PHHM Palm Harbor Homes (MM)

A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to “bbb” from “a-” of Standard Casualty Company (New Braunfels, TX). The outlook for both ratings is negative. Standard Casualty is a subsidiary of Palm Harbor Homes, Inc. (Palm Harbor) (NASDAQ: PHHM), a manufacturer and marketer of factory built homes.

The downgrading of Standard Casualty’s ratings is based on the continued deterioration in the capital position and financial performance of Palm Harbor, which in A.M. Best’s view is not consistent with a parent of an “A-” rated insurance company. The ratings and outlook also reflect the uncertainty in Palm Harbor’s credit facility, debt obligations and liquidity requirements, which may result in a potential burden on the insurance operations.

These negative rating factors are somewhat offset by Standard Casualty’s solid risk-adjusted capitalization despite dividend payments, which have occurred to supplement Palm Harbor’s operations and financial issues. In addition, the ratings contemplate Standard Casualty’s local market knowledge and profitable operating performance, which has consistently outperformed the industry composite averages.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Natural Catastrophe Stress Test Methodology”; “A.M. Best’s Ratings & the Treatment of Debt”; and “A.M. Best’s Perspective on Operating Leverage.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

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