Moody’s drops World Kitchen, loan

Moody's Investors Service said it downgraded WKI Holding Co., Inc.'s (World Kitchen) corporate family rating to B3 from B2 and probability of default rating to B3-PD from B2-PD.

The agency also downgraded operating subsidiary World Kitchen LLC's senior secured first-lien term loan rating to B2 from B1.

The outlook remains stable.

Moody’s said the downgrade reflects World Kitchen's weakened liquidity profile following recent declines in operating performance and the termination of its merger agreement with GP Investments Acquisition Corp.

The agency anticipates a high likelihood of a covenant violation in the next 12 to 18 months due to the upcoming step-down in December 2016, following less than 5% cushion under the company's leverage covenant as of 3Q 2016 (which is its peak borrowing period). The overall weak liquidity profile also incorporates World Kitchen's upcoming maturities (March 2018 for the revolver and March 2019 for the term loan).

Nevertheless, credit agreement debt/EBITDA is moderate at high-3 times (as of 3Q 2016) and Moody's said it expects the company's earnings to remain stable and free cash flow to be modestly positive in 2017.

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