Moody's upgrades Leslie's Poolmart

Moody's Investors Service said it upgraded the corporate family and probability-of-default ratings of Leslie's Poolmart, Inc. to B1 from B2 and the company's $170 million senior unsecured notes to B2 (LGD4, 62%) from B3 (LGD4, 63%).

The outlook is stable.

The agency said the upgrade is a result of the company's sustained improvement in operating margins to 13% for the year ended Dec. 30 from 6.3% for the fiscal year ended Oct. 1, 2005, which has led to solid improvement in credit metrics. Operating margin increased primarily due to the leveraging of selling, general and administrative expenses off a higher sales base, to sustainable price increases and to the impact of a one-time stock compensation expense taken in 2005 as a part of the recapitalization.

The B1 corporate family rating is limited by the company's shareholder friendly financial policies, very small scale and very high seasonality, with all of its cash flow from operations being generated during the third quarter, Moody's said.

The debt-to-EBITDA ratio fell to 4.4x for the last 12 months ended Dec. 30 from 6.5x for the fiscal year ended Oct. 1, 2005.

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