Weekly Downgrade Wrap-Up

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

A rare occurrence this week: S&P lowered its ratings on an actual private equity firm: American Capital, the BDC/buyout firm that’s facing some creditor troubles, was downgraded to ‘B-‘. No word on the progress of those creditor negotiations since the firm’s earnings call earlier this month (which also provided no update). However, the firm did register to sell a $1.5 billion mixed-shelf offering on August 20.

Company: American Capital Ltd.
Sponsor:
Downgrade: S&P lowered the long-term counterparty credit rating on American Capital to ‘B-‘ from ‘BB-‘.
Highlights: “The rating action reflects the accelerated deterioration in the firm’s realized earnings and reported leverage in second-quarter 2009, as well as the weakening performance of its portfolio companies. The firm’s coverage of interest by realized earnings that are not dependent on investment exits declined significantly to 1.0x in the second quarter from 1.8x in the previous quarter and 2.9x for 2008. Moreover, while we had expected further portfolio depreciation, the unrealized write-downs in the second quarter, coupled with the slowdown in investment exits, has driven leverage to 2.3x–well above the 1.0x that had been required by covenants and is required for compliance with business development company (BDC) regulations.”

Company: Tegrant Corp.
Sponsor: Metalmark Capital LLC
Downgrade: S&P revised the outlook on Tegrant Corp. to stable from negative. The ratings agency affirmed all ratings, including the ‘CCC’ corporate credit rating, on the company.
Highlights: “The outlook revision follows improved year-over-year first-half earnings as extensive restructuring actions have reduced costs and changes in the product mix helped boost operating margins,” said Standard & Poor’s credit analyst Ket Gondha.

Company: Knology Inc.
Sponsor: Ballast Point Venture
Upgrade: Moody’s upgraded the company’s corporate family rating to B1 from B2, its probability of default rating to B2 from B3 and its senior secured bank debt ratings to B1 from B2.
Highlights: Knology’s financial leverage at the end of June was 4.5x and has declined about one-half of one turn for each of the last two years. Moody’s expects leverage to decline further to around 4.0x by the end of 2010, owing to continued earnings improvement and, “notably,” according to Moody’s Senior Vice President Russell Solomon, “the excess cash flow sweep encompassed in the credit agreement’s governing financial covenants.”

Company: Acument Global Technologies, Inc.
Sponsor: Platinum Equity LLC
Downgrade: Moody’s downgraded the corporate family rating of Acument Global Technologies, Inc. to Caa1 from B2. At the same time, Moody’s lowered both the probability of default rating and the rating on the senior secured term loan to Caa1 from B2.
Highlights: The downgrade to Caa1 is prompted by the steep decline in demand for Acument’s products and the resulting deterioration of its earnings base over the past nine months, largely due to significantly lower vehicle production over that period.

Company: Reader’s Digest Association Inc.
Sponsor: Ripplewood Holdings LLC
Downgrade: S&P lowered its issue-level rating on the company’s senior secured facility to ‘D’ from ‘C’. Moody’s changed company’s probability of default rating to D from Ca.
Highlights: From S&P: The rating action reflects Reader’s Digest’s announcement of a Chapter 11 filing. Nearly 80% of senior secured lenders, representing nearly 70% of investing institutions, reached an agreement in principle with the company to reduce debt on the company’s balance sheet. As part of the agreement, lenders would exchange a portion of the $1.6 billion of senior secured indebtedness for equity. From Moody’s: The Ca Corporate Family Rating (CFR) and ratings for individual debt instruments are based on application of Moody’s Loss Given Default framework utilizing an expected 35% family recovery rate driven by a 4.0x distress multiple to estimated EBITDA.

Previous Weeks:
Weekly Downgrade Wrap-Up 25
Weekly Downgrade Wrap-Up 24
Weekly Downgrade Wrap-Up 23
Weekly Downgrade Wrap-Up 22
Weekly Downgrade Wrap-Up 21
Weekly Downgrade Wrap-Up 20
Weekly Downgrade Report 19
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Weekly Downgrade Report 2
Weekly Downgrade Report 1