Fitch Downgrades Beazer's IDR to 'B+'; Remains on Rating Watch Negative

Business Wire, March 5, 2008

NEW YORK -- Fitch Ratings has downgraded Beazer Homes USA, Inc.'s (Beazer) Issuer Default Rating (IDR) and other outstanding debt ratings as follows:

--IDR to 'B ' from 'BB-';

--Senior notes to 'B/RR5' from 'BB-';

--Convertible senior notes to 'B/RR5' from 'BB-';

--Junior subordinated debt to 'CCC /RR6' from 'B'.

Fitch has also assigned the following Recovery Rating (RR) to Beazer's credit facility, as highlighted below:

--Secured revolving credit facility 'BB/RR1'.

The 'RR1' on Beazer's secured revolving credit facility indicates outstanding recovery prospects for holders of this debt issue based on the information currently available. The 'RR5' on Beazer's senior unsecured notes indicate below-average recovery prospects for holders of these debt issues. Beazer's exposure to claims made pursuant to performance bonds and joint venture debt and the possibility that part of these contingent liabilities would have a claim against the company's assets were considered in determining the recovery for the unsecured debt holders. The 'RR6' on Beazer's junior subordinated notes indicate poor recovery prospects in a default scenario. Fitch applied a liquidation value analysis for these RRs.

The downgrade of the IDR reflects Beazer's performance amidst continued challenging market conditions. Beazer's net new orders continue to be weak and cancellation rates remain elevated. While Beazer has generated cash flow and improved its cash position over the past five quarters, the company has not paid down debt significantly. During its fiscal 2008 first quarter, Beazer repaid $75 million of secured indebtedness. (It is important to note that Beazer has no outstandings under its secured revolving credit facility so debt repayment is limited to repurchasing unsecured notes and paying down its secured debt.)

Beazer's ratings remain on Rating Watch Negative due to the company's inability to make a timely filing of its Form 10Q (for the quarters ended June 30, 2007 and Dec. 31, 2007) and Form 10K (for the year ended Sept. 30, 2007) with the Securities and Exchange Commission. Beazer has until May 15, 2008 to file its financial statements in order to avoid an Event of Default under its bank credit facility and bond indentures. Furthermore, there is uncertainty as to the financial impact of Beazer's potential liability as well as regulatory fines related to the violations found within its mortgage subsidiary.

Beazer reported preliminary home closings of 2,010 homes during its fiscal 2008 first quarter ended Dec. 31, 2007, a 24% decline from the same period last year. Net new orders totaled 1,260 homes, a 29% drop from last year's first quarter. The cancellation rate for the fiscal 2008 first quarter was 46%. Beazer had cash of approximately $325 million at Dec. 31, 2007, compared with about $459.5 million at Sept. 30, 2007. The company has a $500 million secured revolving credit facility with no outstandings and $92 million of letters of credit. The company has sufficient real property that, if added to the collateral pool, would allow it to fully access the total $500 million commitment under the credit facility.

For all of fiscal 2008, Beazer expects to be cash flow positive, to be aided in part by the company's decision to exit certain markets and reduce land and development spending in fiscal year 2008. Furthermore, Beazer recently suspended its quarterly dividend, which should save the company about $16 million this year.

In February 2008, Beazer announced its decision to exit its homebuilding operations in Charlotte, NC, Cincinnati / Dayton, OH, Columbia, SC, Columbus, OH, and Lexington, KY during fiscal year 2008. Management is evaluating its current land holdings and inventory in each of these markets to determine the appropriate methods and timing for disposition. Beazer intends to complete all homes under construction and is committed to maintaining customer care resources to provide ongoing warranty service to homeowners through their warranty periods. Beazer also announced the discontinuation of mortgage origination services through Beazer Mortgage Corporation. Beazer established a new marketing services arrangement with Countrywide, whereby Beazer will market Countrywide as the preferred mortgage provider to Beazer customers.

Resolution of the Negative Rating Watch will be based on the company filing its Form 10Q (for the quarters ended June 30, 2007 and Dec. 31, 2007) and its Form 10K (for the year ended Sept. 31, 2007) with the Securities and Exchange Commission (SEC). As previously announced, Beazer reported that its Audit Committee determined that it will be necessary for the company to restate its financial statements relating to fiscal years 2004 through 2006 and the interim periods of fiscal 2006 and fiscal 2007. The resolution of the on-going external investigations will be considered in resolving Beazer's Rating Watch Status.

Future ratings and Outlooks will also be influenced by broad housing market trends as well as company specific activity, such as trends in 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.