Moody's downgrades Sealy Mattress' debt ratings

Moody's Investors Service downgraded Sealy Mattress Co.'s debt ratings and revised the outlook to stable. Ratings lowered include Sealy's $100 million senior secured revolver due 2002, $125 million senior secured term loan A due 2002 and $330 million senior secured AXEL term loans due 2004 to 2006, all cut to B1 from Ba2, $250 million 9.875% senior subordinated notes due 2007 and $128 million 10.875% senior subordinated discount notes due 2007, both cut to B3 from B2, senior implied rating to B1 from Ba3 and senior unsecured issuer rating to B2 from B1.

"The rating downgrades reflect Moody's concerns regarding Sealy's increased sales, earnings, and balance sheet exposure to distressed affiliate entities, as well as ongoing margin and cash flow pressure associated with international expansion, increased retail/consumer economic challenges, expenditures required to improve regional and international operating efficiency, the substantial amortization of Sealy's term loans over the next few years, and near-term increases in cash interest payments (when interest on the discount notes becomes cash payable in December 2002)," the Moody's release said.

Ratings also reflect high leverage, moderate interest coverage, modest retained cash flow relative to debt, the deferrable nature of the bedding industry's products and strong competition in the sector, according to the release.

Positive factors affecting the ratings include, strong brand recognition, strong market share and vertical integration.

At March 2002, leverage was about 7.0 times on an EBITA basis, pro-forma cash interest coverage was around 1.5x on an EBITA basis and pro-forma retained cash flow was around 2% of total debt, the release said.

Moody's rates Tekni-Plex add-on B3

Moody's Investors Service assigned a B3 rating to Tekni-Plex, Inc.'s $40 million add-on to its 12.75% senior subordinated notes due 2010 and confirmed its existing ratings including its $275 million 12.75% senior subordinated notes due 2010 at B3 and its $440 million secured credit facility at B1. The outlook is stable.

S&P rates Tekni-Plex add-on B-

Standard & Poor's assigned a B- rating to Tekni-Plex Inc.'s $40 million add-on to its 12.75% senior subordinated notes due 2010 and confirmed its existing ratings on the company including its senior secured debt at B+ and its subordinated debt at B-.

S&P said the ratings reflect Tekni-Plex's "very aggressive financial profile, which overshadows the firm's fair business position."

Barriers to entry include strong market positions in its niche markets, innovative technologies, and a business mix that includes some highly specialized products, S&P noted.

Tekni-Plex also benefits from the consumer-oriented nature of its end markets and a wide breadth of products, which provide a measure of stability to operating results, the rating agency said.

The company's financial profile was significantly weakened following its recapitalization in June 2000, which led to increased debt levels. However, EBITDA interest coverage is expected to approach 2.0 times, supported by profitability growth through additional synergies derived from the Swan acquisition, new products, and market penetration, S&P said. Also, the deleveraging effect of the Swan acquisition and expectations that free cash will be used to further reduce debt in the intermediate term should improve the financial profile so that the ratio of total debt to EBITDA trends toward 4.5x-5.0x, an appropriate level for the rating.

S&P says AmeriGas buyback won't affect ratings

Standard & Poor's said AmeriGas Partners LP's fiscal second quarter earnings announcement will not immediately affect the company's ratings or outlook. The corporate credit rating is BB+ and the outlook negative.

"Earnings were fairly strong considering the unseasonably warm winter weather experienced throughout the U.S. during the period," S&P commented. An unexpected rise in commodity prices toward the end of the quarter bolstered results.

In addition, the company benefited from the continued successful integration of Columbia Energy Group's propane assets, evidenced by cost efficiencies revealed during the quarter. Although financial performance was better than originally expected, Standard & Poor's said it continues to be concerned that credit protection measures remain weak for the rating.

S&P cuts WKI notes

Standard & Poor's downgraded some WKI Holding Company Inc. ratings, including lowering its $200 million 9.625% senior subordinated notes due 2008 to D from C, and confirmed its senior secured bank loan at CC.

S&P said the action follows WKI's nonpayment of interest due May 1 on its $200 million 9 5/8% subordinated notes.

The rating agency noted the company was restricted from making the interest payment on the subordinated notes because it would have caused the temporary waiver of the bank covenant defaults to expire.

