Moody's Affirms Ratins on M/I Homes (MHO) Ahead of $350M Unsecured Note Offering

Moody's Investors Service affirmed M/I Homes, Inc.'s (NYSE: MHO) Corporate Family Rating at B2 and Probability of Default Rating at B2-PD. Concurrently, Moody's assigned a B1 rating to the company's proposed $350 million senior unsecured note issuance that is expected to be composed of $200 million senior unsecured notes due in 2022 and $150 million senior unsecured notes due in 2019. Moody's affirmed the senior subordinated convertible notes at Caa1. Additionally, the rating on the Series A preferred shares was affirmed at Caa1 and Speculative-Grade Liquidity (SGL) was affirmed at SGL-2. The rating outlook is stable.

M/I Homes is expected to use a significant amount of the net proceeds from the proposed $350 million senior unsecured note offering to fund the purchase of the $230 million existing senior unsecured notes due 2018.

The following rating actions were taken:

Corporate Family Rating, affirmed at B2;

Probability of Default Rating, affirmed at B2-PD;

Proposed $150 million senior unsecured notes, assigned B1 (LGD3);

Proposed $200 million senior unsecured notes, assigned B1 (LGD3);

$86 million 3% senior subordinate convertible senior notes, affirmed at Caa1 (LGD6);

$58 million 3.25% senior subordinate convertible notes, affirmed at Caa1 (LGD6);

$48 million 9.75% series A preferred shares, affirmed at Caa1 (LGD6);

Speculative-Grade Liquidity Rating, affirmed at SGL-2;

The ratings outlook is stable.

The ratings on the existing senior unsecured notes will be withdrawn at the close of the transaction.

RATINGS RATIONALE

The B2 Corporate Family Rating reflects M/I Homes' relatively small size, geographic concentration, and projected negative free cash flow generation over the next 12-18 months as the company continues to purchase land/lots.

At the same time, M/I Homes' B2 Corporate Family Rating is supported by its disciplined operating strategy and by growing profitability on a net income basis. Further, the rating benefits from the company's conservative balance sheet management despite the increase in pro forma debt leverage of just above 50%. Moody's projects the company's debt leverage to decline below 45% in the next 2 years. Additionally, the rating incorporates Moody's view that favorable homebuilding industry conditions, including growing new orders, backlog and home pricing, will lead to further growth in revenues and net worth and improvement in credit metrics.

The SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation that M/I Homes' liquidity profile will remain good over the next 12 months. Moody's projects that the company will utilize its $300 million unsecured revolving credit facility for opportunistic land purchases.

The stable rating outlook reflects an expectation that the company will continue to increase revenue generation in line with the rest of the industry and improves its net worth, gross margins, and other credit metrics over the next one to two years. The stable outlook also considers Moody's expectation that debt to capitalization will remain about 45%.

The ratings could be upgraded if homebuilding debt leverage declines below 40% on a sustained basis with further improvement in other key credit metrics such as interest coverage and gross margin.

The ratings could be downgraded if the company's liquidity position deteriorates, net income turns negative, or if adjusted homebuilding debt leverage increases above 60%.

The principal methodology used in these ratings was Global Homebuilding Industry published in March 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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