Moody's lowers Maxum loan to B3

Moody's Investors Service said it affirmed Maxum Petroleum, Inc.'s corporate family and probability-of-default ratings at B2 and downgraded its $155 million senior secured $155 million term loan B due 2013 to B3 (LGD4, 67%) from B2 (LGD4, 55%).

The outlook was revised to negative from stable.

The agency said the outlook revision reflects Maxum's declining profitability due to challenging conditions in certain end-markets, temporary margin erosion and the previously announced loss of a key distribution contract, as well as weaker-than-expected free cash flow after a surge in working capital that caused free cash flow to be negative over the last several quarters.

The downgrade of the term loan reflects the increased proportion of revolving credit facility debt in the capital structure, the agency said.

The B2 corporate family rating balances Maxum's high leverage, the low margins inherent in Maxum's core diesel marketing and distribution business and longer-term acquisition risk against the company's economies of scale in procurement, low customer concentration, diversified end markets and long-tenured relationships with key suppliers, Moody's said.

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