Moody's rates Linens 'n Things SGL-3, notes B3

Moody's Investors Service said it assigned first-time ratings to Linens 'n Things Inc., including a B3 corporate family rating, B3 $650 million senior secured guaranteed notes due 2014 and SGL-3 speculative grade liquidity rating.

The outlook is stable.

A consortium of investors led by Apollo Management LP agreed on Nov. 8 to acquire Linens 'n Things for $28 per share, for a total purchase price of about $1.3 billion. The transaction will be financed with the proceeds of the note offering and by an equity contribution of $649.2 million.

Moody's said the ratings are constrained by the company's high leverage position post the transaction, the resulting weak coverage metrics, the limited free cash flow and the company's weak operating performance over the last several quarters. For the last 12-month period ended Oct. 1, EBIT margins had eroded to 2.3% from 5.1% for the period ended Jan. 3, 2004.

The ratings are supported, however, by the company's projected adequate liquidity position, the new senior management that will be put in place post the transaction, the sizable equity investment being made by the financial sponsors, the company's recognizable established brand name, its solid geographically diversified nationwide store base and the overall stability of the home furnishings industry, th

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