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Weekly Downgrade Wrap-Up (13, Including A Rebellious S&P Rating)

As usual, we have a week of ratings downgrades on the debt of LBO-backed companies, via ratings agencies Moody’s and Standard & Poor’s. This week we have thirteen.

One Note: This list excludes downgrades to ‘D’ for ‘default’ on companies that have filed for Chapter 11 bankruptcy protection. Check the quarterly LBO-backed bankruptcy list for those. However, it does include defaults and ‘SD,’ or ‘selective defaults’ on companies that have not yet filed for bankruptcy.

I say this because this list is becoming just as much a way to track distressed debt exchanges as it is to track ratings downgrades.

We also have a rebellious ratings agency first (at least in my experience). The story is this: Similar to public company analysts, debt-laden companies pay ratings agencies to examine and report on their debt. Sometimes, when a company’s ratings get too ugly, a company will ask the agency to withdraw its rating, and S&P or Moody’s will oblige. Such is the case with Six Flags, except instead of hiding its analysis from the public, S&P issued its first ever (to my knowledge) “unsolicited” rating on the company. Way to take on the man, S&P.

Company: Six Flags Inc.
Sponsors: Generation Partners (Minority Stakeholder)
Downgrade: S&P announced its “unsolicited” corporate credit rating on the company to be ‘CCC’.
Highlights: “’The ‘CCC’ corporate credit rating reflects our concerns that the company could seek a prepackaged or prearranged Chapter 11 reorganization to reduce its high debt leverage and significant maturities over the near term,’ said Standard & Poor’s credit analyst Andy Liu. An out-of-court restructuring is also a possibility, based on public comments from management.”

Company: Panolam Industries
Sponsor: Sterling Group and Genstar Capital
Downgrade: S&P lowered the company’s corporate credit ratings to ‘SD’ from ‘CCC+’, indicating a selective default.
Highlights: “’The rating actions stem from Panolam’s announcement that on March 31, 2009, it entered into a forbearance agreement with its lenders,’ said Standard & Poor’s credit analyst Tobias Crabtree. The terms of the forbearance agreement prohibit Panolam from paying the April 1, 2009, interest payment on their $151 million senior subordinated notes due 2013… If the company is unable to restructure or refinance its credit facility, its lenders could accelerate $343.9 million in debt obligations.”

Company: Bombardier Recreational Products Inc.
Sponsor: Bain Capital
Downgrade: S&P lowered its term corporate credit rating on the company to ‘CCC+’ from ‘B-‘.
Highlights: “‘These rating actions follow BRP’s announcement that it is seeking bank permission through an amendment to its credit agreement to repurchase term loan debt at a discount from par using an auction,’ said Standard & Poor’s credit analyst Lori Harris.”

Company: Gray Television
Sponsor: Highland Capital Management LP
Downgrade: Moody’s downgraded the company’s corporate family rating to Caa1 and its probability of default rating to Caa2.
Highlights: “The downgrades incorporate Moody’s expectation that the U.S. economy’s
impact on broadcast revenues will be greater than forecasted when it lowered Gray’s ratings in October 2008. … The downgrade of the PDR in particular, however, reflects Moody’s view that Gray faces likely renewed covenant pressure starting as early as Q1 2010.”

Company: Dutch Semiconductor
Sponsor: KKR
Downgrade: S&P downgraded the company’s corporate credit rating to ‘SD’ on its distressed debt exchange.
Highlights: “’In the coming days, we will reevaluate NXP’s post-exchange capital structure and, absent any other new development, we expect to raise NXP’s corporate credit rating to ‘CCC+’, with a negative outlook, from ‘SD’,” said(Standard & Poor’s credit analyst) Cochelin.”

Company: FelCor Lodging Trust
Sponsor: Oak Hill Advisors LLC
Downgrade: S&P lowered its issue-level rating on the company’s preferred stock to ‘C’ from ‘CCC-‘.
Highlights: The company suspended its dividend, but S&P does not believe that it does not provide extra cushion for a covenant that has a high potential of being violated. “FelCor is attempting to raise $200 million through a secured term loan facility to repay and cancel the revolver, thereby eliminating this covenant.”

