Moody's lowers Panolam outlook, rates loan B2

Moody's Investors Service assigned a B2 rating to the new senior second secured term loan of Panolam Industries International, Inc., lowered its outlook to stable from positive and confirmed its ratings including its current bank facility at B1.

The outlook revision reflects Moody's expectation that the current economic weakness will preclude Panolam from generating the degree of improvement in its near-term credit profile that had previously been expected. The stable outlook assumes that Panolam will continue to generate positive free cash flow that will be used primarily for debt reduction.

Moody's also lowered the senior unsecured issuer rating to B3 from B2, reflecting the addition to the capital structure of another layer of secured debt that would contractually subordinate any potential issuance of senior unsecured debt.

The ratings consider Panolam's heavy debt leverage, negative tangible equity, and the competitive and cyclical nature of the residential and commercial construction and remodeling segments of the economy. In addition, the ratings factor in Panolam's exposure to fluctuation in raw material prices, principally particle board, and its foreign exchange risk in Canada.

At the same time, the ratings acknowledge Panolam's strong free cash flow generating ability, healthy margins and respectable returns, its industry position as the largest integrated manufacturer and distributor of thermally fused melamine panels in North America; the long operating histories of both Panolam and Pioneer (acquired in 1999), which date from the 1940's and 1950's, respectively; and the company's geographic diversity, Moody's said.

Pro forma for the issuance of the new $60 million term loan, repayment of the existing $45.3 million term loan A, and paydown of $15.7 million of the term loan B balance, Panolam's total debt/capitalization ratio at June 30, 2003 would be 88.7%. Pro forma debt/EBITDA as of the 12 months ended June 30, 2003 would be 4.5x (including the holding company note) and 3.9x (excluding the holding company note), Moody's said.

Moody's raises US Investigations outlook, rates loan B1

Moody's Investors Service raised its outlook on US Investigations Services, LLC to positive from stable, confirmed its ratings including its senior implied rating at B1 and assigned a B1 rating to its new $301.5 million senior secured term loan C due 2008.

Moody's said the outlook change reflects the company's debt reduction and the expectation that significant portions of the company's ongoing free cash flow will be allocated towards reducing debt.

The positive ratings outlook also reflects the company's track record in retaining clients and building its revenues.

The ratings reflect the company's modest revenue base, significant customer concentration, high leverage and few tangible assets, but also incorporate the company's high margins, Moody's expectation for deleveraging from free cash flow and strong demand for the company's services.

Proceeds from the term loan C were used to help repay the company's term loan B. The transaction was accomplished to take advantage of lower interest rates and to create an add-on facility that allows the company to borrow an additional sum, of up to $50 million, under the terms of the term loan C, on the condition that certain requirements be met.

The company is highly leveraged at approximately 4.1x debt to EBITDA, reflecting last year's leveraged buy out. However, the company's ability to carry this debt burden is sustained by its high margin business, Moody's said.

Moody's rates Cinram second priority loan B1

Moody's Investors Service assigned a B1 rating to Cinram International Inc.'s planned US$100 million tranche C senior secured second priority loan, confirmed its senior secured and senior implied rating at Ba3 and cut the issuer rating to B2 from B1. The outlook is stable.

The new rating assignment reflects the fact that the newly created tranche C represents second lien security behind the revolver and tranches A and B. The senior implied and senior secured ratings are confirmed because the overall amount of debt has not changed and continues to be dominated by the senior secured tranches. The issuer rating is being lowered because any unsecured obligations of the company will be structurally subordinate to all secured debt, including the second lien tranche C.

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