Moody's press release on WCI - New York, December 08, 2006
PRESS RELEASE: Moody's Cuts Rtgs Of WCI Communities
The following is a press release from Moody's Investors Service:
Moody's Lowers Ratings Of Wci Communities; Outlook Remains Negative
Approximately $650 Million of Debt Securities Affected
New York, December 08, 2006 -- Moody's lowered the ratings of WCI Communities, Inc. ("WCI"), including its corporate family rating to B1 from Ba3 and the ratings on its senior subordinated notes to B3 from B1. The ratings outlook is negative.
The downgrade was triggered by a continuation of the unfavorable trends and developments regarding WCI's closings, new orders, cancellation rates, and revenue and earnings generation. In addition, the company will probably end up its year with 60% or higher debt leverage.
The negative outlook reflects Moody's expectation that WCI's earnings in 2007 will decline significantly from 2006 levels, perhaps breaking into negative territory; that complying with its interest coverage covenant may become problematic; and that management's ability to build liquidity and reduce debt leverage in the face of a downturn of unknown breadth and duration is as yet unproven.
Going into its fourth quarter, WCI was projecting roughly $1.2 billion of tower closings in the subsequent six month period, with roughly half to occur during the fourth quarter and the remainder in the first quarter of 2007. Because of delays in getting certificates of occupancy as well as in getting buyers to agree on closing dates, some of these fourth quarter closings will slide into the first quarter, while cancellation rates on those that have closed are tracking somewhat higher than what the company expects the total average to be. The news in the single family business continues unfavorable, with very weak net new order generation. The upshot is that while Moody's still expects WCI to pay down a significant portion of its short-term debt from proceeds from the tower closings, this pay down will be less and later than had been anticipated, debt leverage will stay unacceptably high for the former rating, and covenant compliance will become very challenging.
Going forward, the ratings could be reduced again if the company were unwilling or unable to reduce and maintain debt leverage below 60% after the tower closings occur, if earnings turned sharply negative, or if covenant violations occur. The ratings outlook could stabilize if the company were to place greater emphasis on building liquidity and reducing outstanding debt, were to stay profitable in the coming quarters, and were able to meet its debt covenant tests with some headroom.
The following ratings were affected:
Corporate family rating changed to B1 from Ba3
Probability of default rating changed to B1 from Ba3
Senior sub debt ratings changed to B3 from B1
LGD (Loss-given-default) assessment and rate on the senior sub debt changed to LGD5, 83% from LGD5 81%.
Headquartered in Bonita Springs, Florida, WCI Communities, Inc. is a fully integrated homebuilding and real estate services company with 60 years of experience in the design, construction, and operation of leisure-oriented, amenity-rich master planned communities targeting affluent homebuyers. Revenues and earnings for 2005 were $2.6 billion and $186 million, respectively. |
