Weekly Downgrade Wrap-up

As usual, I have a week and a day’s worth of Moody’s and S&P downgrades on PE-backed companies. This week, there were nine new ones, including two backed by Warburg Pincus and two from Bain Capital. (Apologies for the delay, as I was out Friday and Monday)

Company: Rafaella Apparel Group
Sponsor: Cerberus Capital Management
Downgrade: S&P announced a corporate credit rating downgraded from ‘CCC’ from ‘B-‘.The outlook is negative.
Highlights: “We estimate that leverage may increase to over the 11.5x area (assuming debt levels do not increase significantly from current levels) if revenues decline by about 13% for fiscal 2009 from fiscal 2008 levels and EBITDA margins remain in the low single digits, which may reduce Rafaella’s net income covenant cushion.”

Company: Baker & Taylor Acquisitions Corp.
Sponsor: Castle Harlan
Downgrade: Moody’s announced its corporate family rating downgraded to B3 from B2. The ratings
outlook remains negative.
Highlights: The downgrade also incorporates Moody’s concern that substantially reduced earnings have led to weaker interest coverage metrics.

Company: Standard Steel
Sponsor: Trimaran Capital Partners, LLC
Downgrade: S&P lowered long-term corporate credit rating to ‘B-‘ from ‘B+’. The outlook is negative.
Highlights: “We expect new railcar production to decline significantly in 2009 compared to 2008 and, as a result, Standard Steel’s credit metrics are likely to worsen to levels outside our expectations for the ‘B+’ rating.”

Company: OSI Restaurant Partners
Sponsor: Bain Capital and Catterton Partners
Downgrade: Moody’s lowered the company’s Probability of Default (PD) rating
to Ca from Caa1 and lowered the rating on its $550 million 10% senior
unsecured notes to C from Caa3.
Highlights: “The company also announced that it will likely need to take an impairment charge of between $480 and $540 million for goodwill due to a reduction in its projected results for future periods as a result of poor overall economic conditions.”

Company: Clear Channel Communications
Sponsor: Bain Capital and Thomas H. Lee Partners
Downgrade: The S&P corporate credit rating was lowered to ‘B-‘ from ‘B’.
Highlights: “Under our baseline scenario, including our assumptions regarding possible covenant add-backs under Clear Channel’s credit agreement, we estimate that the company could violate covenants in the second half of 2009, or sooner if EBITDA declines are greater than our expectations.”

Company: Titan Petrochemicals Group
Sponsor: Warburg Pincus
Downgrade: S&P lowered the company’s long-term corporate credit rating to ‘CCC’ from ‘B-‘. and the issue rating on the US$400 million 8.5% senior unsecured notes due 2012 guaranteed by Titan to ‘CCC-‘ from ‘CCC+’.
Highlights: “Even if Titan could find funding from onshore banks, it is likely to be on a secured basis, which may further distance bondholders from the assets.”

Company: Freescale Semiconductor
Sponsor: Blackstone Group LP, Carlyle Group, HarbourVest and TPG
Downgrade: Moody’s downgraded the probability of default rating (PDR) to Ca from Caa1 and affirmed its corporate family, long-term debt and speculative grade liquidity ratings on the company.
Highlights: “The company’s interest burden absent the exchange offer may become a source of significant financial stress given that Freescale is planning to materially downsize and/or sell its cellular business.”

Company: United Subcontractors
Sponsor: Wind Point Partners
Downgrade: S&P lowered the corporate credit rating to ‘CCC-‘ from ‘CCC+’.
Highlights: “We are skeptical that any amendment to the credit facility that does not include a significant equity infusion will allow USI to meet debt service requirements over the intermediate term.”

Company: MEG Energy Corp.
Sponsor: Warburg Pincus
Downgrade: Moody’s downgraded its Corporate Family Rating to B1 from Ba3 and
downgraded its senior first secured debt ratings to B1 from Ba3.
Highlights: The rating outlook is negative, though it will be considered for a move to stable when MEG completes the arrangement of a new bank revolver of up to US$150 million and the raising of approximately US$500 million of equity.