Moody's cuts Specialized Technology loans to B1

Moody's Investors Service said it downgraded the ratings on Specialized Technology Resources, Inc.'s proposed first-lien revolver due 2012 and proposed first-lien term loan due 2014 to B1 (LGD3, 35%) from Ba3 (LGD2, 24%) following the upsizing of the first-lien term loan by $50 million to $185 million, which was accompanied by a reduction in the proposed second-lien term loan due 2014 by $50 million to $75 million. The size of the revolver remains $20 million.

The B2 corporate family and probability-of-default ratings and the Caa1 (LGD5, 88%) rating assigned to the proposed second-lien term loan were affirmed.

The outlook is stable.

The agency said the ratings are constrained by a high level of overall debt at close, with an adjusted pro forma debt-to-EBITDA ratio for the 12 months ended March 31 of about 6.5 times; the company's small size both in absolute terms and relative to competitors; and Moody's expectations of negative free cash flow generation in fiscal 2007.

The B2 corporate family rating acknowledges Specialized Technology's geographically diverse asset base; the continuing outsourcing of manufacturing from consumer to producer countries and related safety requirements and regulations, which support growth in the quality assurance and testing business; and the current environment with respect to solar panel installation subsidies in several countries, Moody's said.

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