PE Debt Watch (Upgrades & Downgrades)

As usual, we have a week’s worth of ratings actions on the debt of LBO-backed companies from the ratings agencies Standard & Poor’s Ratings Services and Moody’s Investors Service.

This week companies owned by GTCR, Silver Lake, TPG and Oaktree Capital were downgraded. The debt on Berkshire Partners’ Bare Escentuals, which was recently acquired by Japanese personal care company Shiseido, was upgraded to ‘A’ to match its acquirer’s rating.

Company: Graceway Pharmaceuticals
Sponsor: GTCR Golder Rauner
Action: Moody’s lowered the company’s corporate family rating to Caa3 from Caa1 and the probability of default rating to Caa3 from Caa1. S&P lowered the company’s corporate credit rating to ‘B-‘ from ‘B’.
Highlight: From Moody’s: “Graceway’s Caa3 corporate family rating reflects limited size and scale, significant product concentration risk, and high financial leverage relative to its anticipated earnings base.” From S&P: “The ratings on Graceway 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. These factors partly are offset by the company’s currently adequate liquidity.

Company: Avaya Inc.
Sponsor: Silver Lake Sumeru and TPG
Action: S&P lowered its corporate credit rating on company to ‘B-‘ from ‘B’.
Highlight: “The action reflects Avaya’s increasing leverage and the challenges the company is likely to face integrating the recently acquired NES business,” said Standard & Poor’s credit analyst Bruce Hyman. Avaya’s and NES’ historically good positions in their markets and a good degree of recurring revenues offset those factors in part.

Company: Cannery Casino
Sponsor: Oaktree Capital Management
Action: S&P lowered the company’s corporate credit rating to ‘B-‘ from ‘B’.
Highlight: “The corporate credit rating downgrade reflects operating performance that is meaningfully below our previous expectations and our assessment that credit measures are likely to remain more in line with a ‘B-‘ rating over the near term,” said Standard & Poor’s credit analyst Melissa Long.

Company: El Pollo Loco Inc.
Sponsor: Freeman Spogli & Co. and Trimaran Capital Partners
Action: S&P withdrew its ratings, including the ‘B-‘ corporate credit rating, on the company at the company’s request.

Company: Bare Escentuals Beauty Inc.
Sponsor: Berkshire Partners
Action: S&P raised the company’s corporate credit rating and senior secured bank debt rating to ‘A’ from ‘B+’, the same as Shiseido Co. Ltd.
Highlight: “Japan-based Shiseido has announced that it has completed its tender offer to acquire the majority of the outstanding common shares of Bare Escentuals for $18.20 per share, or $1.9 billion. As a result, Bare Escentuals has repaid in full its senior secured credit facilities.”