Weekly Downgrade Wrap-Up: Where Does Portfolio Company Debt Stand?

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

This week the agencies were busy withdrawing ratings on bankrupt companies and issuing new ratings on newly-exchanged debt facilities. Almost every action is related in some way to bankruptcy or a distressed debt exchange, which we may as well get used to, because there’s a lot of debt out there to be refinanced. To be specific, around $190 billion worth of speculative-grade bonds will mature between 2009 and 2011, according to Moody’s. Fortunately $120 billion of that isn’t due until 2011.

In addition to the downgrades, upgrades and withdrawals, S&P did some outlook revising: The agency affirmed its ratings on Rite Aid Corp. but revised its outlook from ‘negative’ to ‘stable.’ The company owes its revised outlook to improved liquidity and financial flexibility. Rite Aid, which has investments on Contrarian Capital and Leonard Green & Partners, recently refinanced of the bulk of its 2010 debt maturities, including a new $1.0 billion asset-based revolving credit facility. Currently the company has a ‘B-‘ corporate credit rating.

Company: Sbarro, Inc.
Sponsor: MidOcean Partners
Upgrade: Moody’s upgraded the company’s 1st lien senior secured ratings to Caa1 (LGD 2, 17%) from Caa2 (LGD 2, 21%).
Highlights: “The upgrade … reflects the establishment earlier this year of its 2nd lien senior secured term loan. This resulted in a higher level of liabilities that are junior to these securities and provides the 1st lien revolver and term loan lenders with a greater level of support in a distressed situation.”

Company: Instant Web Inc.
Sponsor: Avista Capital
Downgrade: S&P lowered the company’s corporate credit rating corporate to ‘CCC’ from ‘B-‘.
Highlights: “The ratings downgrade reflects our concern of a potential covenant violation as early as the fourth quarter of 2009, when the net debt to EBITDA covenant under the company’s first-lien senior credit facility steps down…” said Standard & Poor’s credit analyst Ariel Silverberg.

Company: Duane Reade Inc.
Sponsor: Oak Hill Capital Management Inc.
Ratings Assignment: S&P assigned its ‘B-‘ issue-level and ‘4’ recovery ratings to Duane Reade Inc.’s proposed $215 million senior secured notes due 2015.
Highlights: “The ‘CC’ corporate credit rating reflects our view of Duane Reade’s recent discounted offer ($875 for each $1,000 principal amount) for the $195 million subordinated notes as a distressed exchange and tantamount to a default,” said Standard & Poor’s credit analyst Ana Lai. The ratings agency believes that Duane Reade’s highly leveraged capital structure may be unsustainable.

Company: Freedom Communications, Inc.
Sponsor: Blackstone Group and Providence Equity Partners
Withdrawal: Moody’s withdrew its rating on the company because it will
lack adequate information to maintain a rating going forward.
Highlights: “The most recent rating action occurred on March 18, 2009 when Moody’s downgraded Freedom’s Corporate Family rating to Caa3 from Caa1 and Probability of Default rating to Caa3 from Caa2.”

Company: NXP B.V.
Sponsor: Bain Capital, KKR
Upgrade: S&P raised its long-term corporate credit rating on the Dutch semiconductor manufacturer to ‘CCC’ from ‘SD’.
Highlights: “The ratings primarily reflect our assessment of NXP’s capital structure and financial risk profile as highly leveraged following NXP’s recently completed distressed cash exchange for its senior unsecured and senior secured notes,” said Standard & Poor’s credit analyst Patrice Cochelin.

Company: Euramax International
Sponsor: GS Capital Partners
Downgrade: S&P lowered its corporate credit rating on the company to ‘D’ from ‘CC’ followed its out-of-court restructuring with lenders. Moody’s lowered the company’s probability of default rating to D from Ca and withdrew the company from future coverage.

Company: RathGibson, Inc.
Sponsor: DLJ Merchant Banking Partners
Downgrade: Moody’s downgraded the company’s probability of default rating to D
from Ca.
Highlights: The downgrade follows the July 13, 2009 announcement that
RathGibson will reorganize under Chapter 11.

Company: Allis-Chalmers Energy
Sponsor: Lime Rock Partners (27.9% stake)
Upgrade: S&P raised its corporate credit rating on the company to ‘B-‘ from ‘SD’.
Highlights: “The new corporate credit rating reflects decreased interest expense due to the reduction in debt levels and the company’s enhanced liquidity profile. However, in our view the changes are relatively minor given the company’s large debt levels and we remain concerned about weak industry fundamentals.”

Previous Weeks:
Weekly Downgrade Wrap-Up 20
Weekly Downgrade Report 19
Weekly Downgrade Report 18
Weekly Downgrade Report 17
Weekly Downgrade Report 16
Weekly Downgrade Report 15
Weekly Downgrade Report 14
Weekly Downgrade Report 13
Weekly Downgrade Report 12
Weekly Downgrade Report 11
Weekly Downgrade Report 10
Weekly Downgrade Report 9
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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