Moody's rates Steinway notes Ba3

Moody's Investors Service said it assigned a Ba3 rating to Steinway Musical Instruments Inc.'s proposed $175 million senior unsecured notes, affirmed the Ba3 corporate family rating and changed the outlook to stable from negative.

Proceeds from the new notes are expected to be used to refinance the outstanding $166 million of 8¾% senior unsecured notes.

The stable outlook reflects a more conservative financial profile over the last couple of years, improving credit metrics and a lower cost of capital and corresponding interest coverage improvement caused by this transaction, the agency said.

Over the past couple of years, Steinway has shown increased financial discipline evidenced by internally financed acquisitions (Leblanc in 2004), continued lack of dividends and no share repurchases since early 2004, Moody's said. Steinway's consistent generation of operating cash flow (roughly $25 million of retained cash flow) has resulted in steady deleveraging with adjusted debt to EBITDA falling to 4.7x in the last 12 months ended Sept. 30 from over 5.5x in 2003.

Moody's said Steinway's ratings remain constrained, however, by its limited financial flexibility resulting from high debt levels, increasing raw material prices and modest demand, especially in the United States.

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