Moody's drops Quality Home

Moody's Investors Service said it downgraded the corporate family rating and probability of default rating of Quality Home Brands to B3 from B2 following recent soft operating performance and our concern that it may breech a financial covenant over the next year if its operating performance continues to soften.

At the same time, Moody's said it downgraded the company's first-lien term loan and revolver to B2 from B1 and its 2nd-lien to Caa2 from Caa1.

The outlook remains negative.

The weak housing market and soft discretionary consumer spending led to about a 10% decrease in earnings in 2007, which, in turn, increased the company's adjusted financial leverage ratio, the agency said.

"Moody's is concerned that neither the housing market nor discretionary consumer spending will materially improve in 2008 and that the company's earnings may further decrease causing leverage to increase more," said Kevin Cassidy, vice president/senior credit officer at Moody's.

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