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21 Apr 2011
Approximately $3.4 billion of debt securities affected
New York, April 21, 2011 -- Moody's Investors Service revised the rating outlook for PulteGroup,
Inc. ("Pulte") to stable from positive and affirmed all other existing
ratings, including the company's B1 corporate family rating,
B1 probability of default rating, B1 rating for senior unsecured
notes, and the speculative grade liquidity rating of SGL-2.
The change in outlook back to stable from positive reflects Moody's
expectation that both Pulte's improvement in operating performance
and the homebuilding industry's return to a more normal operating
environment will take longer to materialize than had earlier been anticipated.
As a result, a ratings upgrade, which a positive outlook suggests,
does not appear likely within the next 12 months.
The B1 corporate family rating balances Pulte's large cash position and
track record of positive cash flow generation against Moody's expectations
that 2011 may be the first year in five years that the company will be
cash flow negative at the same time as it continues to be unprofitable
on a bottom line basis. In addition, gross margins,
although improving, will continue to lag those of its peer group
while the land position remains one of the longest in the industry.
Even debt leverage, normally a company strength, will remain
elevated, in the 60+% range, a metric more often
associated within the homebuilding industry with a low single-B
At the same time, the ratings acknowledge that Pulte's liquidity
position allows it the flexibility to continue investing cash back into
the business and to focus on margin improvement, while its large
land position ensures that it will not be forced to bid aggressively on
assets in order to replenish a depleted lot supply. Finally,
the company's merger with Centex and the resulting improvement in size,
scale and diversification should permit it to reap appreciable benefits
once the industry begins to turn.
The following rating actions were affirmed:
B1 corporate family rating
B1 probability of default rating
B1 senior notes rating (LGD 4, 53%)
SGL-2 speculative grade liquidity rating
All of the homebuilding debt of both PulteGroup, Inc. and
the remaining outstanding debt of Centex Corporation is guaranteed by
the principal operating subsidiaries of both Pulte and Centex.
The ratings could be raised if the company turned profitable on a sustained
basis and if its key credit metrics, including debt leverage and
gross margins, improved to less than 50% and greater than
16%, respectively, while at the same time the company
was able to maintain a strong liquidity position.
The rating could be lowered if the company jeopardized its strong liquidity
position by engaging in large land purchases or substantial share buy-backs,
experienced a material erosion in its pre-impairment operating
performance, or allowed its debt leverage to remain above 60%
on an adjusted basis for an extended period of time.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The principal methodology used in rating Pulte Homes, Inc.
was the Global Homebuilding Industry Methodology, published March
2009. Other methodologies used include Loss Given Default for Speculative
Grade Issuers in the US, Canada, and EMEA, published
Founded in 1950 and headquartered in Bloomfield Hills, Michigan,
PulteGroup, Inc. ("Pulte") is one of the country's two largest
homebuilders, with operations in 67 markets, 29 states and
the District of Columbia. Total revenues and consolidated net income
for the year ended December 31, 2010 were approximately $4.6
billion and $(1.1) billion, respectively.
Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's revises Pulte's outlook to stable from positive
250 Greenwich Street
New York, NY 10007
No Related Data.
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