Moody's may downgrade CLFX

Moody's Investors Service said it placed CLFX Corp.'s Ba3 corporate family rating under review for possible downgrade.

The agency said the review was prompted by CLFX's still-pending acquisition of Lubrication Systems Co. for $28.5 million, subsequent financing via a $55 million add-on to its existing term loan B, an increase in the debt-to-EBITDA ratio to 3.3x from 2.7x, the company's inability to produce free cash flow at or near the peak of an industry cycle, a relatively high level of ongoing contingent liabilities and Moody's uncertainty regarding the company's business and financial strategies.

The review will focus on CLFX's ability to deliver on Moody's previous expectations, the asbestos-related liabilities and settlement costs and the potential for material acquisitions, which could result in a more aggressive capital structure.

The company's bank debt includes a $50 million revolver due 2008, the aforementioned $178.5 million term loan B due 2011 and a €27 million term loan C due 2011. In addition to financing the LSC acquisition, the company will use the remaining proceeds from the $55 million term loan B add-on to pay down $11.5 million of revolver outstandings, prepay an expected 2007 pension obligation of $8.6 million and for fees and expenses.

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