Pharma Co. Hit With Uncertainties; Alliance Raised

Standard & Poor's has downgraded King Pharmaceuticals' senior secured bank loan rating from BB+ to BB as a result of several uncertainties. "We already had the company on review. Since then we've gotten a chance to take a step back and look at the list of uncertainties the company faces on the business side, especially now with Levoxyl facing generic competition," noted Arthur Wong, an S&P analyst.

"Two of their top five products may face generic competition in the near term," Wong added. There has been a changeover in King's top management, an interim ceo is in place with a continuous search for a permanent one. Another uncertainty is with Securities and Exchange Commission investigations, which Wong said "has been fenced in but still hasn't been settled yet." In May, S&P placed the company on ratings watch negative after it announced considerably lower-than-expected 2004 sales and earnings due to an excess of the company's key drugs at the wholesaler level. King officials did not return calls.

Despite these uncertainties, the company still has a very solid position in the specialty pharma space, Wong noted. Altace, its top product, continues to do well. The company has built a strong track record of executing successful product acquisitions. "Despite the changeover in management and possible change in strategy we still think acquisitions will remain a core part of their strategy going forward," Wong said. Debt-to-EBITDA is 0.6 times. "On the financial side they still have a very solid financial profile and have plenty of financial flexibility that will enable them to do further acquisitions and to give them a cushion against further negative developments," he concluded.

* Moody's Investors Service has upgraded Alliance Gaming Corp.'s ratings following the sale of United Coin Machine Co. to Century Gaming, which consisted of about $100 million in cash and Century's assumption of around $5 million in debt. The upgrade also reflects the company's improved financial profile and positive industry trends with respect to the growth and development of gaming equipment and software products.

Alliance's $125 million revolver and $350 million term loan were both raised from B1 to Ba3. Debt-to-EBITDA is around 3.3 times. At March 31, the company had $55 million available under the revolver and around $32 million of cash. Robert Saxton, Alliance's cfo, did not return calls.