Corporate Debt Risk Rises Most in Two Weeks on Housing Concerns

Sept. 25 (Bloomberg) -- The risk of owning U.S. corporate debt rose the most in two weeks after homebuilder Lennar Corp. reported the biggest quarterly loss in its history and existing home sales fell to a five-year low, credit-default swaps show.

The risk of owning bonds of Lennar and Centex Corp. rose the most in six weeks. Consumer confidence dropped to the lowest level in almost two years and Target Corp. and Lowe's Cos. reduced forecasts, increasing concern that the housing slump is dragging down the U.S. economy.

``The numbers definitely didn't do anything to help,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York. Investors are also concerned about more than $300 billion of bonds and loans that banks are preparing to sell to finance leveraged buyouts, he said.

The CDX North America Investment Grade Index Series 9, a benchmark for the cost to protect bonds from default, rose 3 basis points to 52.8 basis points as of 4:55 p.m. in New York according to Deutsche Bank AG.

An increase in the index, based on the bonds of 125 companies, signals deterioration in the perception of credit quality.

Credit-default swaps on Miami-based Lennar, the largest U.S. homebuilder, rose 32.5 basis points to 317.5 basis points, according to broker Phoenix Partners Group in New York. That's the highest since Aug. 16, according to CMA Datavision in London.

Contracts on Dallas-based Centex, the fourth-largest U.S. homebuilder, widened 30 basis points to 310 basis points, the biggest one-day increase since Aug. 16. A basis point is 0.01 percentage point.

Fort Worth, Texas-based D.R. Horton Inc., the second-largest U.S. homebuilder, rose 20 basis points to 360 basis points.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

LCDX

Credit-default swaps were conceived to protect bondholders against default and pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

The LCDX index, a gauge of confidence in the U.S. leveraged loan market that falls as investors see more risk, dropped 0.2 point to 97.3, according to Goldman Sachs Group Inc.

Lennar reported a third-quarter net loss of $513.9 million as revenue fell 44 percent to $2.34 billion, the lowest in more than three years.

Target, the second-largest U.S. discount chain, slashed its projection for September sales and Lowe's, the second-biggest home-improvement retailer, said earnings this year may miss its previous forecast.

Target, Low's

Credit-default swaps of Minneapolis-based Target widened 2 basis points to 27.5 basis points, according to CMA. Contracts on Lowe's was little changed at 25.5 basis points.

Purchases of existing homes declined 4.3 percent, less than forecast, to an annual rate of 5.5 million, according to the National Association of Realtors in Washington.

Consumer confidence in September fell to 99.8 from a revised 105.6 in August, the New York-based Conference Board said today. The reading was the lowest since November 2005.

Kohlberg Kravis Roberts & Co. yesterday completed its $26 billion acquisition of First Data Corp., the biggest leveraged buyout to be concluded since financing for deals dried up in July. Companies that remain in need of buyout financing include power producer TXU Corp. of Dallas and Alltel Corp., the Little Rock, Arkansas-based wireless provider.