S&P Cuts Beazer Homes Deeper Into "junk" Territory

"We believe that this condition raises the likelihood that the company may pursue various opportunities to reduce leverage, which could include a below-par debt exchange."

The negative outlook reflects the expectation that Beazer will continue post weak earnings because of the condition of its core housing markets, particularly in California, Florida, Arizona, and Nevada, the four states hardest hit in the mortgage meltdown.

S&P would lower its ratings further if Beazer shows larger-than-expected cash flow deficits, the company doesn't resolve its covenant issues or it conducts a distressed debt exchange or similar restructuring. "Barring a substantial equity infusion, we are unlikely to revise the outlook to stable in the near term," the analyst wrote.

Beazer shares closed Tuesday's session down 2 cents at $2.36.