UPDATE 1-Moody's cuts M/I Homes, Hovnanian debt

Thu Jan 17, 2008 4:48pm EST

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(Adds Moody's action on Hovnanian)

NEW YORK Jan 17 (Reuters) - Moody's Investors Service on Thursday cut its ratings on M/I Homes Inc (MHO.N) and Hovnanian Enterprises Inc (HOV.N) deeper into junk territory, citing expectations for further deterioration in the home builders' balance sheets this year.

Hovnanian also remains on review for further downgrade.

M/I Homes is likely to post negative earnings in 2008 and may again have to renegotiate terms of its debt with its bank lenders, Moody's said in a statement.

The downgrade also reflects "the company's large exposure to particularly weak markets that may inhibit the company's actual inventory reduction capability going forward," the rating agency said.

Moody's cut M/I Homes' corporate family rating and senior unsecured debt one notch to "B1," four levels below investment grade, from "Ba3." The outlook is negative, indicating an additional downgrade may be likely over the next 12 to 18 months.

Hovnanian's earnings are also likely to be negative in fiscal 2009 before impairments and option abandonments are made, Moody's said.

The builder has also tripped certain terms relating to factors related to its debt, including its interest coverage, and its review for further downgrade will depend on Hovnanian being able to negotiate terms with its lenders, Moody's added.

Moody's cut Hovnanian's corporate family rating and senior notes two notches to "B2," five levels below investment grade, from "Ba3." The unsecured debt was cut three notches to "Caa2," eight levels below investment grade, from "B2." (Reporting by Karen Brettell; Editing by Dan Grebler)

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