Sub-prime lending woes, disappointing new home sales, comments from Federal Reserve Chairman Ben Bernanke and a bevy of other problems plagued the homebuilding sector last week, with names like Technical Olympic and Beazer Homes hit extra hard. "Beazer and Technical Olympic kind of bring the whole sector down," one trader said.
Technical Olympics' 10.375% '12s fell about 10 points between March 21 and last Wednesday. It had been trading as high as 92 at the beginning of the month, according to Markit data. Beazer's debt dropped three to four points as well with news it is being investigated by the Federal Bureau of Investigation for possible mortgage fraud (see story, page 4).
Wednesday proved to be the roughest day for debt with firms trading away more and more risky paper throughout the day. By Thursday, however, many names regained a point or two. Although term debt for homebuilders across the board, like Ginn Clubs and Turtle Bay, was down only a 1/8 or 1/4 of a point, "it's a lot for par land," another trader said.
The term loan "B" for Masonite International was bid as low as 97 last Tuesday and was wrapped around 98 last Wednesday afternoon, according to dealers and traders. The company's debt has bounced around since the beginning of March when it announced it was losing its largest customer, Home Depot (CIN, 3/16). Two weeks earlier the company's debt fell from north of par to around 99.
Disappointing first quarter results announced last Tuesday for Lennar Corp. caused its debt to drop lower. As its 5.6% '15 notes continued to slide from a March 21 high of 97 1/2, it dropped over a point the day of the announcement to 94 1/2. It's 7.625% '09s dropped about half-a-point and its 5.5% '14s dropped about a point to 96. The company reported its revenues were down about 14% at $2.8 billion and its homebuilding operating earnings were down 69% to $140 million.
Debt for other homebuilders bounced around and CDS widened simply on the woes of the market. "The housing sector is just getting crushed," a dealer said. The 7% '15 senior notes for Standard Pacific were down about three points last Wednesday to 89 1/2 but were back up to 91 by Thursday. Its 9.25% '12s dropped 2 1/4 points on Thursday to 98 1/2 and its five-year CDS widened about 90 points for the week to 391. KB Home's 5.875% '15 senior notes were down 1 1/4 points to 90 and its 8.625% '08s dropped to 103 by Thursday morning. K Hovanian's 7.75% '13s were down four points to 92 1/2 and its 8.875% '12s were down three points to 98. It's CDS widened about 80 points to 370. Spokesmen for the companies either declined to comment or did not return calls.