Moody's ups Hovnanian

Moody's Investors Service said it raised the ratings of K. Hovnanian Enterprises Inc., including its senior implied rating, issuer rating, and ratings on existing senior notes, to Ba1 from Ba2, and the ratings on its existing senior subordinated notes to Ba2 from Ba3.

The outlook was changed back to stable from positive.

Moody's said the ratings acknowledge Hovnanian's increased size, scale and market penetration, strong interest coverage and margin and return performance, continuing success in diversifying its operating profits, smooth integration of previous acquisitions, long history, and significant management ownership.

At the same time, however, the ratings consider Hovnanian's higher-than-average business risk profile given its apparent appetite for acquisitions, greater use of debt leverage than that of its peers, capacity under its credit agreement that could lead to substantial additional debt incurrence, integration risks associated with its acquisitions, larger-than-average amount of spec building, and the cyclical nature of the homebuilding industry, the agency said.

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