Moody's cuts Salton ratings

Moody's Investors Service said it downgraded the debt ratings of Salton Inc. following weak second quarter operating results, which suggest that the company's new products, lower-cost sourcing, and international growth initiatives are not generating sufficient returns to offset continued sales and profit declines in its core North American business.

Ratings downgraded include the company's senior implied rating to B2 from B1; $150 million 12¼% senior subordinated notes due 2008 to Caa2 from B3; $125 million 10¾% senior subordinated notes due 2005 to Caa2 from B3; $100 million subordinated shelf registration to prospective Caa2 from prospective B3; $100 million preferred shelf registration to prospective Caa3 from prospective Caa1; senior unsecured issuer rating to Caa1 from B2; and speculative grade liquidity rating to SGL-4 from SGL-3.

The outlook is negative.

Moody's does not rate Salton's $275 million senior secured revolving credit facility due 2007.

Moody's said the ratings receive support from Salton's large brand portfolio (several with leading shares); its history of product innovation, category creation and brand development; its long-standing relationships with customers and vendors; its somewhat flexible business model given its entirely outsourced production; and its historical usage of infomercials to introduce new products in a low-cost, low-risk manner.

However, Moody's said, the ratings continue to reflect Salton's high leverage, its dependence on the Foreman brand (still representing around one-third of sales), and its participation in market segments which are highly sensitive to economic trends, seasonality, and the success of new products.

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