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Moody's: Market Accommodates North American Homebuilders on High-Yield-Lite Covenants

Global Credit Research - 17 Apr 2013

New York, April 17, 2013 -- The North American homebuilding industry on average offers weaker covenant protection than other North American non-financial corporate sectors, Moody's Investors Service says in a new report. This is because the industry has the highest percentage of high-yield-lite bonds, though most bonds with traditional high-yield packages offer stronger investor protections than those from other industries.

"Our review of 23 bonds from 14 North American homebuilding issuers reveals a unique sector in terms of bond covenants," says associate analyst and co-author Natalia Gluschuk in "High-Yield-Lite Covenant Packages Prevail in North American Homebuilding Industry." "While its high-yield-lite deals account for 56% of issuance, offering weak protections, bonds with a full package of covenants offer more protection than do those of other North American non-financial sectors."

The bonds reviewed were drawn from Moody's High-Yield Covenant Quality Database, which includes covenant quality scores for overall covenant packages and for six categories of risk protection within packages. On Moody's five-point scale, in which 1.0 represents the strongest investor protections and 5.0, the weakest, the homebuilding industry has an average overall covenant quality score of 3.96, compared with 3.68 for all other North American corporate issuers.

Historically, North American homebuilders have been much more likely to issue bonds with investment-grade covenants than other corporate sectors. "Although it may seem striking, even during the housing crisis banks and investors tended to favor the homebuilding sector for its asset-rich quality and overall record of strong growth," Gluschuk says. "For these reasons they have sought less covenant protection from homebuilders, accommodating their high level of high-yield lite issuance, while the sector's improving credit quality means this will remain the case over the near future."

Excluding high-yield-lite deals, bonds from North American homebuilders rank strongest among the industries Moody's analyzed, with an average covenant quality score of 2.61 compared with 3.42. The homebuilding sector's scores were also the strongest in each of the six categories of provisions. This includes good restricted-payment and change-of-control provisions, which protect creditors from unfavorable cash outflows and event risk, respectively. In addition, both traditional and high-yield lite bonds in the homebuilding sector include strong protections against structural subordination.

Moody's research subscribers can access this report at http://www.moodys.com/research/Moodys-High-Yield-Covenant-Database-High-Yield-Lite-Covenant-Packages--PBC_152295.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Natalia Gluschuk
Associate Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Market Accommodates North American Homebuilders on High-Yield-Lite Covenants
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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