Weekly Downgrade Wrap-Up

As usual, we have a weeks worth of ratings actions on the debt of buyout-backed companies from ratings agencies Moody’s and Standard & Poor’s. Both agencies appear to be on vacation, since the list is light for the fourth week in a row. Either that, or all the low-rated debt is undergoing distressed exchanges or getting terms amended. Once again, all of the ratings actions are related to exchanges or repurchases.

Company: Dana Holding Corporation
Sponsor: Centerbridge Capital Partners LP
Revision: Moody’s revised the company’s probability of default rating to Caa1\LD from Caa1.
Highlights: “The positioning of Dana’s PDR at Caa1\LD reflects the company’s second quarter earnings call announcement of completing additional open market purchases of its senior secured term loan at distressed prices beyond levels previously achieved through the Dutch auction concluded in May 2009.

Company: Duane Reade Holdings Inc.
Sponsor: Oak Hill Capital Management
Upgrade: S&P raised the company’s corporate credit rating to ‘B-‘ from ‘SD’ and We raised the issue rating on the company’s 9.75% subordinated notes due 2011 (that were not tendered) to ‘CCC’ from ‘D’. Moody’s raised the company’s probability of default rating to Caa1/LD (Limited Default) from Ca.
Highlights: Duane Reade recently completed the tender offer for its subordinated notes at a discount and senior secured notes at par. S&P said: “The rating reflects the company’s very highly leveraged capital structure and thin cash flow protection measures, as well as its narrow geographic focus and intense competition in the drug retailing industry.” Moody’s said: “The rating incorporates Moody’s expectation that free cash flow will be weak over the next twelve months due to relatively modest cash flow that is largely consumed by capital expenditures.”

Company: American Achievement
Sponsor: Carlyle Group and Fenway Partners
Downgrade: S&P lowered its corporate credit rating on the company to ‘SD’ (selective default) from ‘CC’.
Highlights: American Achievement has announced the tender of $65.3 million of its outstanding 12.75% senior PIK notes due 2012 through the previously announced cash tender offer. The rating actions follow AAC’s repurchase of $65.3 million of 12.75% senior PIK notes (issued by ultimate parent company American Achievement Group Holding Corp.) in cash for a total of about $22.9 million. The downgrade of the corporate credit rating to ‘SD’ reflects our view that the purchase, which was executed at a price of $350 per $1,000 per principal amount of the notes, was executed at a significant discount to par and is tantamount to a default given the distressed financial condition of the company.