S&P Places Beazer Homes USA on CreditWatch Negative List
Standard & Poor's Ratings Services has put its "BB-" corporate credit and senior unsecured debt ratings on Beazer Homes USA Inc. on CreditWatch with negative implications.
The CreditWatch move affects roughly $1.5 billion in rated debt securities and follows the company's recent announcement that its third-quarter 10-Q filing will be delayed, S&P said.
Beazer said the reason for the delay is the discovery (by independent counsel and accountants retained by Beazer's audit committee) of possible inappropriate accounting for overaccruing certain reserves and accrued liabilities related primarily to land development and home construction costs, the rating agency said.
Excess accruals for reserves and other accrued liabilities, if reversed in subsequent accounting periods, could have been used to offset the company's operating expenses by amounts that would not be appropriate under GAAP.
The CreditWatch placements also consider the "pressure and distractions Beazer's management faces on a number of non-operational fronts, including separate pending investigations by the SEC and the U.S. attorney's office in the Western District of North Carolina, during a very challenging period for all homebuilders."
It is unknown at this time whether Beazer will have to restate previous financial results. Beazer has stated that it currently does not believe the amounts at issue with respect to these reserves and accrued liabilities are "quantitatively material."
However, the ultimate resolution of these matters, their timing and their magnitude are currently not known, as the investigation and management's qualitative assessment of these findings is ongoing. It is also possible that additional accounting issues may be unearthed in the process. Given the pending investigation and the uncertainty currently surrounding Beazer's historical financials, we have concerns regarding the integrity of prior-period financials, S&P said.
The company's senior notes and bank facility contain covenants regarding the filing of quarterly and annual financial statements. The indentures governing the company's bonds provide for a 60-day grace cure period should bondholders file a notice of default. The company's recently renegotiated credit facility does not contain a similar covenant but does require that timely financial statements be provided. "We will closely monitor developments related to this internal accounting investigation as well as the various external investigations that the company is facing," the rating agency said. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com/