S&P downgrades MetoKote

Standard & Poor's said it lowered MetoKote Corp.'s corporate credit rating to CCC+ from B and its senior secured debt to CCC+ with a recovery rating of 3 from B+ with a recovery rating of 2.

The ratings were removed from CreditWatch, where they were placed with negative implications on Nov. 13, and the outlook is developing.

The agency said the downgrade reflects its view that declining light-vehicle sales and production in North America and Europe during 2009 will continue to lower the company's profitability and cash flow generation. Consequently, S&P believes EBITDA could fall substantially in 2009 and trigger a covenant violation later in the year and lead to challenges in extending the maturity of the revolving credit facility due May 2010.

The ratings reflect MetoKote's leveraged financial position and vulnerable business risk profile as a participant in the highly competitive, fragmented and cyclical coating business. S&P believes MetoKote's leverage will increase substantially to at least 5.7 times by the end of fiscal 2009 from about 3.4 times as of fiscal 2008.

The agency said the developing outlook means it could lower the ratings if the company is unable to maintain adequate liquidity, if it cannot refinance or extend the maturity of its revolver or if it seeks to undertake a distressed debt exchange. On the other hand, S&P could raise the ratings if the company amends its financial covenants, refinances or extends the revolver maturity and maintains sustainable positive free operating cash flow.

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