Fitch Downgrades TOUSA's IDR to 'CC'; on Rating Watch Negative

Business Wire, Oct 25, 2007

NEW YORK -- Fitch Ratings has downgraded the following Issuer Default Rating (IDR) and debt ratings for TOUSA, Inc. (TOUSA) and subsequently put them on Rating Watch Negative, as follows:

--IDR to 'CC' from 'CCC';

--Secured revolving credit facility to 'CCC/RR2' from 'B-';

--First lien secured term loan to 'CCC/RR2' from 'B-';

--Second lien secured term loan to 'C/RR5' from 'CCC-';

--Senior unsecured notes to 'C/RR6' from 'CC';

--Senior subordinated notes to 'C/RR6' from 'CC';

--Preferred stock to 'C/RR6' from 'CC'.

Fitch's 'RR2' Recovery Rating on TOUSA's $700 million secured revolving credit facility and $200 million secured first lien term loan indicates superior (70%-90%) recovery prospects for holders of this debt issue. Fitch's 'RR5' Recovery Rating on TOUSA's $300 million secured second lien term loan indicates below average recovery prospects (10%-30%) in a default scenario. Fitch's 'RR6' Recovery Rating on TOUSA's senior unsecured notes, senior subordinated notes and preferred stock issuance indicates poor (0%-10%) recovery prospects. Fitch applied a liquidation value analysis for these recovery ratings.

TOUSA announced yesterday that in response to deteriorating market conditions during the third quarter, the company is exercising its right to abandon a number of land option contracts. As a result, TOUSA anticipates that it will incur significant deposit write-offs and abandonment charges in the third quarter. Additionally, TOUSA also expects to record significant asset impairment charges in the third quarter. As a result of these charges, the company may breach one or more of the covenants under its revolving and first lien loan credit agreements. TOUSA has requested amendments from the lenders to its revolving line credit and first lien term loan facilities.

The downgrade of TOUSA's IDR reflects challenging housing conditions in most of the company's markets and Fitch's expectation that a turn-around in the near term is unlikely. The completion of the Transeastern JV global settlement left TOUSA in a highly leveraged position at a time when housing market conditions are extremely depressed. The downgrade also reflects the uncertain liquidity position of the company and that proposed amendments (if consents are successfully obtained from the lenders) may provide only short term relief.

TOUSA's ratings remain on Rating Watch Negative for the possibility of further actions. The Rating Watch will in part be resolved by the successful solicitation of consents for the proposed amendments from the lenders of the company's revolving line of credit and first lien term loan facilities.

Future ratings and Outlooks will be influenced by broad housing market trends as well as company specific activity, such as land and development spending, general inventory levels, speculative inventory activity (including the impact of high cancellation rates on such activity), gross and net new order activity and free cash flow trends.

Fitch's Recovery Ratings (RR) are a relative indicator of creditor recovery prospects on a given obligation within an issuers' capital structure in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors can be found at www.fitchratings.com/recovery

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.