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NEW YORK — Moody's Investors Service on Monday downgraded all of the ratings of homebuilder KB Home, including its corporate family rating, its probability of default rating and its senior notes rating.
The outlook for the Los Angeles-based company remains negative.
The downgrades reflect Moody's expectation that the company will continue to post operating losses, remains exposed to asset impairment charges, and that its pace of cash generation will slow as further inventory reduction grows more challenging.
The corporate family rating was cut to B1 from Ba3, the probability of default rating to B1 from Ba3, and its senior notes' rating to B1 from Ba3.
Moody's affirmed the company's speculative grade liquidity rating at SGL-2.
Shares rose 1.4 percent, or 19 cents, to close at $13.60 Monday.
Analysts said the pace of cash generation decelerated over the last 12 months to $422 million of cash flow from operations during the trailing 12-month period ended Feb. 28, compared with $1.4 billion in the comparable period a year ago.
Future cash flow generation will depend on sustained inventory reduction, and returning to profitability, which remains difficult to accomplish in an environment of declining prices, slow sales, and intense competition, the analysts said.
The downgrades also reflect Moody's expectation that the company's debt leverage will increase, cushions under financial covenants will narrow and pre-impairment losses will continue.
The Moody's analysts did acknowledge the company's large cash position relative to its debt and assets and noted that the company has no debt maturities before 2011 and no contemplated revolver usage for at least the next 12 months other than for letters of credit.
KB Home remains the industry leader in terms of percentage reduction in homebuilding debt over the past two years, Moody's analysts said.
The negative rating outlook reflects risks associated with general economic weakness that may continue to hamper new household creation and new home purchases, industrywide lack of pricing power, and large inventory of unsold homes including foreclosures in most markets.
Moody's last rating action for KB Home was on Nov. 26, 2008, at which time Moody's lowered the company's corporate family rating to Ba3 from Ba2.