Moody's rates Mobile Storage's loan Ba3

Moody's Investors Service assigned first time ratings of Ba3 to Mobile Storage Group Inc.'s proposed $200 million secured bank loan and a Ba3 senior implied and B1 long-term issuer rating. The outlook is stable.

The new loan, consisting of a $60 million revolver and a $140 million term, will be secured by a first priority lien on all tangible and intangible assets. Proceeds from the new loan combined with an anticipated $125 million in gross proceeds from an initial public offering will be used to repay existing debt.

Negative factors affecting the ratings are the company's leverage, the cyclical nature of the customer base, the relative smallness of the company compared to some of its competitors, the expected rapid acquisition pace and the necessity to adjust growth to available excess operating cash, Moody's said.

Positive influences include the company's credit metrics, cash flow generation characteristics and the company's position as the largest player in the fragmented mobile storage sector in the U.S. and the U.K, according to Moody's.

"The stable outlook reflects our expectation that the IPO will take place largely as now contemplated," the rating agency said. "We also expect that the capital expenditures and acquisitions will largely be financed with operating cash flow (in contrast to additional borrowing) and that the company will better its financial profile as revenue grows both organically and from acquisitions."

Moody's rates Compton notes B2

Moody's Investors Service assigned a B2 rating to Compton Petroleum Corp.'s planned offering of $150 million of 10 year senior unsecured notes.

Although the outlook is stable, Moody's noted that the ratings may not withstand aggressive use of the revolver for acquisitions, particularly if 2002 natural gas and oil prices evolve to weakness.

Moody's said Compton's ratings are restrained by its small reserve scale; roughly 69% of proven reserves and 53% of production concentrated in one region, though Compton holds a substantial position in that region; rising unit production and reserve replacement costs; acquisition risk; a substantial part of historic capital outlays have been spent in the high cost 2000-2001 up-cycle; and a below average reserve life on proven developed reserves of 6.7 years (annualized fourth quarter production).

Positives include a relatively balanced record of methodically building key holdings; a high fully-funded proven developed reserve component (89% of reserves) supporting the debt structure; a seasoned management team and a board of directors consisting mainly of informed midstream and upstream oil and gas industry participants; a larger production base after 16.8% production growth from fourth quarter 2000 to fourth quarter 2001; diversification potential across four operating regions; significant gas processing infrastructure control; a significant prospect inventory; and Compton's operation 92% of its production.

S&P rates Kinetic Concepts' loan B

Standard & Poor's assigned a B rating to Kinetic Concepts Inc.'s $30 million senior secured tranche E term loan due 2005. The company's corporate credit rating of B was affirmed and the senior subordinated debt is rated CCC+.

The ratings reflect the still vulnerable business and financial prospects of the durable medical product firm due to its heavy dependency on VAC, a device used to heal chronic wounds.

"From a financial standpoint, the recent addition of a new bank tranche added needed financial flexibility by repaying outstanding bank revolving credit debt," S&P said. "Nevertheless, the capital structure remains stretched by the debt associated with KCI's 1997 LBO."

S&P rates Mobile Storage loan BB

Standard & Poor's assigned a BB rating to Mobile Storage Group, Inc.'s new credit facility made up of a $60 million revolving credit facility due 2007 and a $140 million term loan. The outlook is stable.

S&P cuts DDi

Standard & Poor's downgraded DDi Corp. and maintained a negative outlook. Ratings affected include DDi's $300 million credit facility due 2003, cut to B from B+, its $100 million 5.25% convertible subordinated notes due 2008 and $100 million 6.25% convertible subordinated notes due 2007, both cut to CCC+ from B-, and Details Capital Corp.'s $60.054 million 12.5% senior discount notes due 2007, cut to CCC+ from B-.

S&P said the action follows DDi's announcement that it expects weaker profits due to a sharp drop in sales.

DDi's sales fell by more than one-half in its fiscal first quarter ended March 2002 from the same period in 2001, the company said. The decline resulted in subpar credit measures for its rating. Slumping end-market demand and increased pricing pressures have hurt operating performance, and management expects sales to remain depressed in the near term.

S&P said DDi's operating profitability fell well below its expectations to about 2% from nearly 30% in the same period in 2001.

Deteriorating cash flow protection measures are a concern as EBITDA coverage of interest is likely to be below 1 times in the first half of 2002, down from more than 5x in the first half of 2001, S&P added.

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