S&P rates new Nortek discount notes B-

Standard & Poor's Ratings Services said it has assigned its B- rating to a proposed issue of $350 million (gross proceeds) of senior discount notes due 2011 by Providence, RI-based Nortek Holdings Inc., the parent company of Nortek Inc.

At the same time, S&P assigned a B+ corporate credit rating to Nortek Holdings and affirmed its existing ratings on Nortek Inc.

Proceeds from the offering will be used for a dividend of about $335 million to shareholders.

S&P said the unsecured notes are structurally subordinated to all of the existing and future debt and obligations of holding's subsidiaries. At the time the senior discount notes are issued, holdings' only principal asset will be its investment in Nortek.

"The current consolidated financial profile has some room to accommodate the addition of debt at the parent company without jeopardizing the ratings," said S&P credit analyst Wesley E. Chinn. "Moreover, the potential sale of the windows, doors, and siding business would likely result in proceeds easily exceeding this debt issuance.

"On the other hand, the divestiture of that operation would diminish the overall business profile and reduce the earnings base."

S&P said the ratings reflect the consolidated entity's competitive, cyclical markets, the niche characteristic of certain products, and weak cash flow protection measures because of its aggressive use of debt, mitigated by a somewhat diversified portfolio of building products (generating annual sales of roughly $2 billion), significant market shares, and relatively stable cash flows.

Ratings incorporate the potential divestiture of the windows, doors, and siding business, which accounts for about 27% of consolidated sales and 25% of operating income.

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