Weekly Downgrade Wrap-Up (Mega-B.O. Week)

As usual, I have a week’s worth of Moody’s and S&P downgrades on PE-backed companies. These are only the downgrades that affect companies that S&P and Moody’s consider part of their respective “Weakest Links” and “Bottom Rung” lists.

This week there are five, the majority of which are mega-buyouts. Apollo Management is a repeat offender.

Company: Jacuzzi Brands Corp.
Sponsor: Apollo Management
Downgrade: Moody’s downgraded the company’ corporate family rating to Caa2 from B3.
Highlights: “In Moody’s view, Jacuzzi’s liquidity profile has deteriorated in conjunction with recent earnings declines as cash consumption increased, revolver availability eroded and reliance on the revolver has increased.” Notably, “Moody’s acknowledges the enefits of Jacuzzi’s covenant-lite loan agreement.”

Company: Freedom Communications
Sponsor: Blackstone Group and Providence Equity Partners
Downgrade: Moody’s lowered the company’s corporate family rating and probability of default rating each to Caa3, from Caa1 and Caa2, respectively.
Highlights: Freedom is in technical default on $881 million of its loans. Moody’s says: “We consider that lenders will be willing to provide a waiver (or amendment) to Freedom’s already-elevated financial ratio tests, albeit at substantially higher cost to the company, which in turn would place yet further pressure on the company’s liquidity profile, heightening the probability of near- to-intermediate term default. …
“Moreover, the Caa3 CFR reflects Freedom’s heavy debt burden (which substantially exceeds the total value of the company, according to Moody’s estimates), and its high leverage (which Moody’s calculates at approximately 10 times total debt to EBITDA at the end of September 2008…)”

Company: Brigham Exploration Co.
Sponsor: DLJ Merchant Banking Partners
Downgrade: S&P lowered the company’s corporate credit rating to ‘CCC+’ from ‘B-‘
Highlights: The company fully drew down its $145 million revolver at the end of 2008. S&P is concerned that the company’s future facilities could be reduced, leaving the company with a mere $33 million in cash. The company is pursuing asset sales.

Company: Dayton Superior Corp.
Sponsor: Odyssey Investment Partners
Downgrade: S&P lowered the company’s corporate credit rating to ‘CCC-‘ from ‘CCC’.
Highlights: There is further near-term risk as the company had to extend its private equity offer for its senior sub notes. “If the company does not repay, refinance, or extend the maturity of its existing 13% notes, its $100 million term loan and revolving credit facility will mature in March 2009.”

Company: Harrah’s
Sponsor: Apollo Management and TPG
Downgrade: Moody’s downgraded Harrah’s probability of default rating to Ca from Caa3 on news it would seek a second private debt exchange offer on $2.8 billion of new 10% second priority senior secured notes due 2018.
Highlights: “Moody’s will view the exchange as a distressed exchange, and we reflect the likelihood of this event occurring through the assignment of the Ca Probability of Default rating.”

Previous weeks:
Weekly Downgrade Report 4
Weekly Downgrade Report 3
Weekly Downgrade Report 2
Weekly Downgrade Report 1