As usual, we have a week’s worth of ratings actions on the debt of sponsor-backed companies via Standard & Poor’s Investors Service and Moody’s Investor Services.
Last week was Carlyle Week, with three of the firm’s companies receiving downgrades on their debt ratings. This week it’s Castle Harlan week. Two of the firm’s companies caught the attention of the ratings agencies this week, receiving one downgrade and one upgrade. We’ll call it a break-even.
Perkins & Marie Callender’s, the company’s struggling restaurant business, saw the ratings on its speculative grade debt downgraded on concerns over the company’s cash flow and borrowing ability. Conversely, Ames True Temper climbed its’s way out of the C’s when S&P upgraded its corporate credit rating to B- on its stable operating performance through the recession.
The timing is perfect, considering Castle Harlan’s John Castle recently addressed the New York Chamber of Commerce about “Private equity after the world’s economic meltdown.” We’ve published the full text of his speech here.
Company: Harrah’s Operating Co. Inc
Sponsor: Apollo Management LP and TPG Inc.
Ratings Action: S&P has assigned a ‘B-‘ issue-level rating to Las Vegas-based casino operator Harrah’s Operating Co. Inc.’s proposed $750 million incremental first-lien senior secured term loan. The company’s corporate credit rating remains at ‘CCC+’ on concerns about the risk of a restructuring over the intermediate term.
Highlights: While Harrah’s financial profile is under pressure given declining cash flows and weak credit measures, we believe that the slight discount to par incorporated in the tender offers is largely a reflection of market conditions.
Company: United Site Services Inc.
Sponsor: DLJ Merchant Banking Partners
Ratings Action: S&P lowered the corporate credit rating on to ‘CC’ from ‘CCC+’.
Highlights: “The downgrade and negative outlook reflect United Site Services’ significant earnings deterioration through the first six months of 2009, along with the potential that the company may have difficulty meeting upcoming interest and principal obligations due to expected weak cash flows that could constrain liquidity,” said Standard & Poor’s credit analyst James Siahaan. Weakness in residential-, commercial-, and government-related construction spending, along with lower demand in the company’s portable restrooms, has hurt operating performance.
Company: American Axle & Manufacturing Holdings, Inc.
Sponsor: Blackstone Group LP
Ratings Action: Moody’s raised American Axle’s corporate family rating to Caa3 from Ca.
Highlights: The ratings upgrade reflects the expectation that “recently negotiated financing arrangements from American Axle’s largest customer, GM, combined with improved financial covenant cushions under the amended bank credit facilities will provide additional operating flexibility under difficult industry conditions.”
Company: NTK Holdings, Inc. (Nortek)
Sponsor: THL Partners
Ratings Action: Moody’s downgraded the company’s corporate family rating to Ca from Caa3.
Highlights: “The downgrade follows the recent announcement by Nortek that it has begun a solicitation of votes from its creditors for its prepackaged plan of reorganization from holders of the notes issued by both NTK Holdings, Inc. and Nortek, Inc.”
Company: Perkins & Marie Callender’s
Sponsor: Castle Harlan Inc.
Ratings Action: Moody’s downgraded the company’s speculative grade liquidity rating to SGL-4 from SGL-3 and affirmed the company’s corporate family rating of Caa3.
Highlights: “The revision of the SGL rating reflects Moody’s expectation that PMC’s overall liquidity – its internally generated cash flow plus borrowing availability under its revolver would likely not be sufficient cover its cash needs, including interest payment and capital expenditure in the next twelve months.”
Company: Ames True Temper Inc.
Sponsor: Castle Harlan
Ratings Action: S&P upgraded its ratings on Ames True Temper Inc., including its corporate credit rating to ‘B-‘ from ‘CCC+’.
Highlights: “The upgrade reflects the company’s relatively stable operating performance through the very challenging economic environment and improved liquidity position through modest free cash flow generation over the past 12 months,” said Standard & Poor’s credit analyst Christopher Johnson.
Company: Palm Inc.
Sponsor: Elevation Partners
Ratings Action: S&P did not change its rating on the company but place its ‘CCC’ corporate credit rating on Watch Positive.
Highlights: “The CreditWatch listing reflects the company’s announcement that it plans to sell $231 million in new common stock,” said Standard & Poor’s credit analyst Bruce Hyman. The planned offering would provide additional working capital to support anticipated working capital expansion, and for other corporate purposes.