Moody's downgrades Heckler & Koch

Moody's Investors Service said it downgraded Heckler & Koch GmbH's corporate family rating and senior notes to B2 from B1.

The outlook remains negative.

The agency said the downgrade reflects the continued weakening operating performance and cash generation in the first nine months of 2006 to a level below expectations, driven by a decline in revenues and delays in underlying orders delivered; the increasing likelihood that historical revenue levels at around 150 million per year will not be restored over the next 12 to 18 months given the decrease in incoming orders, with limited expectation that the company will restore its credit metrics in the medium term to levels in line with the higher end of the single B rating category; and the challenges facing the company in preserving a sufficient liquidity position, given the constant negative free cash flows in the first nine months of 2006.

The outlook remains negative, reflecting Moody's concern that over the next 12 to 18 months the company may be challenged to restore its revenue base to breakeven levels and to generate positive free cash flows; that the company will 1ikely be unable to restore credit metrics, namely debt to EBITDA of below 6x, to a level in line with the B2 rating category; and as a consequence of such potential further weak operations, the concern that the company may find it difficult in such circumstances to maintain a sufficient cash cushion, which - absent of any additional shareholder or third party support - is its sole source of liquidity at present.

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