Fitch lowers MEPC outlook

Fitch Ratings lowered its outlook on MEPC Ltd. and confirmed its senior unsecured debt at BB.

Fitch said the outlook revision is in response to the refinancing risk MEPC will face over the next two to three years as various bonds mature.

The rating agency said detailed parameters for MEPC's financial strategy going forward are not clear and refinancing risk is significant.

The company has lump-sum bonds maturing in the near future which can be met from asset sales; repatriation of disposal proceeds on-lent to its acquisition vehicle, Leconport; and/or MEPC's own bank lines.

Existing committed bank lines (September 2002: £355 million undrawn) mature in 2004 and 2005, ahead of bond maturities that rise to about £200 million in 2006.

Bond maturities in 2003 totaling about £150 million are expected to be met from cash resources and use of committed bank lines.

Given MEPC's status as a private company and its weak debt serviceability (after excluding interest receivable from Leconport), banks would probably demand clear parameters of support for MEPC from Leconport/Hermes, and/or secured lending, before renewing their facilities, Fitch said.

Moody's raises Hovnanian outlook

Moody's Investors Service raised its outlook on Hovnanian Enterprises, Inc. to positive from stable and confirmed its ratings including its $150 million 10.5% senior notes due 2007, $150 million 9.125% senior notes due 2009 and $100 million 8% senior notes due 2012 at Ba3 and $150 million 8.875% senior subordinated notes due 2012 at B2.

Moody's said the positive ratings outlook reflects Hovnanian's success in diversifying its operating profits, improvement in its credit statistics, and Moody's expectations that the credit profile, including debt leverage measures, will continue to strengthen.

The ratings incorporate Hovnanian's increased size, scale and market penetration, success at integrating previous acquisitions, strong liquidity, long history, and significant management ownership, Moody's added. At the same time, however, the ratings consider Hovnanian's higher than average business risk profile given its apparent appetite for acquisitions, greater use of debt leverage than that of its peers, capacity under its credit agreement that could lead to substantial additional debt incurrence, integration risks associated with its most recent group of acquisitions, long land position (although heavily optioned), and the cyclical nature of the homebuilding industry.

Since 1993, Hovnanian has drastically reduced its reliance on earnings coming from the Northeast region. The Northeast region contributed the vast majority of operating earnings in 1993 and continued to do so in 1998, but its contribution to operating earnings in 2002 was substantially less than half of the company's total operating income, Moody's said. For fiscal 2003, the Northeast region's contribution is expected to continue growing on an absolute dollar basis but will fall further as a percentage of total operating income.

The company's credit metrics, which consistently trailed those of most of its Ba2 and Ba3 peer group, caught up with, and in some cases surpassed, its peer group comparables in fiscal 2002, Moody's said.

S&P upgrades Hovnanian

Standard & Poor's upgraded Hovnanian Enterprises Inc. including raising its $100 million 8.0% senior unsecured notes due 2012 to BB from BB- and $150 million 8.875% senior subordinated notes due 2012 to B+ from B and K. Hovnanian Enterprises Inc.'s $150 million 9 1/8% senior unsecured notes due 2009 and $150 million 10.5% senior unsecured notes to BB from BB-. The outlook is stable.

S&P said the ratings acknowledge recent improvements to both Hovnanian's business and financial risk profiles as evidenced by the successful integration of acquired companies and the resulting diversification benefits, solid inventory turns, and significantly improved debt-protection measures.

These strengths are tempered by expectations for ongoing acquisitions activity and a somewhat more highly leveraged capital structure relative to like-rated peers," S&P added.

Hovnanian has performed well over the past few years, achieving strengthened margins while improving geographic diversity, S&P noted. The company's momentum remains strong in 2003, with net contracts up nearly 50% and backlog up 28% in the first quarter 2003 versus first quarter 2002.

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