Moody's downgrades M/I Homes to Ba3

Moody's Investors Service said it lowered M/I Homes, Inc.'s corporate family, probability-of-default and senior unsecured debt ratings to Ba3 from Ba2 and affirmed the LGD4 (56%) loss-given-default assessment assigned to the debt.

The outlook remains negative.

The agency said the downgrade was prompted by expectations of challenging homebuilding market conditions lasting throughout 2007, the possibility that the company may violate its bank interest coverage covenant in the fourth quarter of 2007 and the company's lower-than-expected cash flow generation. Although cash flow from operations equaled $80 million during the fourth quarter of 2006, it was a negative $102 million for the last-twelve-month period ended Dec. 31.

The ratings acknowledge the company's historically conservative and disciplined growth strategy, growing equity base and Moody's expectation that the company will work down its total dollar inventory in 2007, thereby reducing working capital needs and building up positive cash flow.

The negative outlook reflects the agency's expectation that the company's earnings will continue to decline in 2007, thus pressuring related credit metrics, and the fact that M/I Homes derives a significant proportion of its revenues and operating income from markets in Florida and the Midwest, which are continuing to undergo a considerable correction.

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