PE Debt Watch (Upgrades and Downgrades)

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 Services and Moody’s Investors Service. This week is apparently companies owned by Apollo, Warburg Pincus, JLL Partners, Arcapita and Kelso & Co. received ratings changes.

Apollo saw the most action, with three companies on the list. Jacuzzi Brands was upgraded after a recap/distressed debt exchange, Noranda Aluminum Holding Corporation received an upgrade on improved performance, and Hexion’s outlook was changed from negative to stable, thanks to a debt restructuring.

Company: Jacuzzi Brands Corp.
Sponsor: Apollo Management LP
Action: S&P raised its corporate credit rating on the Chino, Calif.-based spa and bath manufacturer to ‘B-‘ from ‘SD’ selective default.
Highlights: “The upgrade reflects Jacuzzi’s improved capital structure following the recapitalization that included a $140 million reduction in outstanding debt,” said Standard & Poor’s credit analyst Tom Nadramia.

Company: Builders FirstSource
Sponsor: JLL Partners Inc. and Warburg Pincus
Action: S&P raised its corporate credit rating on the Dallas-based manufacturer and supplier of building products for new residential construction, to ‘CCC+’ from ‘SD’.
Highlights: “The higher rating reflects the post-recapitalization capital structure that included a $130 million reduction in outstanding debt, higher cash balances, and extended debt maturities,” said Standard & Poor’s credit analyst Andy Sookram.

Company: Noranda Aluminum Holding Corporation
Sponsor: Apollo Management
Action: Moody’s upgraded the company’s corporate family rating and probability of default rating to B3 from Caa1. Moody’s also upgraded Noranda’s senior unsecured notes rating to Caa2 from Caa3.
Highlights: “Noranda’s B3 corporate family rating reflects the earnings enhancement that will result from the restart of substantially all of the New Madrid smelter pot lines with the company expecting to reach full capacity by March 2010, as well as the significant deleveraging of the company’s capital structure, which was achieved through the partial monetization of its hedge book.”

Company: Global Geophysical Services Inc.
Sponsor: Kelso & Co., Wayzata Investment Partners
Action: S&P raised the company’s corporate credit rating to ‘B’ from ‘B-‘.
Highlights: “The upgrade reflects Global’s performance through 2009, which exceeded our expectations,” said Standard & Poor’s credit analyst Aniki Saha-Yannopoulos.

Company: Hexion Specialty Chemicals, Inc.
Sponsor: Apollo Management LP
Action: Moody’s changed the outlook on the company to stable from negative due to the successful refinancing and extension of its term loan debt with $1 billion of 8.875% 1.5 lien notes due 2018. Proceeds were used to repay roughly $800 million in first lien term loan debt.
Highlights: “This refinancing reduces Hexion 2013 debt maturity to under $1 billion and virtually assures compliance with the financial covenant in its credit facility until maturity”, stated John Rogers Senior Vice President at Moody’s.

Company: Bosque Power Company
Sponsor: Arcapita Inc.
Action: Moody’s downgraded the rating of the company’s senior secured credit facilities to Caa2 from B3.
Highlights: “Despite the fact that the company’s expansion project is finally operational after an extended delay, the downgrade reflects a sizeable draw the company made on its debt service reserve fund in order to make its December debt service payment together with its failure to put in place additional energy hedges by the middle of January as required by its credit agreement because of very poor market conditions. The downgrade also reflects its continued inability to generate meaningful operating cash flows to pay down its debt, and as a result a very likely default on its financial covenants when its fourth quarter financial results are published barring a further equity cure.”

View Past Downgrade and Upgrade Lists Here