Standard & Poor’s Ratings Service gave Toll Brothers Inc.’s credit ratings a one-notch downgrade, putting the luxury homebuilder’s debt in junk territory amid expectations the housing market will take longer than expected to recover.
Home prices have continued to decline this year amid concerns about high unemployment and as foreclosures remain abundant.
Though Toll Brothers has fared better than some of its rivals because of its focus on the higher end of the market, S&P said it thinks it will take longer than previously anticipated for the homebuilder’s credit quality to return to pre-downturn levels.
S&P has Toll at BB+, the highest level of speculative grade. Moody’s Investors Services rates Toll at an equivalent level, while Fitch’s rating is one notch higher.
S&P’s outlook is stable owing to the company’s strong liquidity, which the firm expects will enable it to “weather another year or two of weak sales while investing in new communities.” Moderate top-line growth is expected as it expands its share of the luxury housing segment.
However, the ratings could be cut further if investments in property or distressed real estate portfolios are more aggressive than expected. An upgrade is unlikely in the next year amid muted prospects for a market recovery, S&P said.
Toll Brothers last month reported its fiscal second-quarter loss narrowed amid sharply lower write-downs as the luxury homebuilder reported sales and margin growth and an improved cancellation rate.
