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Weekly Downgrade Wrap-Up

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 Investors Service.

It’s Carlyle Week, as the mega-firm is the sponsor of three out of the five ratings actions we found. The firm’s energy services company, Stallion Oilfield, defaulted on a tiny $12.9 million interest payment. Another Carlyle energy services company, Titan Specialties, was downgraded because of its “vulnerable” business model and substantial leverage. Meanwhile, the firm’s waste management company, Wastequip, was downgraded for “PIK-ing its toggle” (why does that phrase sound so dirty?).

Company: Wastequip Inc.
Sponsor: Carlyle Group and Odyssey Investment Partners
Action: S&P placed its ratings on the company, including the ‘CCC+’ long-term corporate rating, on CreditWatch with negative implications.
Highlights: “The CreditWatch placement follows the company’s amendment of its mezzanine credit agreement to include a “PIK Toggle” feature, which allows the company to pay, at its option, nearly all of the cash interest due on its mezzanine loans in kind, to meet covenant compliance,” said Standard & Poor’s credit analyst Helena Song.

Company: Instant Web Inc.
Sponsor: Avista Capital Holdings
Action: S&P withdrew its ratings at the request of the company.
Highlights: The company’s corporate credit rating was CCC with negative implications.

Company: Stallion Oilfield Services Ltd.
Sponsor: Carlyle Group
Action: S&P lowered its corporate credit rating on the company to ‘D’ from ‘CCC’. Moody’s downgraded the company’s probability of default rating to D from Caa3 and its corporate family rating (CFR) to Ca from Caa3.
Highlights: From S&P: “On Aug. 1, 2009, Stallion failed to make an interest payment in the amount of $12.9 million on its senior unsecured notes. Additionally, on Aug. 6, 2009, the company failed to make a $4.8 million interest payment on its senior unsecured term loan.” From Moody’s: Stallion is currently in negotiations with all of its lenders to restructure its debts.

Company: AGA Medical Corporation
Sponsor: Welsh Carson Anderson & Stowe
Action: Moody’s downgraded the corporate family rating of the company to B3 from B2.
Highlights: “The downgrade reflects increased credit risk as a result of an aggressive growth strategy that has eroded liquidity and the potential impact of a recent adverse jury verdict in a patent infringement case.”

Company: Titan Specialties Ltd.
Sponsor: Carlyle Group
Action: S&P lowered its corporate credit rating on Titan to ‘CCC+’ from ‘B-‘; we are lowering the rating on the company’s first-lien senior secured credit facilities to ‘B-‘ from ‘B’; and we are lowering the rating on the second-lien senior secured term loan to ‘CCC-‘ from ‘CCC’.
Highlights: “The ratings on Titan Specialties take into account a significant decline in drilling activity by exploration and production (E&P) companies, the company’s highly leveraged financial profile, the small scale and scope of operations, poor inventory turnover, potential covenant violations, liquidity concerns, and its narrow business position in the cyclical North American oilfield services market.”


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