Moody's downgrades Coach

Moody's Investors Service said it changed Coach America Holdings Inc.'s probability of default rating to Caa1/limited default from Caa3 following the completion of a restructuring, which Moody's said it views as a distressed exchange.

Moody's also said it revised the outlook to stable from negative upon the execution of an amended first-lien credit facility that reset leverage covenant requirements going forward.

The agency also affirmed its corporate family rating at Caa1.

Coach America executed a debt restructuring on Feb. 18, 2011 that involved a change in its capital structure and amendments to its first-lien bank credit facility, the agency said.

Moody's said it deemed that Coach America defaulted on its second-lien term loan because the debt is believed to have been bought back by an affiliate of the company's shareholders led by the company's largest shareholder, Fenway Partners, at a discount resulting in an economic loss for the debt holders when it was exchanged for $24.5 million of common equity.

The ratings continue to reflect Coach America's continuing highly leveraged capital structure, weak EBIT-to-interest coverage and negative free cash flow, the agency said.

Moody's said it expects the company's financials to remain depressed throughout the intermediate term notably given the ongoing economic malaise combined with anticipated required capital investments.

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