Moody's downgrades KB Home

Moody's Investors Service said it lowered KB Home's corporate family rating to Ba2 from Ba1, senior unsecured notes to Ba2 (LGD4, 51%) from Ba1 (LGD3, 49%) and subordinated notes to B1 (LGD6, 93%) from Ba2 (LGD6, 92%). The agency assigned a speculative grade liquidity rating of SGL-2.

The outlook remains negative.

Moody's said the downgrades reflect quarterly losses before impairments and other charges and projection that these quarterly pre-impairment losses will continue into 2009, as the rate of expected revenue decline exceeds the pace at which the company can continue to pare its expenses.

Ratings are supported by very strong inventory performance and cash flow generation, robust liquidity, relatively short land position and the lowest net debt leverage among its peers, the agency said.

The SGL-2 rating reflects the strong year-ahead projected cash flow and healthy cash position, offset in part by covenant compliance challenges and somewhat limited opportunities to quickly monetize assets, Moody's noted.

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