Moody's may lower LNR

Moody's Investors Service said it placed LNR Property Corp.'s Ba3 senior subordinated ratings on review for possible downgrade following the announcement by LNR of its agreement to be acquired by Riley Property Holdings, an entity controlled by Cerberus Capital Management LP and its real estate affiliate Blackacre Institutional Capital Management.

Cerberus will own 75% of the newly formed Riley, with LNR's management and Stuart Miller (LNR's chairman) and his family purchasing the other 25%. Cerberus has arranged debt financing to help fund this acquisition, which should close in late 2004 or early 2005.

According to Moody's, the transaction is designed to provide LNR with greater financial and operational flexibility. At the same time, Moody's expects the transaction to be highly leveraged, putting additional pressure on LNR's fixed charge coverage and effective leverage. LNR's permanent capital structure is uncertain at this time.

On a positive note, LNR's management will retain their roles, and Moody's expects this management team to continue its successful track record.

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