S&P lowers Toll Brothers rating to junk

Standard & Poor’s lowered its corporate rating on luxury homebuilder Toll Brothers (TOL) to junk status after a weaker-than-expected spring selling season prompted analysts to temper expectations for a housing recovery. S&P downgraded Toll Brothers credit rating to double-B from triple-B minus, saying it expects the “housing market to take longer to recover.” The lower rating applies to roughly $1.5 billion of senior unsecured notes. Still, analysts said the Pennsylvania-based homebuilder has enough liquidity to coast through another year or two with weaker sales, while maintaining enough liquidity to invest in new communities. Homebuilders continue to battle economic headwinds created by an influx of distressed properties competing with new homes, delaying recovery of the home construction sector. A sustained recovery remains elusive with distressed home sales dominating the housing market, Fannie Mae concluded in its May 2011 Economic Outlook report. Single-family home building activity was weak in the first quarter, while housing starts and new home sales remained flat at already depressed levels, according to Fannie. All of these factors are putting pressure on builders, including Toll Brothers, who are now competing against attractive home prices on existing and distressed properties. Write to: Kerri Panchuk.