Moody's lowers MetoKote, rates revolver Caa2

Moody's Investors Service said it downgraded MetoKote Corp.'s corporate family rating to Caa2 from Caa1 and its $87 million first-lien term loan due November 2011 to Caa2 (LGD4, 50%) from Caa1 (LGD3, 34%), confirmed its probability-of-default rating at Caa2 and assigned a Caa2 (LGD4, 50%) rating to its $10 million first-lien revolving credit facility due August 2011.

This concludes the review for possible downgrade that began on Sept. 24, and the outlook is stable.

The review had been prompted by MetoKote's violation of its leverage covenant for the 12-month period ended in July along with concern about the near-term scheduled maturity of its revolver in May. Moody's said that MetoKote has obtained covenant relief and extended the revolver maturity, but the revolving credit commitment was reduced to $10 million from $30 million and $7 million of balance sheet cash was applied to the term loan.

The downgrade of the corporate family rating reflects still-weak operating conditions, higher debt service costs and significant capital expenditure requirements associated with new contracts - all of which the agency believes may pressure the company's limited balance sheet cash and revolver availability in coming periods - and a fundamental valuation that suggests a less-than-full recovery in a restructuring scenario, Moody's said.

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