Moody's rates DS Waters loan B1

Moody's Investors Service assigned a B1 rating to DS Waters Enterprises, LP's proposed $550 million secured credit facility consisting of a five-year revolver of up to $150 million and $400 million six-year term loan. The outlook is stable.

Moody's said the rating reflects DS Waters' weak balance sheet, reduced profitability pre- and post-combination and modest free cash flow relative to total consolidated debt and to the proposed annual term amortization.

External factors in the United States, such as the rate of business failures, unemployment and consumption rates driven by weather - along with integration and execution risk - further constrain the ratings.

In Moody's opinion, these issues are exacerbated by the fact that DS Waters is at an inflection point in its business and financial profile as it is suffering from depressed revenue, customer churn and sizable capital investments and marketing expenditures required to remain competitive.

Pro-forma for the proposed transactions at the last 12 months ended Aug. 31, 2003, financial leverage is moderate, Moody's said. The ratio of operating company debt of approximately $400 million to EBITDA of approximately $146 million is 2.7 times (exclusive of the preferred stock of approximately $325 million at Holdings). The pro-forma ratio of EBITDA less capital expenditures to full year cash interest expense is adequate at roughly 3 times. Coverage would tighten significantly if adjusted to include the preferred dividend.

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