Weekly Downgrade Roundup (And One Upgrade!)


As usual, I have a week’s worth of Moody’s and S&P downgrades on PE-backed companies. Repeat offenders include Apollo Management, KKR, Carlyle Group and Bain Capital.

We’ve also got one upgrade, which is Carlyle Group and Fenway Partners’ American Achievement Group. It’s basically an upgrade from the default rating after AAC’s parent company purchased some of its own senior PIK notes at a massive discount.

Anyways, on to the list of 16:

Company: Jacuzzi Brands Corp.
Sponsor: Apollo Management
Downgrade: S&P lowered its corporate credit rating to ‘CCC+’ from ‘B-‘, and lowered the ratings on the company’s $170 million first-lien term loan and $15 million synthetic letter of credit facility to ‘CCC-‘ from ‘CCC+’ and revised the recovery ratings to ‘6’ from ‘5’.
Highlights: While the company’s near-term liquidity position seems adequate at the current time, given current availability under its lines of credit, we are concerned that liquidity could become constrained by 2010 unless operating results improve prior to that time.

Company: Beverages & More!
Sponsor: TowerBrook Capital Partners (formerly Soros Private Equity)
Downgrade: The company’s ‘B-’ corporate credit rating was placed on CreditWatch with negative implications.
Highlights: “The rating action reflects the recent weak same-store sales growth,” said Standard & Poor’s credit analyst David Kuntz.

Company: Standard Steel
Sponsor: Trimaran Capital Partners
Downgrade: Moody’s downgraded the corporate family and probability of default ratings to B3 from B2.
Highlights: The combined impact of lower than expected revenues and margins will increase the potential for an early 2009 financial ratio covenant breach under the company’s credit agreements.

Company: Veyance Technologies, Inc.
Sponsor: Carlyle Group
Downgrade: Moody’s lowered the Corporate Family and Probability of Default Ratings to B3 from B2.
Highlights: The industrial and mining sectors, the main drivers of Veyance’s revenues,
are undergoing a severe contraction and Moody’s believes that these sectors will remain weak through 2009.

Company: Panolam Industries International
Sponsor: Sterling Group
Downgrade: S&P lowered the company’s corporate credit rating to ‘CCC+’ from ‘B-‘, as well as lowering the issue-level rating on Panolam’s senior secured revolving credit facility due 2010 and senior secured term loan due 2012, to ‘B-‘ (one notch higher than the ‘CCC+’ corporate credit rating) from ‘B+’.
Highlights: “We believe Panolam’s financial profile will weaken materially during this period, increasing our concerns regarding Panolam’s ability to remain in compliance with covenants under its existing bank credit facility, as covenants tighten as of March 31, 2009; specifically, the company’s leverage covenant steps down to 4.5x from 5x and its interest coverage ratio steps up to 2.25x from 2x.” As a result, a waiver or amendment of its existing credit facility would be required, which given the credit market environment, may be more difficult to obtain, resulting in a more constrained liquidity position.”

Company: Bombardier Recreational Products
Sponsor: Bain Capital
Downgrade: S&P lowered its ratings on the long-term corporate credit rating to ‘B-‘ from ‘B’ as well as the rating on the company’s C$250 million senior secured revolving credit facility due 2011 to ‘B+’ from ‘BB-‘ and its US$790 million senior secured term loan B due 2013 to ‘B-‘ from ‘B’.
Highlights: “While the company had significant cushion in its 5.5x leverage covenant at quarter ended Oct. 31, this will tighten considerably and could result in BRP’s noncompliance with covenants.”

Company: First Data Corp.
Sponsor: KKR
Downgrade: Moody’s placed First Data’s Corporate Family Rating of B2 under review for possible downgrade.
Highlights: “The company faces no significant debt maturity until 2014 and has ample cushion with its financial covenants under the senior secured credit facility … We believe the company’s ability to de-lever through EBITDA growth could be delayed for another couple of years despite the better-than-expected cost savings achieved to date.”

Company: Station Casinos
Sponsor: Colony Capital
Downgrade: S&P lowered its rating on the company’s 6.875% senior subordinated notes to ‘D’ from ‘C’. (The company missed an interest payment on March 1 but has a 30-day grace period to make the payment, so it’s not technically a default.)
Highlights: “We expect Station to miss the upcoming interest payment on the 6.625% senior subordinated notes (due March 15) and the 6% senior notes (due April 1).”

