Moody's downgrades K2 to SGL-3

Moody's Investors Service said it downgraded the speculative grade liquidity rating of K2 Inc. to SGL-3 from SGL-2 and placed its Ba3 corporate family rating and Ba3 rating on its $200 million 7 3/8% senior unsecured notes due 2014 under review for possible downgrade.

This reflects the company's weaker-than-expected cash flow and higher-than-expected borrowings as soft operating performance in its paintball business and new product investments have caused a significant increase in working capital needs, the agency said.

Moody's had anticipated that borrowings under the revolving credit facility would decline below $70 million by December; borrowings are now likely to be much greater.

The SGL-3 rating is supported by Moody's expectation that K2 will maintain an adequate liquidity profile over the coming 12-month period with modestly positive free cash flow in 2006.

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