S&P confirms Knoll

Standard & Poor's confirmed Knoll Inc. including its senior secured debt at BB with a stable outlook and withdrew its subordinated debt rating of B+.

S&P said the action follows Knoll's open market repurchase of all of its outstanding subordinated notes due 2006 in March.

The ratings are supported by Knoll's favorable position in the volatile U.S. office furniture market, offset somewhat by the company's moderately leveraged capital structure, S&P said.

Discretionary cash flow in 2002 was $77 million, S&P noted. Excluding the effect of a $220.3 million special dividend paid in 2001, discretionary cash flow declined 29%, as significantly lower funds from operations were only slightly offset by less capital spending. By repaying $95 million in debt in 2002, despite the bad economy and lower profitability, Knoll mitigated the decline in its profitability.

EBITDA coverage of interest expense rose slightly to 5.5x in 2002, compared with 5.2x the year before, S&P said. Given the business risk of the company, Standard & Poor's views this coverage ratio as appropriate for the rating. Total debt to EBITDA rose to 3.0x versus 2.4x in 2001.

Moody's cuts Interstate Bakeries

Moody's Investors Service downgraded Interstate Bakeries Co. including cutting its $300 million senior secured revolving credit facility, $375 million senior secured term loan A and $125 million senior secured term loan B facility to Ba2 from Ba1. The outlook remains negative.

Moody's said the downgrade reflects the sharp decline in Interstate Bakeries' operating results, which stem from pressures on both the company's single-serve snack lines, as well as the bread business, leading to decreased margin, higher leverage and weaker credit protection measures.

The downgrade also reflects the unfavorable competitive and business environment in which Interstate Bakeries is operating, as well as the significant cost, time and implementation challenges of efforts to improve operating performance to historical levels.

The negative outlook reflects the ongoing challenges to Interstate Bakeries' profitability, implementation risk relating to the company's investment program, and the near-term increase in leverage as a result of the investment program, Moody's said.

Interstate Bakeries' ratings could be further downgraded should debt protection measures continue to deteriorate. This could occur if the anticipated restructuring cost reduction and efficiency gains fail to materialize in an acceptable time frame, the rating agency added. The ratings could also be pressured if implementation of systems and technology proves more complex and costly than anticipated, and if returns are lower than expected.

Last 12 months total debt/EBIT at March 8. 2003 was 4.7x and total debt/EBITDA 2.7x, Moody's noted.

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