Company: Dutch Semiconductor Group
Sponsor: KKR
Downgrade: S&P lowered the long-term corporate credit rating to ‘CC’ from ‘CCC’ the issue ratings on senior first-priority secured bank loan rating to ‘CCC+’ from ‘B’, senior secured notes to ‘CC’ from ‘CCC’, and senior unsecured notes to ‘C’ from ‘CCC-‘.
Highlights: “These rating actions follow NXP’s announcement that it is inviting holders of its senior unsecured notes to exchange their notes for new euro- and dollar-denominated secured notes …This is an exchange offer that, under our criteria, is tantamount to default.”

Company: Broder Bros.
Sponsor: Bain Capital
Downgrade: Moody’s downgraded the Probability of Default and Corporate Family Ratings ro Ca deom Caa3 and lowered the senior unsecured notes rating to C from Ca.
Moody’s Highlights: The company announced it would explore strategic alternatives for its long-term capital structure, which could lead to a distressed exchange.
Downgrade: S&P lowered its corporate credit rating on Broder Bros. to ‘CCC’ from ‘B-‘
S&P Highlights: “We believe that the company’s already very high leverage and thin operating margins limit the company’s financial flexibility.”

Company: Harrah’s
Sponsor: Apollo Management and TPG
Downgrade: Moody’s downgraded the company’s Probability of Default Rating and Corporate Family Rating to Caa3 from Caa1.
Highlights: “HET is expected to generate negative free cash flow in 2009 and in 2010, a period during which scheduled bond maturities total around $700 million.”

Company: Palm Inc.
Sponsor: Elevation Partners
Downgrade: S&P lowered its corporate credit rating to ‘CCC’ from ‘CCC+.’
Highlights: “Palm anticipates revenues of $85 million-$90 million in the February 2009 quarter, one-half the November 2008 quarter level, and one-fourth the year-ago level.”

Company: InSight Health
Sponsor: J.W. Childs
Downgrade: S&P lowered its corporate credit rating by two notches to ‘CCC’ from ‘B-’.
Highlights: “This action reflects our opinion that, despite adequate near-term liquidity, the company has not gained sufficient momentum to position itself for a successful refinancing of its floating-rate notes, which mature in November 2011.”

Company: American Achievement Corp.
Sponsor: Carlyle Group and Fenway Partners
Downgrade: S&P raised its corporate credit rating to ‘CCC+’ from ‘SD’ (selective default).
Highlights: AAC’s parent company repurchased $104 million of the senior PIK notes for $24 million, removing covenants and reducing consolidated leverage. Despite that and the company’s historically stable demand, “the company is unlikely to reduce its highly leveraged financial profile over the intermediate term.”

Company: Eurofresh
Sponsor: Banc of America Capital Investors and Bruckmann Rosser Sherrill & Co.
Downgrade: Moody’s lowered its corporate family and senior unsecured bond ratings to Ca from Caa3.
Highlights: “Eurofresh did not make the January 2009 interest payment on its 11.5%
Senior Notes due 2013, entering the grace period which has been extended to March 18, 2009. The company is evaluating strategic alternatives, including balance sheet recapitalization. Eurofresh is in negotiations with secured lenders and noteholders regarding its capital structure.”

Company: Indalex
Sponsor: Sun Capital Partners
Downgrade: Moody’s downgraded the company’s probability of default rating to D from Ca.
Highlights: “Moody’s believes that Indalex did not make the interest payment on its
$200 million 11.5% second priority senior secured notes, which was due on February 2, 2009 with a thirty-day grace period. Moody’s deems a default to have occurred when an interest payment is not made by the end of a grace period, regardless of whether an Event of Default has been declared by note holders.”

Company: Level 3
Sponsor: Contrarian Capital Management LLC and Gleacher Partners
Downgrade: Moody’s downgraded the company’s probability of default rating to Caa2 from Caa1.
Highlights: “The company will not be able to address 100% of the debt balance coming due in 2011 (and beyond) without accessing the capital markets for funding.”

See previous weeks:
Weekly Downgrade Report 2
Weekly Downgrade Report 1