Company: Euramax International
Sponsor: GS Capital Partners
Downgrade: S&P lowered its corporate credit rating on the company to ‘CC’ from ‘CCC+’.
Highlights: “’The rating action reflects continued weak conditions in Euramax’s end markets and the company’s continuing to operate under a forbearance agreement with regard to its credit agreement, which suggests that a negotiated resolution remains possible,’ said Standard & Poor’s credit analyst Dan Picciotto.”

Company: NES Rentals Holdings
Sponsor: Falcon Investment Advisors
Downgrade: Moody’s downgraded the probability of default rating of the company to Caa3 from Caa1. The corporate family rating, Caa1, is unchanged.
Highlights: “Moody’s considers the company’s recent credit facility amendment a distressed exchange announcement because of NES’ weak credit profile, and the significant monetary loss relative to term loan principal value that participating lenders will likely incur.”

Company: Nuveen Investments
Sponsor: HarbourVest Partners LLC, Merrill Lynch Capital Partners, DLJ Merchant Banking Partners, Madison Dearborn Partners LLC, Citigroup Private Equity, Wachovia Capital Associates, Inc. (WCA) and Credit Suisse Group
Downgrade: S&P it lowered its local currency long-term counterparty credit rating on Nuveen Investments Inc. to ‘B-‘ from ‘B’.
Highlights: “We believe that the company’s ability to refinance or repay the $250 million in senior notes, which come due in September 2010, has weakened.” This is partly due to a recent acquisition of Winslow Capital Management.

Company: Canon Communications
Sponsor: Spectrum Equity
Downgrade: Moody’s lowered the company’s corporate credit rating from B3 to Caa1.
Highlights: “The Caa1 CFR further incorporates the company’s relatively small size (around $100 million) and modest scale, high leverage, the acquisitiveness of management, and its vulnerability to advertising spending in the medical device manufacturing sector. … Moody’s considers that the (company’s recent credit facility) amendment has averted an almost-certain covenant default at the end of the December 2008 and will likely provide the company with manageable headroom within its revised covenant levels for the balance of 2009.”

Company: Ply Gem Industries
Sponsor: CI Capital Partners
Downgrade: S&P lowered the company’s corporate credit rating to ‘SD’ from ‘B-‘ on its recent announcement that CI Capital would make a cash investment to acquire a majority of the company’s senior sub notes.
Highlights: “We expect that the purchase was at a substantial discount to the par amount of the outstanding issue. … We intend to reassess Ply Gem’s capital structure (which from an absolute debt amount does not change) and latest operating trends in the near term. However, it is our preliminary assessment that the corporate credit rating would likely not be higher than the previous ‘B-‘ rating and potentially in the ‘CCC’ category, with a negative outlook.”

Company: Freescale Smidunctor
Sponsors: Blackstone Group LP, Carlyle Group, HarbourVest Partners LLC and TPG Capital Inc
Downgrade: S&P lowered its corporate credit and other ratings on the company from ‘CC’ to ‘SD’ based on the company’s invitation to bondholders to exchange notes for participation in a new incremental secured term loan. All of the company’s senior unsecured and subordinated note holders participated to some degree in the exchange.
Highlights: “While the company has successfully removed over $1.9 billion of debt and reduced its interest burden, the company will remain very highly leveraged. We expect debt to EBITDA to be over 10X by the end of 2009.”

Company: Energy Future Holdings
Sponsor: Goldman Sachs & Co., KKR, Lehman Brothers Inc, Morgan Stanley Private Equity, TPG and Citigroup Private Equity
Downgrade: Moody’s downgraded the company’s corporate family rating
and probability of default rating from B2 to B3.
Highlights: The company’s ability to generate enough cash flow to service its approximately $37 billion of total consolidated debt (excluding Oncor debt) has been negatively impacted by current weak commodity prices and market heat rates and the prospect for a near-term recovery increasingly appears remote, at this time. … ‘EFH’s business model does not appear to be sustainable over the long-term horizon given its leverage, its debt service requirements, exposure to commodity prices and limited financial

Previous Weeks:
Weekly Downgrade Report 6
Weekly Downgrade Report 5
Weekly Downgrade Report 4
Weekly Downgrade Report 3
Weekly Downgrade Report 2
Weekly Downgrade Report 1