This Week in Portfolio Company Debt

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 Investor Service.

This week its bad news again, with two bankruptcies and a debt exchange. Even the upgrade in Vitamin Shoppe’s debt isn’t great news–the company went public but not at the price it was hoping for. Moody’s warned about the company’s small size, competitive and fragmented market, and narrow product focus.

Company: Capmark Financial Group Inc.
Sponsor: Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC and Goldman Sachs Capital Partners are sponsors.
Ratings Action: S&P lowered its ratings on Capmark Financial Group Inc., including the local currency counterparty credit rating on the company, to ‘D’ from ‘CC’.
Highlights: “We had expected the bankruptcy filing since September 2009, when Capmark Financial Group entered into an asset put agreement that gave it the right to sell its North American servicing and mortgage-banking businesses. We expect the firm to sell these, and possibly other, assets, through bankruptcy proceedings.”

Company: Stallion Oilfield Services
Sponsor: Carlyle Group
Ratings Action: S&P revised its recovery rating on Stallion Oilfield Services Ltd.’s (D/–/–) senior unsecured debt to ‘5’, indicating expectations for modest recovery (10%-30%) in the event of a payment default, from ‘4’. The issue-level rating on this debt remains ‘D’.
Highlights: The corporate credit rating on Stallion is ‘D’, reflecting the Houston-based oilfield services provider’s failure to make its Aug. 1, 2009, and Aug. 6, 2009, required interest payments on its senior unsecured notes and on its senior unsecured term loan. For the corporate credit rating rationale on Stallion, see the research update published on Sept. 14, 2009.

Company: Vitamin Shoppe Industries Inc.
Sponsor: Irving Place Capital
Ratings Action: S&P raised its corporate credit rating on the company to ‘B+’ from ‘B’ after the company used a portion of proceeds from its recent IPO to pay down debt and because of the company’s good operating performance. Moody’s raised the company’s corporate family, probability of default and senior secured notes ratings to B2 from B3.
Highlights: From S&P: “The ratings on Vitamin Shoppe reflect its highly leveraged capital structure, small size in the highly competitive and fragmented retail vitamin industry, narrow product focus, and the risks associated with its rapid store expansion,” said Standard & Poor’s credit analyst Jackie Oberoi. From Moody’s: The B2 corporate family rating still reflects the high business risk associated with the potential product safety issues in the “VMS” sector (vitamins, minerals, and nutritional supplements), which can lead to recalls, create adverse publicity and liability claims, and ultimately damage the company’s operating and financial profile.

Company: Builders FirstSource Inc.
Sponsor: JLL Partners Inc./Warburg Pincus
Ratings Action: Builders FirstSource recently initiated a debt exchange offer with respect to its $275 million second-lien floating rate notes due 2012; it expects to exchange these notes for new second-lien notes due 2016 and cash. S&P assigned the company’s proposed notes a rating of ‘CCC’ one notch below our expected ‘CCC+’ corporate credit rating.
Highlights: “The rating actions follow BLDR’s announcement that it is offering to exchange up to $145 million of proposed new second-lien floating rate notes due 2016 and up to $130 million in cash for its existing $275 million second-lien floating debt due 2012. The debt and cash exchange would be at par, while the maturity would be extended beyond the original maturity of the existing notes,” said Standard & Poor’s credit analyst Andy Sookram.

Company: Dayton Superior Corp.
Sponsor: Oaktree Capital Management
Ratings Action: The company’s rating was withdrawn as the company emerged from bankruptcy.
Highlights: Oaktree took control of the business six months ago. Prior to its bankruptcy filing, the company was owned by Odyssey Investment Partners.

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