Moody's ups Directed Electronics debt to B1

Moody's Investors Service said it upgraded Directed Electronics' senior secured term loan, senior secured revolving credit facility and corporate family rating to B1 from B2 following the repayment of $74 million of unrated subordinated notes with initial public offering proceeds.

The outlook is stable. This concludes a review for possible upgrade begun on Nov. 23.

The upgrade reflects the significant decrease in adjusted financial leverage and improvement in interest coverage from the repayment of subordinated notes with the initial public offering proceeds, the agency said. For the last 12 months ended Sept. 30, adjusted debt to EBITDA decreased to 3.7x from pre-IPO levels of over 5x and EBITDA to interest increased to almost 4x from just over 2x before the IPO.

The upgrade also recognizes the growth and product diversification opportunities associated with Directed's exclusive supply agreement with Sirius satellite radio and its acquisition and integration of Definitive Technology in September 2004.

However, Moody's said that Directed's ratings remain constrained by its limited financial flexibility due to high debt levels, which were assumed to fund a recapitalization in 2004, and uncertainty in consumer spending trends. The company's financial flexibility could be further challenged given the investment requirements to support the new Sirius business.

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