Fitch affirms KB Home

Fitch Ratings said it affirmed its KB Home's issuer default and senior unsecured debt ratings at BB+ and senior subordinated debt rating at BB-.

The ratings were removed from Rating Watch negative, and the outlook is stable.

The Negative Rating watch was implemented in October due to KB Home's inability to file its 10-Q report for the quarter ended Aug. 31 with the SEC. The delay was a by-product of an internal option back-dating investigation by independent board members, which was concluded in the late fall of 2006.

The ratings reflect the cyclical nature of the homebuilding industry and the company's exposure to the state of California, Fitch said. The housing sector is in the midst of a meaningful, multi-year downturn. KB Home continues to focus on paring down its land position and slowing its current, relatively moderate speculative construction to levels commensurate with the current housing contraction.

Fitch expects that free cash flow will be positive in fiscal 2007, benefiting from less land and development spending and, consequently, reduced inventories. The ratings are supported by KB Home's primary focus on entry-level and first-step trade-up housing (the deepest segments of the market), conservative building practices, effective utilization of return on invested capital, solid and improving profit performance in recent years (until 2006) and the expectation that the company will continue to execute its business model, the agency said.

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