Moody's ups Desc senior notes

Moody's Investors Service said it has downgraded Desc SA's senior implied rating to B3 from B2 and has upgraded the company's $73 million 8.75% senior notes (formerly the Dine notes) due 2007 to B3 from Caa1. The senior unsecured issuer rating was changed to Caa2 from Caa1.

The outlook is stable.

Moody's said Desc's senior implied rating reflects the challenges that the company continues to face in its auto parts and chemical divisions. Operating pressures reflect the cyclical nature of the auto parts and chemical divisions, client concentration in the auto parts division, volatility in its food and real estate sectors, lack of substantial benefits following the sale or shutdown of various non-core or non-performing assets, and the expectation that the company's free cash flow generation will remain low relative to the company's high debt levels.

The ratings are somewhat supported by Desc's leading position in the Mexican auto parts, chemicals and real estate sectors, a reduced vulnerability to currency fluctuations as most of sales are denominated in U.S. dollars, benefits from technological alliances with large international partners, a more comfortable maturity profile following the recent debt restructuring, and the upcoming rights offering, the proceeds of which will be applied to debt reduction.

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