OREANDA-NEWS. Fitch Ratings has placed the 'BBB' Issuer Default Rating (IDR) and long-term debt ratings for Home Properties Inc. (NYSE: HME) and its operating partnership, Home Properties, L.P. (collectively, 'Home Properties') on Rating Watch Negative following Home Properties' announced sale to an affiliate of Lone Star Funds in a transaction valued at approximately \$7.6 billion. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The merger agreement states that the senior unsecured private placement notes will be redeemed in conjunction with the transaction but does not state whether the senior unsecured bank facilities (term loans and revolving credit facility) will be redeemed or remain outstanding. However, the bank facilities are subject to a change-of-control provision and stipulation that the company must remain publicly traded. Fitch would likely withdraw HME's ratings should all obligations be repaid and the issuer have no plans to issue unsecured obligations following closing.

The Negative Watch indicates a heightened probability of a downgrade in the event that HME does not redeem all unsecured borrowings and HME then operates closer to the covenants governing its bank facilities to increase the returns to the buyer. Fitch could also envision withdrawing the ratings should there be insufficient disclosure to rate the company once the transaction closes.

KEY ASSUMPTIONS

The key assumption driving Fitch's rating case is that Lone Star Funds will redeem HME's bonds and repay all other unsecured borrowings upon the closing of the merger.

RATING SENSITIVITIES

Fitch will likely withdraw the IDR and unsecured debt ratings if the unsecured borrowings are repaid upon the closing of the transaction.

In the event that HME does not redeem the other unsecured borrowings and there is sufficient disclosure to maintain ratings, Fitch could downgrade the ratings to the 'BB' rating category assuming HME operates closer to the covenants governing its bank facilities to increase the equity returns to Lone Star Funds.

FULL LIST OF RATING ACTIONS

Fitch has placed the following ratings on Rating Watch Negative:

Home Properties, Inc.
--Issuer Default Rating (IDR) 'BBB'.

Home Properties, L.P.
--IDR 'BBB';
--Unsecured revolving credit facility 'BBB';
--Senior unsecured notes 'BBB';
--Senior unsecured term loans 'BBB'.