Fitch Affirms Centex Corp.'s IDR and Senior Unsecured Debt at 'BBB+'

Business Wire, Sept 11, 2006

NEW YORK -- Fitch Ratings affirms Centex Corp.'s (NYSE:CTX) ratings as follows:

E[acute accent]-- Issuer Default Rating (IDR) at 'BBB ';

E[acute accent]-- Senior unsecured debt (including revolving credit facility) at 'BBB ';

E[acute accent]-- Subordinate notes at 'BBB';

E[acute accent]-- Commercial Paper at 'F2'.

E[acute accent]The Rating Outlook is Stable.

E[acute accent]The ratings for Centex are supported by the company's strong management team, historically conservative financial policy, the strength and geographic diversity of its core homebuilding operations, and to a lesser degree EBITDA generated by other business segments. The economies associated with large builders, significant geographic diversification, consistency of performance over an extended period of time, relatively low cost operating structure and a return-on-capital focus provide the framework to soften the margin impact of declining market conditions as they occur. Concerns relate to the cyclical nature of the company's business segments, particularly homebuilding. The relatively rapid growth of its finance subsidiary's non-prime business, which is considered to have a higher risk profile than the company's core operations, was also a concern. However, the company has recently sold its sub-prime home equity lending group, Centex Home Equity Company LLC (CHEC). This is consistent with management's intentions to focus on domestic homebuilding and related businesses. E[acute accent]In the current environment Centex's strategic focus is on asset management, asset efficiency and asset valuation risk assessments. The company will continue to narrow the scope of its business to homebuilding. There will be limitations on asset growth: significant land purchases have to be re-approved, and there will be limits on off-balance sheet finance. There is an increased emphasis on asset turns at each division level. There is also an emphasis on reducing inventory levels. As Centex takes a more cautious stance on land purchases and share repurchase activity during the balance of the fiscal year, positive free cash flow should result. Inventories should slim from June levels and, in particular, debt should noticeably decrease. E[acute accent]Fitch will also continue to closely monitor the trends of the broad housing market in its assessment of the appropriate credit ratings for all homebuilders. E[acute accent]Centex has demonstrated financial discipline over many years, as leverage has remained within management's historical targeted range of approximately 35%-45% and inventory to net debt, currently 2.3 times (x), has remained within a range of 1.6x-2.8x since fiscal year (FY) 2000, providing a cushion with which to absorb a cyclical downturn. E[acute accent]As the company has grown, along with the upswing of the economic cycle, the conventional Homebuilding segment (which accounted for about 95% of operating earnings from continuing operations in FY 2006) has expanded its geographic reach by improving its market penetration to 86 markets currently from 44 markets in FY 1995, with the number of states growing moderately to 25 plus Washington DC. Although the company has benefited from strong economic conditions, a degree of margin enhancement also has been attributable to broadened new product offerings. In addition, margins have benefited from purchasing, access to capital and other scale economies that have been captured by the large national homebuilders in relation to smaller builders. Centex, like many other large, national builders, operates under a presale strategy, which positions management to react to weaknesses in its markets and minimize inventory accumulation in a downturn. The company controls roughly a 7.2-year supply of land based on latest 12 months (LTM) home deliveries, with significant volume controlled through options (approximately 60% of the total lots). The company has a 2.9-year supply of owned lots. Since FY 2000 inventory turnover has typically ranged between 0.9x and 2.5x and was 0.9x as of June 30, 2006. E[acute accent]Centex's corporate credit profile is strengthened by modest diversification provided by the company's commercial construction segment, conventional mortgage operations and home services activities. Centex had been somewhat more diversified but spun-off its manufactured housing operations (Cavco Industries) to Centex shareholders in June 2003 and distributed its entire equity interest in Centex Construction Products (CXP) to Centex shareholders in a tax free transaction on Jan. 30, 2004. Centex owned approximately 65% of the outstanding CXP shares. Also, within Home Services the company had established a portfolio of businesses (lawn care, alarm monitoring and pest control) but has now pared Home Services to pest control having sold the lawn care business and liquidated the alarm operations. Investment Real Estate is also being steadily wound down. In mid-September of 2005, Centex announced the sale of Fairclough Homes, its United Kingdom homebuilding operations, to the Miller Group. On Feb. 29, 2004, Centex completed the acquisition of 3333 Holding Corporation (Holding) and Centex Development Company, L.P. (CDCLP) through mergers with Centex subsidiaries. This transaction terminated the tandem trading relationship of Centex's common stock with Holdings and CDCLP's securities. Centex's credit profile is enhanced with the spin-off of manufactured housing and CXP, which have greater earnings cyclicality and volatility than do Centex's core businesses. The credit profile is also improved by the July 2006 sale of CHEC, which is perceived to be economically more vulnerable than homebuilding.