Moody's cuts Muzak

Moody's Investors Service said it assigned a B3 rating to Muzak LLC's proposed $35 million senior secured term loan B due 2008 and has downgraded all other ratings, including the $60 million senior secured revolver due 2008 to B3 from B2, $220 million 10% senior unsecured notes due 2009 to Caa1 from B3, and the $115 million 9.875% senior subordinated notes due 2009 to Caa2 from Caa1.

Moody's also lowered Muzak Holdings LLC's $25 million 13% senior discount notes due 2010 to Ca from Caa3, senior implied rating to B3 from B2, and senior unsecured issuer rating to Ca from B3.

The outlook is stable.

Moody's said the ratings reflect the company's high leverage, low interest coverage, weak asset coverage, high level of intangible assets, significant high-coupon PIK preferred, limited financial flexibility, and a business environment that is expected to become increasingly competitive.

The ratings also consider the company's low customer concentration, marketing initiatives, cost reduction initiatives, productivity enhancement strategy, and a recurring revenue base.

Proceeds from the $35 million senior secured term loan B were used to repurchase about $32.5 million of the 13% senior discount notes at Muzak Holdings and for related fees and expenses. The remaining senior discount notes total about $25 million.

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