Fitch Downgrades Centex's IDR to 'BB+'; Outlook Remains Negative

Business Wire, June 10, 2008

NEW YORK -- Fitch Ratings has downgraded Centex Corp.'s (NYSE: CTX) Issuer Default Rating (IDR) and other outstanding debt ratings as follows:

--IDR to 'BB ' from 'BBB';

--Senior unsecured notes to 'BB ' from 'BBB';

--Unsecured bank credit facility to 'BB ' from 'BBB';

--Short-term IDR to 'B' from 'F2';

--Commercial paper to 'B' from 'F2'.

The Rating Outlook remains Negative.

The downgrade reflects the current difficult housing environment and Fitch expectations that housing activity will be even more challenging than previously anticipated during the balance of calendar 2008 and that new home activity will still be on the decline well into 2009. The anemic economy and impaired mortgage markets are, of course, contributing to the housing shortfall. The ratings changes also reflect negative trends in Centex's operating margins, further deterioration in credit metrics (especially interest coverage and debt/EBITDA ratios) and erosion in tangible net worth from non-cash real estate charges and more recently operating losses, which has led to untypically high debt leverage. As of March 31, 2008, Centex's leverage as measured by debt to capitalization was 59%, which is higher than management's historical targeted range of approximately 35%-45%. However, the company's liquidity position provides a buffer and supports the new ratings.

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, debt levels and free cash flow trends and uses.

The ratings for Centex are supported by the company's strong management team, historically conservative financial policy and the strength and geographic diversity of its core homebuilding operations. 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 somewhat soften the margin impact of declining market conditions.

In the current environment Centex's strategic focus is on asset management, asset efficiency and asset valuation risk assessments. The company has continued to narrow the scope of its business to homebuilding. The company sold its sub-prime and home equity lending operations in July 2006, followed by the sale of its commercial construction operations in March 2007. In April 2008, Centex sold its home services operations and received $134.6 million of cash.

Additionally, 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. In March 2008, Centex sold a portfolio of 27 properties (consisting of 8,545 lots) to a joint venture and sold a portfolio of five resort/second home properties to a third property. Centex generated $1.48 billion of cash flow from operations during fiscal 2008. Centex ended the year with $586.8 million of cash on the balance sheet and expects its cash position to exceed $1 billion at the end of the June 2008 quarter due in part to proceeds from the sale of its home services business and an anticipated $600 million tax refund.

Centex controls roughly a 3.25-year supply of land based on latest 12 months (LTM) home deliveries, 79.5% of which are owned and the balance controlled through options. (The options share of total lots controlled is down sharply over the past two years as the company has written off substantial numbers of options.)

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.