One buy-side and one sell-side analyst predict homebuilder M.D.C. Holdings will receive an investment-grade rating from Standard & Poor's, a development that will open the door for the company's bonds to appreciate.
One buy-side analyst in the Midwest points to successive four to five basis point gains in the 9.95% notes of '10 of another homebuilder, Lennar Corp., after the company recently received an investment-grade rating, first from Moody's Investors Service and then from S&P. M.D.C. has already received an investment-grade rating from Moody's, and the buy-sider sees S&P following suit, leading to additional upside in the bonds. The buy-sider declined to name the issue his firm owns, but says he would consider selling it if he sees a pop after an S&P upgrade.
Though the whole homebuilding sector is likely to be upgraded a notch, which may create opportunities for issuers, M.D.C. is likely to benefit the most from a trading perspective given that it will be crossing the bridge from high-yield to investment-grade, according to Rob Manowitz, analyst at UBS Warburg. Manowitz sees two points of upside in the M.D.C. 7% notes of '12 (Baa3/BB+), which were bid at 101.5 last Thursday.