Moody's rates Gundle/SLT

Moody's Investors Service said it assigned provisional ratings to the proposed debt financings of Gundle/SLT Environmental Inc., including a prospective B3 senior implied rating, a prospective B3 rating for the $65 million guaranteed senior secured credit facility maturing 2010, and a prospective Caa1 rating for the $150 million issue of guaranteed senior notes due 2011. The issuer rating is prospective Caa2.

The outlook is stable.

Moody's said the proposed financings relate to Gundle/SLT's Dec. 31 announcement that it has agreed to merge with GEO Sub Corp., a wholly owned subsidiary of GEO Holdings Corp. The latter two companies are Delaware corporations organized to complete the merger and are affiliated with Code, Hennessy & Simmons IV LP.

Moody's said the ratings reflect the high, pro forma leverage with limited debt capacity for expansion; a negative variance in revenues due to a decline in the weighted average price per pound for the consolidated business and Moody's concern with the company's ability to achieve requisite volume growth to reduce leverage, particularly in light of the dampened volume reported in the first quarter ended March 31, 2004.

The ratings also incorporate the risk of unstable operating margins from historical price fluctuations of polyethylene resins (50% of cost of goods sold) as well as from the industry's use of annual fixed price bids for about 11% of its revenue; the significant seasonality of the business; significant sales concentration of 20% to one client; and a drain on the limited cash generation to service debt and a $2 million a year management fee to the equity sponsor.

The senior implied rating also incorporates the company's dominant market share of the North American, geomembrane market; international manufacturing and distribution capability; and more than two thirds sales exposure to the less cyclical, municipal, solid waste industry; a large client base with more than 1,000 customers with only one customer representing over 4% of revenue.

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