Moody's cuts Mecachrome view to negative

Moody's Investors Service said it changed Mecachrome International Inc.'s outlook to negative from stable and affirmed its B2 corporate family and probability-of-default ratings, Ba2 (LGD2, 19%) senior secured credit facilities, B3 (LGD5, 75%) senior subordinated notes and SGL-3 speculative grade liquidity rating.

The change in outlook reflects Moody's concern regarding recent operating results that were below prior expectations. Restoration of credit metrics to levels supportive of the B2 rating may take some time as Mecachrome is expected to continue to experience negative free cash flow through 2007, the agency said, possibly resulting in a weakening in liquidity or an increase in debt.

The B2 corporate family rating reflects Mecachrome's continued investment requirements in working capital and capital expenditures that have resulted in weak free cash flow and a high level of debt relative to a small revenue base, creating thin interest coverage that has resulted in the necessity to amend covenants under the company's senior credit facilities.

The rating positively considers the high level of diversity across Mecachrome's revenue base as it relates to product segments, programs and customers, Moody's added.

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