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Rating Action:

Moody's downgrades Standard Pacific Corp.

06 Mar 2009

Approximately $1.1 billion of debt securities affected

New York, March 06, 2009 -- Moody's Investors Service lowered all of the ratings of Standard Pacific Corp., including the company's corporate family rating to Caa1 from B2, senior unsecured notes to Caa1 from B2, and senior sub notes to Caa3 from Caa1. The speculative grade liquidity assessment was affirmed at SGL-3, and the ratings outlook is negative. This concludes the review for downgrade process that was initiated on February 4, 2009.

The downgrades reflect Moody's expectation that Standard Pacific's cash flow performance will weaken considerably in 2009 and be followed by an even weaker 2010. While the company has already picked the low hanging fruit with regard to its cash flow generation (i.e., by greatly reducing inventory and spec builds), the company faces the additional pressure of having to collapse certain of its joint ventures and bring onto its books both the land and the debt of these joint ventures. Exacerbating these pressures is the fact that the company came in below its minimum operating cash flow to interest coverage ratio during its fourth quarter that ended December 31, 2008, thus requiring the setting aside of about $121 million of its roughly $625 million of year-end cash. In addition, the company faces debt maturities for each of the next seven years.

The downgrades also consider that while the company's revenue run rate has deteriorated by about 75% since 2005 and net worth by even more, total homebuilding debt has barely budged over this time period, thus driving debt leverage to about 81%. Moody's anticipates that the thin net worth buffer of about $380 million will be further reduced by continuing impairment charges during the year. Finally, Moody's is projecting that the company will continue generating operating losses well into 2010.

At the same time, the ratings are supported by the company's unrestricted current cash position of about $500 million, which will be augmented by an approximate $114 million income tax refund, and absence of any material covenant compliance requirements, save for the cash flow coverage test.

The negative outlook reflects the expectation of Moody's Corporate Finance Group that housing market conditions will worsen in 2009, the bottom is not yet visible, government actions will be helpful largely at the margin, liquidity will remain tight and lender behavior uncertain, and 2009 will be a year of greatly reduced deliveries.

Going forward, the ratings could be lowered further if the company were to engage in a distressed bond exchange and/or deplete its cash reserves either through sharper-than-expected operating losses or through a sizable investment or other transaction. The outlook could stabilize if the company were to generate sizable amounts of operating cash flow (after excluding contributions, if any, from tax refunds) and reduce debt leverage to a more manageable 60 -- 70% target level.

The following rating actions were taken:

Corporate family rating lowered to Caa1 from B2;

Probability of default rating lowered to Caa1 from B2;

Senior unsecured notes lowered to Caa1 (LGD4, 50%) from B2 (LGD4, 53%);

Senior subordinated notes ratings lowered to Caa3 (LGD6, 95%) from Caa1 (LGD-6, 93%);

Speculative grade liquidity affirmed at SGL-3.

All of Standard Pacific's debt is guaranteed by its principal operating subsidiaries.

Moody's most recent announcement concerning the ratings for Standard Pacific was on February 4, 2009, at which time Moody's put all of the company's ratings on review for possible downgrade. The principal methodology used in rating Standard Pacific was Moody's U.S. Homebuilding Industry rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory (December 2004, document #90996).

Headquartered in Irvine, California and begun in 1966, Standard Pacific Corp. ("Standard Pacific") constructs and sells single-family attached and detached homes, with homebuilding operations located in California, Texas, Arizona, Colorado, Florida, North and South Carolina, and Nevada. Homebuilding revenues and consolidated net income (before allocation to preferred stockholders) for 2008 were approximately $1.5 billion and ($1.2) billion, respectively.

New York
Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Standard Pacific Corp.
No Related Data.
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