Moody's rates Kinetek loans B1, Caa1

Moody's Investors Service said it assigned B2 corporate family and probability-of-default ratings to Kinetek, Inc. following The Resolute Fund LP's agreement to purchase the company.

The agency also assigned B1 ratings with loss-given-default assessments of LGD3 (35%) to the company's $50 million first-priority senior secured revolver due 2012 and $215 million first-priority senior secured term loan due 2013 and a Caa1 rating with a loss-given-default assessment of LGD5 (83%) to the company's $85 million senior second-lien secured term loan due 2014.

The outlook was changed to stable from negative.

The $450 million acquisition, plus fees and expenses, will be financed with $216 million of first-lien bank debt, $85 million of second-lien debt and $160 million of sponsor equity.

The agency said the ratings reflect Kinetek's high 5.3x adjusted-debt-to-EBITDA ratio, modest 1.8x interest coverage and historically weak to negative free cash flow. Additionally, Kinetek remains exposed to cyclical demand and competition from larger and better capitalized companies.

The ratings are supported by Kinetek's leading domestic position in electrical motors that are used in a range of applications including elevators, commercial floor care, and consumer and commercial products, Moody's said. Kinetek also enjoys cost and technical leadership in the markets it serves, which is partially evidenced by above average operating margins.

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