PE Debt Watch (Downgrades & Upgrades)

As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from ratings agencies Standard & Poor’s Ratings Agency and Moody’s Investors Service. This week is a big update coming off of the holiday, with five upgrades four downgrades and a withdrawal. Downgrades include companies owned by GTCR Golder Rauner, Kohlberg & Co., Genstar Capital, and DLJ Merchant Banking Partners.

Company: Cellu Tissue Holdings
Sponsor: Weston Presidio
Action: Moody’s upgraded the company’s probability of default rating
and the senior secured notes rating of the company to ‘B1’ from ‘B2’. S&P raised its corporate credit rating on Alpharetta, Ga.-based Cellu Tissue Holdings Inc. to ‘B+’ from ‘B’.
Highlight: From Moody’s: The upgrade to B1 reflects steady margin expansion and earnings growth since the fiscal year ended February 28, 2007, resulting in EBITDA generation considerably higher than previously expected. From S&P: “The upgrade reflects the significant improvement in Cellu Tissue’s EBITDA in the last three quarters, due to its acquisition of Atlantic Paper & Foil in mid-2008, benefits from capacity expansion initiatives to meet higher demand for its converted tissue products, and sales price increases,” said Standard & Poor’s credit analyst Andy Sookram.

Company: United Site Services
Sponsor: DLJ Merchant Banking Partners
Action: S&P lowered its corporate credit rating on the company to ‘SD’ (selective default) from ‘CC’.
Highlight: The rating actions follow USS’ announcement that it has completed its financial restructuring, exchanging more than $400 million of its term loan and mezzanine debt for equity. The company’s $100 million revolving credit facility remains in place, and it had roughly $19 million available under the facility following the restructuring.

Company: Ply Gem Industries, Inc.
Sponsor: CI Capital Partners LLC
Action: Moody’s upgraded the company’s corporate family rating to Caa1 from Caa2 and its probability of default rating to Caa1 from Caa2 and affirmed the senior secured notes due 2013 at Caa1.
Highlight: Ply Gem’s corporate family rating is constrained by the company’s weak end markets, uncertainty surrounding near-term pricing power, anticipated weak free cash flow generation, and potential limited availability under the revolving credit facility.

Company: Harlan Laboratories, Inc.
Sponsor: Genstar Capital
Action: Moody’s downgraded the company’s corporate family rating and probability of default rating to B3 from B2.
Highlight: The downgrade reflects weaker leverage and interest coverage metrics than previously anticipated following a recent restatement of 2008 and 2009 financials that resulted in a significant reduction to trailing twelve month EBITDA.

Company: Vi-Jon Inc.
Sponsor: Berkshire Partners
Action: S&P raised its corporate credit rating on Vi-Jon Inc. to ‘B+’ from ‘B’.
Highlight: The ‘B+’ rating reflects Vi-Jon’s participation in the highly competitive personal care segment of the consumer products sector, moderate debt leverage, and significant customer concentration.

Company: Dana Holding Corporation
Sponsor: Centerbridge Capital Partners LP
Action: Moody’s raised the company’s probability of default rating of to B3 from Caa1 and its corporate family rating to B3 from Caa2.
Highlight: The B3 Probability of Default rating incorporates the company’s announced guidance for significantly improved EBITDA performance in 2010 of about $500 million which should support improved credit metrics supportive of the assigned ratings.

Company: AGY Holding Corp.
Sponsor: Kohlberg & Co.
Action: S&P lowered its ratings the company, including its corporate credit rating to ‘CCC+’ from ‘B’.
Highlight: “The downgrade follows our ongoing concern on operating performance, including our expectation for very weak credit metrics for 2009, weak liquidity relative to interest payments and operating requirements in 2010, and integration concerns related to the large $72 million acquisition–with a $20 million cash component–of AGY Hong Kong Ltd.,” said Standard & Poor’s credit analyst Paul Kurias.

Company: GTCR Golder Rauner LLC
Sponsor: Graceway Pharmaceuticals
Action: S&P lowered its corporate credit rating on the company to ‘B’ from ‘B+’.
Highlight: “Our ratings on Graceway Pharmaceuticals LLC reflect the company’s limited size, heavy reliance on one niche product, aggressive debt leverage, and looming debt maturities,” said Standard & Poor’s credit analyst Arthur Wong.

Company: Pinnacle Foods Group
Sponsor: Blackstone Group, Credit Suisse Private Equity and Barclays Capital Investors Corp.
Action: S&P raised its ratings on the company, including the corporate credit rating, which was raised to ‘B’ from ‘B-‘.
Highlight: The change follows the announcement that Pinnacle Foods would acquire Birds Eye Foods Inc. in a partially debt-financed acquisition valued at about $1.3 billion, excluding fees and other expenses. “The upgrade reflects our opinion that the combined business will result in a stronger business risk profile and that the impact of the additional debt on pro forma leverage will be neutral,” said Standard & Poor’s credit analyst Christopher Johnson.

Company: Veyance Technologies Inc.
Sponsor: Carlyle Group
Action: Moody’s withdrew the company’s rating based on a lack of information.
Highlight: The last rating action was on June 22, 2009 at which time Moody’s lowered Veyance’s corporate family rating and probability of default rating to Caa1 from B3.

View Past Downgrade and Upgrade Lists Here