Weekly Downgrade Wrap-Up

As usual, we have a week’s worth of downgraded LBO-backed companies from S&P and Moody’s. Only four — which is the same number of withdrawals due to Chapter 11 or default. That latter group includes Charter Communications, backed by Kelso & Co. and Oak Hill, BI-Lo, backed by Lone Star Funds, as well as Indalex, backed by Sun Capital Partners.

Company: Network Communications Inc.
Sponsor: Citigroup Private Equity
Downgrade: S&P lowered the company’s corporate credit rating from lowered to ‘B-‘ from ‘B’.
Highlights: “Revenue and EBITDA were down 20% and 38%, respectively, for the third fiscal quarter ended Dec. 7, 2008, largely due to a decline in ad pages at the company’s largest publication, The Real Estate Book (TREB).”

Company: Michael’s Stores
Sponsor: Blackstone Group and Bain Capital
Downgrade: Moody’s lowered the company’s probability of default and corporate family ratings to Caa1 from B3.
Highlights: “In the fourth fiscal quarter, which is typically the company’s most profitable quarter, Michaels’ reported a decline in same store sales of 5.6% with EBITDA declining by 22%. As a result, debt/EBITDA has increased to in excess of 8.5 times with interest coverage (EBITA/Interest) near 1.0 times.”

Company: Mitel Networks Corp.
Sponsor: Francisco Partners
Downgrade: S&P lowered the company’s corporate credit rating to ‘B-‘ from ‘B’.
Highlights: “The ratings on Mitel reflect what we consider its very high debt leverage and correspondingly weak credit metrics; its focus on the small and midsize business telephony market; and our concerns about lower sales as weakened economies lead business customers to defer telecom equipment purchases. The ratings also reflect what we see as strong competition from large industry players; Mitel’s weak historical operating performance; and weakened liquidity.”

Company: Wilton Products
Sponsor: GTCR Golder Rauner
Downgrade: S&P placed the company’s ratings, including its ‘B-‘ corporate credit rating, on CreditWatch with negative implications.
Highlights: “The CreditWatch placement reflects our increasing concerns that bank covenant cushion is very limited because covenant levels tightened in the fourth-quarter 2008 and then again in first-quarter 2009.”

Notably, S&P also withdrew its ratings for DEI Holdings, which is backed by BanBoston Capital/BancBoston Ventures, Trivest Partners LP and Massachusetts Mutual Life, at the request of the company. DEI’s corporate credit rating was ‘B’.

Previous Weeks:
Weekly Downgrade Report 5
Weekly Downgrade Report 4
Weekly Downgrade Report 3
Weekly Downgrade Report 2
Weekly Downgrade Report 1