Moody's downgrades WCI Communities

Moody's Investors Service said it lowered WCI Communities, Inc.'s corporate family and probability-of-default ratings to B2 from B1 and senior subordinated notes to Caa1 from B3. The loss-given-default assessment of the notes remains LGD5 (83%).

The outlook remains negative.

The downgrade and continued negative outlook were triggered by the company's persistently unfavorable performance versus expectations in 2006 and Moody's concern that this underperformance may last for much of 2007.

The agency predicted that WCI's earnings in 2007, even after excluding land impairment and option abandonment charges, will decline significantly from 2006 levels, perhaps breaking into negative territory, and as a result, WCI will have difficulty in complying with the existing interest coverage covenant of 2x, thus necessitating covenant relief. Additionally, management's ability to build liquidity and reduce debt leverage in the face of a downturn of unknown breadth and duration is as yet unproven, Moody's said.

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