity rating of SGL-3. This concludes the review that began on Jan. 17.

The outlook is negative.

According to Moody's, the downgrades reflect Hovnanian's ongoing losses, high debt leverage, elevated inventory levels and cash flow generation that only recently turned positive.

The negative outlook reflects expectation that the very weak macro environment will pressure Hovnanian's credit metrics as 2008 and 2009 unfold, chipping away at the substantial headroom in the newly revised bank covenant package, the agency said.

Support for ratings is provided by the company's large, albeit rapidly declining, revenue base and widespread geographic, product and price point diversification, the agency said.

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