Moody's lowers Avondale Mills

Moody's Investors Service said it downgraded the ratings of Avondale Mills Inc. and those of its parent company, Avondale Inc., and assigned a negative outlook.

More specifically, Moody's lowered Avondale Mills Inc.'s $91 million senior subordinated notes due 2013 to Ca from B3 and Avondale Inc.'s senior implied rating to B3 from B1 and senior unsecured issuer rating to Caa2 from B2. The stable outlook was changed to negative.

Moody's said the downgrade reflects Moody's view that the recently negotiated exchange of $59 million of existing senior subordinated notes due 2013 for $41million of new senior unsecured notes due 2012 represents an impairment of value to the sellers of the subordinated notes. The additional layer of senior unsecured debt also increases the potential severity of loss in a distress scenario for the remaining holders of the subordinated notes.

The downgrade also considers the decrease in cash from operations, significant leverage on a free cash flow basis, and an operating loss for the last 12 months. In addition, the operating loss over average total assets may indicate a need for asset writedowns, the agency said.

Moody's added that the ratings continue to incorporate the company's market position as a leading domestic, vertically integrated supplier of apparel textiles and its on-going cost control and plant rationalization programs which were initiated in fiscal 2002.

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