Weekly Downgrade Wrap-Up

As usual, we have a week’s worth of ratings action on the debt of LBO-backed companies from ratings agencies Standard & Poor’s Investor Services and Moody’s Investors Service.

The big action this week was all the toggling going on at Realogy, Apollo Management’s ill-timed real estate mega-deal. The company underwent a distressed debt exchange of its senior toggle notes, in which Carl Icahn received $150 million of a $475 million second lien term loan for a previously held $280 million senior toggle notes due 2014. The money will be used to repay first lien credit facilities. Icahn Partners is selling the rest of its toggle notes to Apollo, which will invest the cash in the new second-lien term loan.

My question: Which mega-buyouts haven’t successfully undergone a distressed debt exchange? Seems most of ‘em have succeeded in pushing their debt band-aids through and “kicked the can down the road,” as the PE pros have been saying. But have any tried and failed? Have any not even tried yet?

Company: United Site Services
Sponsor: DLJ Merchant Banking Partners
Action: Moody’s downgraded the company’s corporate family and probability-of-default ratings to Caa3 from Caa1.
Highlights: “The downgrade reflects the company’s continued weak financial performance, deteriorating credit metrics, and the likelihood for increased pressure on already weak cash flows as USS’ option to defer cash interest payments on its mezzanine loan has expired.”

Company: Targa Resources Inc.
Sponsor: Warburg Pincus
Action: S&P raised the senior secured rating to ‘BB-‘ from ‘B+’ and the senior unsecured rating to ‘B’ from ‘CCC+’.
Highlights: “The rating action follows the completion of TRI’s sale of its natural gas liquids business to master limited partnership Targa Resources Partners L.P. for $530 million. TRI will use the cash proceed of $397.5 million to permanently reduce its senior secured term loan facility to about $68 million. The substantial deleveraging effect from the sale of TRI’s downstream business has resulted in a significant improvement in TRI’s stand-alone financial metrics.”

Company: Realogy Corp.
Sponsor: Apollo Management
Action: S&P raised its corporate credit rating on Realogy Corp. to ‘CC’ from ‘SD’. Moody’s changed the Probability of Default Rating of Realogy Corporation (Realogy) to Caa3/LD from Caa3.
Highlights: From S&P: “The rating actions follow the company’s exchange of about $220 million in face value of senior toggle notes for $150 million of new second-lien term loans (less than par), which we viewed as tantamount to a default given the distressed financial condition of the company. ‘The ‘CC’ rating reflects the relatively modest reduction in total debt as a result of the exchange and our concern that the company’s ability to service its current capital structure will remain challenged,’ said Standard & Poor’s credit analyst Emile Courtney.” From Moody’s: “The LD designation anticipates that Realogy and/or Apollo may continue to purchase or exchange senior and subordinated bonds at a substantial
discount to par over the next year.”

Company: Hanley-Wood, LLC
Sponsor: J.P. Morgan Partners and CCMP Capital Advisors, as well as Venture firm Wasserstein Ventures
Action: Moody’s downgraded the company’s corporate family rating and the rating on the senior secured credit facility to Caa1 from B2.
Highlights: “The downgrade to Caa1 and negative outlook reflect Hanley Wood’s very high financial leverage and weak liquidity profile, which are expected to deteriorate further over the near term and lead to a capital structure that may be untenable in Moody’s view.”

View all past downgrade wrap-ups at peHUB Fileroom.