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Kinetic Gets Settlement Boost; ACL Falls Short

12 Jan 2003

Kinetic Concepts, a specialty hospital supply manufacturer, has reached a favorable settlement with Hillenbrand Industries, whereby Kinetic Concepts will receive a total of $250 million from Hillenbrand. Standard & Poor's has reacted to this development by upgrading Kinetic Concepts from B to B+ and assigning a stable outlook to the credit. The company plans to use the net proceeds from a first-stage $175 million payment to pay down the company's credit facility. "We plan on making a voluntary pre-payment this year," said Marty Landon, Kinetic cfo. He explained that roughly $105 million will be distributed across all the tranches on a pro rata basis in January.

The company's credit includes a $11.8 million revolver, a $27.5 million "A" term loan, a $85.725 million "B" piece, a $85.725 million "C" tranche, a $93.812 "D" term loan and a $29.85 million "E" piece. The company's term loan "A" matures this year and Kinetic Concepts expects to retire this debt, said Landon. Kinetic Concepts filed an antitrust lawsuit against Hillenbrand and its Hill-Rom unit accusing the company of trying to monopolize the specialty hospital bed market. Overall, the settlement will allow the company to reduce its leverage and strengthen its credit profile, noted Landon.

* Despite its May 2002 recapitalization, American Commercial Lines has been unable to strengthen its operating performance and could be out of compliance with credit covenants that are set to tighten at the end of this quarter. Consequently, ACL is pursuing a restructuring plan and has elected not to make $8 million in interest payments on its senior secured notes due in December. Given the uncertainty and poorer-than-expected performance, Moody's Investors Service has downgraded the company's $383 million in bank debt to Caa1 from B3.

Deteriorating EBITDA has not allowed ACL to de-lever as expected in its post-recapitalization period and liquidity is thin, Moody's notes. The company has a $50 million revolver, but the amount is fully drawn. Furthermore, cash balances are decreasing and Moody's does not believe that asset coverage would be sufficient to cover all the company's outstanding debt under a distressed scenario. Although Moody's had originally assessed the bank debt to be more than one time covered, the deteriorating environment draws original valuations into question, commented David Berge, Moody's analyst. But, he noted, "Our biggest concern is the subordinated debt." Jim Wolf, cfo of ACL, could not be reached by press time.


Other Ratings Actions*
National Wine & SpiritsBB-CreditWatch NegativeS&P
Brown Jordan InternationalB1Downgraded From Ba3Moody's
Dayton Superior Corp.B+Downgraded From BB-S&P
* Thurs, Jan. 2 through Wed, Jan. 8
12 Jan 2003