S&P ups Aearo outlook to stable

Standard & Poor's said it revised its outlook on Aearo Corp. to stable from negative and affirmed the company's ratings, including the B+ corporate credit rating, B+ secured debt rating and B- subordinated debt rating.

The outlook revision reflects the company's improved credit profile, which stems from its better operating performance, the agency said. Aearo's operating leverage is benefiting from strong organic sales growth and higher volumes. With these strengths come improved manufacturing efficiencies and higher operating margins.

The ratings on the company reflect its weak business risk profile in the competitive personal protection equipment manufacturing industry and its relatively heavy debt burden, the agency said. Leverage increased after the company's buyout by Bear Stearns Merchant Banking unit in April 2004 for $385 million and has also risen because of the company's dividend distributions.

However, total debt to EBITDA improved to about 4.7x at Sept. 30 from 6x last year. The company also maintains good geographic, product, and customer diversity, has stable earnings and generates relatively good free cash flow, the agency said.

In addition, the company should benefit somewhat from a recent initial public offering filing by parent Aearo Technologies Inc., whose proceeds will be used to reduce debt.

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