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Weekly Downgrade Wrap-Up (Including Too Many Withdrawals)

As usual, we have a week’s worth of downgrades PE-backed company debt from Moody’s and Standard and Poor’s. (It’s a day early this week as tomorrow is a holiday.)

This week there are only four, two of which were followed by withdrawals. As these withdrawals — which happen “at the company’s request” — increase, I’m starting to wonder about the ratings agencies (which naturally take their fair share of the blame for the credit crunch). I don’t like the idea that if a company doesn’t like what’s being said about its debt, it can make one phone call to silence the critics. It’d be like a public company dropping an analyst that rates it a “sell.” It’s unfair to debt holders.

It’s especially troubling because the companies typically withdraw after they’re hit with a “selective default.” This doesn’t mean the company has defaulted; the ratings agencies give ‘SD’ ratings if a company gets an amendment, does a distressed debt exchange, or misses a payment but is still within a 30-day grace period. I believe it is even more important for us to know what the debt is rated after such an exchange or amendment, but we won’t get that, since the companies typically withdraw after receiving an ‘SD.’

Fortunately, we saw S&P issue an “unsolicited” rating last week on Six Flags, which is a step in the right direction.

Company: Bombardier Recreational Products
Sponsor: Bain Capital
Downgrade: S&P lowered the company’s long term credit rating three notches to ‘CC’ from ‘CCC+’.
Highlights: The company received an amendment on its debt which will allow repurchasing from outside sources. “Our downgrade today does not reflect our view of a perceived increase in BRP’s bankruptcy risk. Rather, we based our downgrade on the financial pressure we believe the company is under to reduce its debt burden by retiring debt for less than originally contracted.”

Company: Ply Gem Industries
Sponsor: CI Capital Partners
Downgrade: Withdrawn at company’s request.
Highlights: Last week S&P issued an “SD,” or selective default, rating after CI Capital Partners LLC made a cash investment and acquired a majority of the company’s outstanding senior notes with the intention to amend the indenture.

Company: Kraton Polymers
Sponsor: J.P. Morgan Partners (fka Chase Capital Partners)
Downgrade: S&P lowered the rating to ‘SD,’ or selective default, from ‘B-‘.
Highlights: “The ‘SD’ rating reflects our expectation that Kraton will continue to pay its other creditors despite the completion of its recent debt purchase.”

Company: Hilite International
Sponsor: Blue Point Capital, Kelso & Co.
Downgrade: Moody’s downgraded the company’s probability of default ratings to Caa2 from Caa1. The ratings were followed by a withdrawal.
Highlights: “The Caa2 also considers the company’s weak liquidity position, in particular concerns on its ability of remaining covenant compliant as cash flow generation deteriorates.”

Company: Learning Care Group
Sponsor: Morgan Stanley Private Equity
Downgrade: Moody’s downgraded the company’s corporate family rating to B3 from B2.
Highlights: “There has been a relatively short operating history under the LCG umbrella of a significant number of centers (particularly La Petite Academy), and the effect of financial leverage is exacerbated by the presence of operating lease obligations that are long-term in nature and inextricably linked to the company’s child-care operations.”

Previous Weeks:
Weekly Downgrade Report 7
Weekly Downgrade Report 6
Weekly Downgrade Report 5
Weekly Downgrade Report 4
Weekly Downgrade Report 3
Weekly Downgrade Report 2
Weekly Downgrade Report 1