Falling orders in the housing sector continued to batter homebuilder bonds. William Lyon Homes' 10 3/4% '13 bonds fell four points to 92 after the company reported a 52% decrease in new home orders for the three months that ended June 30 compared to the same period a year earlier. WCI Communities' 9 1/8% '12 notes fell three points to 90 1/4 after Standard & Poor's revised its ratings outlook on the company to negative from stable following its sharp decline in orders.
William Lyon Homes, a designer and builder of homes in California, Arizona and Nevada, said it received 550 new home orders for the three months ended June 30, 2006, compared with 1,154 for the same period last year. New home orders for the six months ended June 30 fell 41% to 1,197 compared to the same period in 2005. KDP Investment Advisors said in a report that William's bonds do not normally see a lot of trading activity, but that the decline of orders could have spooked the market.
S&P said in a report that it revised its BB corporate credit rating on WCI Communities to negative from stable following several months of order declines at the company. The ratings agency cites a sharp increase in competition in coastal Florida housing markets for the decline.
Another homebuilder that saw its bonds fall was KB Home. Its 5 7/8% '15 bonds fell a point to 86 3/4 after Moody's Investors Service revised its ratings outlook on the company to stable from positive. Moody's said in a report that it does not expect KB Home to reduce debt leverage to investment grade levels soon; Moody's assigned a Ba1 corporate family rating. "The current housing slowdown, during which Moody's expects earnings-based metrics to weaken, calls into question management's commitment to attaining and maintaining an investment grade balance sheet," it said in a release. The ratings agency added that it has been expecting a slowdown in the housing market for some time and that homebuilders' performance will inevitably deteriorate. Spokespeople at William Lyon Homes, WCI Communities and KB Home did not return calls.