Moody's cuts Metallurg discount notes to C

Moody's Investors Service said it lowered Metallurg Holdings Inc.'s senior implied rating to Caa3 from Caa1, senior unsecured issuer rating to C from Ca, and $121 million of 12.75% senior discount notes Series B due July 15, 2008 to C from Ca. Moody's also cut Metallurg Inc.'s ratings for $100 million of 11% guaranteed senior notes Series B due Dec. 1, 2007 to Ca from Caa2.

The outlook is negative.

Moody's said the rating downgrades were prompted by the company's weak operating performance, limited liquidity, poor credit metrics, which continue to fall short of Moody's previous assumptions, and our expectation that the difficult environment in which the company currently operates will persist over the intermediate term.

Metallurg's liquidity position remains tenuous given its negative cash flows and the limitations under its various credit facilities. Metallurg Inc. is restricted from distributing dividends to Metallurg Holdings by various contractual and legal restrictions.

Metallurg Holdings has stated that it does not have sufficient cash on hand to make the interest payment on its senior notes due Jan. 15.

Moody's said the company's performance continues to be negatively impacted by the difficulties that are being experienced in the aluminum, steel, specialty metals and alloy industries, which are the primary environments in which Metallurg's customers operate. Weak demand for many of Metallurg's products as well as increased competition has resulted in lower prices, net sales, and margins and a considerable deterioration in credit metrics.

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