Moody's rates Hovnanian notes Ba3

Moody's Investors Service said it assigned a Ba3 rating to K. Hovnanian Enterprises, Inc.'s proposed $600 million senior secured notes due 2013, upgraded the speculative-grade liquidity rating to SGL-2 from SGL-3 and affirmed the company's other ratings, including the B3 corporate family and probability-of-default ratings, Caa1 (LGD4) senior unsecured notes, Caa2 (LGD6, 94%) senior subordinated notes and Caa3 (LGD6, 97%) preferred stock.

The loss-given-default rate assigned to the senior unsecured notes was changed to 64% from 63%.

The outlook remains negative.

The agency said the substantial upnotching of the new notes reflect their second-lien status and well secured priority position in the capital structure.

The ratings reflect Hovnanian's ongoing losses, high debt leverage, elevated inventory levels and cash flow generation that only recently turned positive, Moody's said.

Support for the company's ratings is provided by the boost to the company's liquidity and covenant compliance flexibility as a result of its recent equity offering and this new note offering, large revenue base and widespread geographic, product and price point diversification, the agency added.

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