Fitch cuts M/I Homes outlook to negative

Fitch Ratings said it affirmed M/I Homes, Inc.'s BB issuer default, senior unsecured debt and unsecured bank credit facility ratings and its B+ series A non-cumulative perpetual preferred stock.

The agency lowered the outlook to negative from stable and said the change represents several factors, such as the more challenging environment for homebuilders, the current and short-term degrading in some company credit metrics, the high cancellation rates that add to inventory and the tighter credit markets that affect the company's target customer, who is the entry-level home buyer.

Fitch said the ratings take into account the company's capitalization and size, along with its large albeit shrinking exposure to the "economically sluggish Midwest," which encompasses Columbus, Ohio, Cincinnati and Indianapolis. For its part, the company has been slashing its land purchases and is cutting debt. But the company is at risk of challenging its interest coverage covenant late this year and or in 2008, the agency said.

The homebuilder's EBITDA margins grew to 12.8% in 2005 from 6.5% in 1997, then dropped to 11.8% in 2006 and to 11.2% on a trailing 12 month basis from March 31.

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