Moody's downgrades Wellman

Moody's Investors Service said it downgraded Wellman, Inc.'s corporate family rating to B3 from B2, $185 million first-lien term loan due 2009 to B1 (LGD2, 29%) from Ba3 and $265 million second-lien term loan due 2010 to Caa1 (LGD5, 77%) from B3.

The ratings were also placed under review for further possible downgrade.

The agency said the downgrade reflects Wellman's low raw material margins, operating losses in each quarter of 2006, lack of free cash flow in 2006 and elevated leverage. The company has been subject to rising and volatile feedstock prices and has not been able to raise prices to maintain sufficient margins. Additionally, volumes in its fiber business continue to decline.

The continuing review will consider the impact of deteriorating market conditions on the company's cash flows and its ability to maintain compliance with its financial covenant in its revolver over the next 12 months, Moody's said. It will also examine the timing of several one-time cash in-flows that are expected to occur over the next 12 months that may improve the company's liquidity.

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