Weekly Downgrade Wrap-Up (Upgrades Galore!)


As usual, we have a week’s worth of ratings actions on the debt of private equity-backed companies from Standard & Poor’s and Moody’s Investor Services. This week was a good one for debtholders, as a number of companies saw their debt ratings upgraded.

But on second thought, it wasn’t that great, since most of these upgrades are post-distressed-debt exchange. After an ‘SD’ (selective default) rating, there’s nowhere to go but up, and in a distressed debt exchange, someone has to take the short end of the stick, and it’s usually not the equity holder. Certainly not an ideal situation, but as I said last week, we’re only at the tip of the distressed debt exchange iceberg (despite oddly successful issuances from the likes of previously unpopular companies like Harrah’s). Get ready for a very cold few years…

Company: Brigham Exploration Co.
Sponsor: DLJ Merchant Banking Partners
Update: S&P affirmed its ‘CCC+’ corporate credit rating on the oil and gas exploration and production company. It’s been removed from the Weakest Links list because the outlook is developing.
Highlights: “The affirmation follows the company’s announcement that it has received net proceeds of roughly $94 million from an equity issuance. Although the pro forma liquidity profile is much improved, we are concerned that liquidity could become tight in the fourth quarter of 2009 or first half of 2010 due to low natural gas prices and an increased capital budget.”

Company: Harrah’s
Sponsor: Apollo Management and TPG
Change: Moody’s Investors Service changed the rating on the proposed $1.375 billion first lien notes due 2017 to be issued by subsidiaries of Harrah’s to Caa1 from Caa3.
Highlights: “The rating change reflects clarification of the transaction structure by the company, and Moody’s reconsideration of the priority of claim of the proposed notes. Pursuant to intercreditor arrangements, the new first lien notes will — in Moody’s view — be effectively pari-passu with the bank credit facilities.”

Company: Language Line Holdings, Inc.
Sponsor: ABRY Partners
Upgrade: Moody’s upgraded the company’s corporate family rating and probability of default rating to B1 from B2.
Highlights: “The upgrade of the Corporate Family Rating reflects double digit revenue and EBITDA growth, improving credit metrics and favorable growth prospects for the over-the-phone interpretation (OPI) market.”

Company: Lear Corp.
Sponsor: GS Capital
Downgrade: S&P downgraded the company’s corporate credit rating to ‘D’ (default) from ‘CCC+’.
Highlights: “The company announced on June 1, 2009, that it has chosen not to make interest payments. Lear has a 30-day grace period to make payments before there is a default. We are not confident that Lear will make the payments and the company might pursue a distressed exchange or file for bankruptcy under Chapter 11.”

Company: Versatel AG
Sponsor: APAX Partners
Downgrade: S&P lowered its issue rating on the company’s senior secured €525 million floating-rate notes to ‘BB-‘ from ‘BB.’ This is one notch above the corporate rating of ‘B+’.
Highlights: “The rating action on the senior secured issue reflects the fact that we have lowered our stressed valuation at the hypothetical point of default. … This is a result of the group’s recently revised strategy of lower investment in residential digital subscriber line user growth targets and an assumed accelerated decline in operating results prior to default.”

Company: American Achievement Group Holding Corp.
Sponsor: Carlyle Group and Fenway Partners
Upgrade: Moody’s raised the company’s corporate family rating to Caa1 from Caa2 and its probability of default rating to Caa2 from Caa3.
Highlights: “The upgrade is due largely to debt reduction and improved liquidity as a result of the company’s amended Credit Agreement which provides, most importantly, an extension of the company’s revolving credit facility (albeit at a smaller amount of $25 million) until March 2011 and more flexibility under its financial covenants.”

Company: Synagro Technologies Inc.
Sponsor: Carlyle Group
Upgrade: S&P raised its corporate credit rating on the company to ‘CCC+’ from ‘SD.’
Highlights: “Today’s rating actions reflect our reassessment of default risk and recovery prospects under the new capital structure after Synagro’s purchase and retirement of about $35 million in face value of second-lien debt for a cash consideration of approximately $14 million. … The transaction results in additional headroom to the covenants and reduces interest expense by trimming debt levels; however, the changes are relatively minor given the company’s large debt levels.”

Previous Weeks:
Weekly Downgrade Report 15
Weekly Downgrade Report 14
Weekly Downgrade Report 13
Weekly Downgrade Report 12
Weekly Downgrade Report 11
Weekly Downgrade Report 10
Weekly Downgrade Report 9
Weekly Downgrade Report 8
Weekly Downgrade Report 7
Weekly Downgrade Report 6
Weekly Downgrade Report 5
Weekly Downgrade Report 4
Weekly Downgrade Report 3
Weekly Downgrade Report 2
Weekly Downgrade Report 1

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