Moody's puts Providian on review for possible downgrade

Moody's Investors Service on Tuesday placed on review for possible downgrade the ratings of credit card issuer Providian Financial Corp., whose senior debt is rated Ba1, and its subsidiary Providian National Bank in response to last week's announcement by Providian that it has experienced an unexpected deterioration in credit quality in its higher-risk standard segment and that its CEO and founder, Shailesh Mehta, is resigning.

Moody's said that while some of the deterioration in credit quality at Providian is due to a slowing economy that is affecting all credit card issuers, the deterioration also reflects weak underwriting and a failure to adequately price for risk. At the same time, Providian is also experiencing weaker than expected profitability in its platinum segment in the face of competitive pressures. With earnings challenges in two of Providian's three main segments, the rating agency said that Providian's credit profile has weakened. But Moody's also noted that in the latest quarter Providian's core profitability, although substantially below last year's levels, was still similar to that of other large credit card issuers.

Providian common shares ended down 38c to $4.58.

Moody's puts DR Horton on downgrade review, Schuler Homes on upgrade review

Moody's Investors Service put D.R. Horton, Inc.'s ratings on review for possible downgrade and Schuler Homes, Inc.'s ratings on review for upgrade following the announcement that D.R. Horton will acquire Schuler Homes.

Ratings affected include D.R. Horton's $150 million 8 3/8% senior notes due 2004, its $200 million 10½% senior notes due 2005, its $150 million 10% senior notes due 2006, its $385 million 8% senior notes due 2009 and its $200 million 7 7/8% senior notes, due 2011, its $381.1 million convertible zero coupon senior notes due 2021 and its $825 million senior unsecured bank credit facility due 2003, all rated Ba1; its $150 million 9¾% senior subordinated notes due 2010 and its $200 million 9 3/8% senior subordinated notes due 2011, both rated Ba2; Schuler Homes' $100 million 9% senior notes due 2008 and its $250 million 9 3/8% senior notes due 2009, both rated Ba3; and its $150 million 10½% senior subordinated notes due 2011, rated B2.

Moody's said its review will focus on the combination of the two companies and the associated integration risks. The rating agency will also be looking at Horton's "commitment to debt reduction in light of management's prior assurances that debt leverage would be reduced."

On a pro forma basis, total debt as a percentage of total capitalization will stand at approximately 57% upon completion of the transaction, Moody's said. Among its Ba1 peer group, Horton "stands out as the most heavily leveraged, although certain other of its financial metrics provide some offsetting balance."

Moody's said it will also look at whether management will be able to achieve cost savings of $30 to $40 million per year.

Moody's cuts Kellstrom convertibles to C from Ca

Moody's Investors Service downgraded Kellstrom Industries, Inc.'s ratings including cutting its $54 million of 5¾% convertible subordinated notes due Oct. 15, 2002 and $86.25 million of 5½% convertible subordinated notes due June 15, 2003 to C from Ca. The outlook remains negative.

The rating agency said the downgrades were in response to the company's announcement that it did not make the interest payment due Oct. 15 on its 5¾% convertibles. Separately, the forbearance agreement with the Company's senior lenders and the mezzanine lenders Key Principal Partners expired on Oct. 17.

Moody's commented: "Kellstrom's already difficult financial position has been made more critical due to the Sept. 11 terrorist attack and the attendant further substantial decline in air travel."

The rating agency added that its C rating reflects the convertibles' subordinated position in the company's debt structure and Moody's belief that "minimal" recovery of principal is likely.

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