KB Home Aims to Buy Time
To File Its Quarterly Earnings

KB Home is offering to make a cash payment to bondholders in exchange for additional time to file its fiscal third-quarter earnings report, which has been delayed while the company continues an internal review of past stock-option grants.

The Los Angeles home builder said yesterday that it is "soliciting consents" from the holders of $1.65 billion in senior notes to approve a change in the agreement terms, giving the company until February to file its fiscal third-quarter financial report, called a 10-Q, with the Securities and Exchange Commission.

The report covers the quarter ended Aug. 31. If bondholders agree to the change, KB Home is offering to pay them $7.50 for every $1,000 in principal to holders of its $1.65 billion in senior notes outstanding.

On Oct. 10 KB Home said a preliminary internal review found that the company had likely incorrectly dated certain stock-option grants and that it may need to record additional compensation expenses to rectify the accounting. The Wall Street Journal reported in August that several past stock-option grants to KB Home Chief Executive Bruce Karatz were dated at unusually low points in the company's stock price.

KB Home's third-quarter 10-Q was due to be filed Oct. 10 and the company had an additional 15-day grace period to file, which expired yesterday. Late last week, KB Home said it had received a letter from a bondholder "purporting to be a notice of default" due to the delayed report. KB Home disputed that it was in default.

Robert Curran, a senior home-building analyst at Fitch Ratings, said offering a cash payment to bondholders in exchange for additional time to file financial reports wasn't unexpected. He adds that it appears the notice-of-default letter sent last week wasn't valid. Fitch Ratings yesterday placed KB Home on Rating Watch negative because of the company's inability to make a timely filing of its Form 10-Q.

The bondholder who sent the letter couldn't be reached for comment as KB Home wouldn't disclose the investor's name.

The company said yesterday that it intends to file its third-quarter 10-Q on or before Dec. 24. On this date, a "cure period," another type of grace period, ends, Mr. Curran said.

Separately, Standard & Poor's Ratings Services placed KB's corporate credit, senior unsecured, and senior subordinated debt ratings on CreditWatch with negative implications.

S&P said the move affected the $1.65 billion of senior notes and $750 million of senior subordinated notes. S&P said the timing and outcome of the independent review of KB Home's stock-option granting practices "remains uncertain and ultimately drives KB Home's ability to file its 10-Q" within the specified time.

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