PE Debt Watch (Upgrades & 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.

Company: Hexion Specialty Chemicals Inc.
Sponsor: Apollo Management
Action: S&P raised its ratings, including its corporate credit rating to ‘B-‘ from ‘CCC+’, on the company.
Highlight: “The upgrade reflects an improvement in credit quality following the successful completion of Hexion’s financing transaction including amendments to its senior secured credit facilities, and our expectation that an ongoing trend of improving operating results will continue into 2010,” said Standard & Poor’s credit analyst Paul Kurias.

Company: United Site Services Inc.
Sponsor: DLJ Merchant Banking Partners
Action: S&P withdrew its ratings on the company.
Highlight: The ratings were withdrawn on the company’s request. S&P lowered the corporate credit and senior secured term loan ratings last month to ‘SD’ and ‘D’, respectively, upon the company’s announcement that a debt-for-equity exchange was completed.

Company: ITC DeltaCom Inc.
Sponsor: Welsh, Carson, Anderson & Stowe and Tennenbaum Capital Partners, LLC
Action: S&P assigned its ‘B-‘ issue rating and ‘5’ recovery rating to the company’s proposed $325 million senior secured notes due 2016. S&P also raised ITC’s corporate credit rating to ‘B’ from ‘B-‘.
Highlight: “The corporate credit rating upgrade is due to several factors,” explained Standard & Poor’s credit analyst Catherine Cosentino, “including our expectation that the company will operate at net free cash flow break-even to positive levels on a sustained basis.” In addition, ITC has demonstrated that even in a weak economic climate, its base of business has remained relatively stable, and its profit margins have improved, due largely to the positive effects of the incremental capital associated with its recent network upgrade and associated movement of more traffic to these lower cost, on-net facilities.

Company: Jacuzzi Brands Corporation
Sponsor: Apollo Management LP
Action: Moody’s revised the company’s probability of default rating to Caa2/LD from Caa2 and raised the corporate family rating to Caa1 from Caa2.
Highlight: The Caa1 corporate family rating reflects Jacuzzi’s post-recapitalization financial leverage, which remains high, solid cash interest coverage metrics and weak ongoing end-market fundamentals. Specifically, Jacuzzi’s bath and spa products are discretionary and therefore continue to be pressured by weak, albeit stabilizing, demand due to reduced housing starts and repair and remodeling expenditures in the U.S. and Europe. It may take some time to restore margins to
historical levels, but Jacuzzi earnings are beginning to reap the benefits from headcount reductions and other restructuring actions taken in 2009.

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View Past Downgrade and Upgrade Lists Here