Moody's lowers Kimball Hill

Moody's Investors Service said it lowered all the ratings of Kimball Hill, Inc., including the company's corporate family rating to Caa2 from B2 and senior subordinated notes ratings to Ca from Caa1.

The outlook is negative.

The downgrades and negative outlook reflect the following:

• i) Moody's expectation that weak industry conditions will remain in effect until well into 2009, with any sector recovery likely to be sluggish for some time after that;

• ii) concern that Kimball Hill's inventory levels in 2008 will show little real reduction, if any, thus impeding sustainable cash flow generation;

• iii) adjusted debt leverage, 65.7% at June 30, 2007, will remain elevated as cash flow generation will be largely insufficient to repay any significant amount of debt, while equity may continue to be eroded by impairment and option abandonment charges;

• iv) Moody's projects that the company will have difficulty in complying with both of its debt leverage covenants, total debt to tangible net worth and total liabilities to tangible net worth, by the end of 2008, if not earlier; and

• v) Kimball Hill's multiple off-balance sheet obligations may be a further drain on cash.

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