S&P lifts Rexnord to B, rates notes B-

Standard & Poor's said it raised Rexnord LLC's long-term corporate credit rating to B from SD (selective default), assigned a B- rating with a recovery rating of 5 to Rexnord's $196.3 million 9½% senior notes and affirmed the issue-level ratings on the company's debt.

The outlook is negative.

S&P had lowered the corporate credit rating to SD from CC following the settlement of the company's exchange offers for a portion of Rexnord Holdings Inc.'s pay-in-kind toggle senior notes and loans due 2013, which will be replaced with the new 9½% notes. S&P considered the offer a distressed exchange and, as such, tantamount to a default.

The upgrade follows the agency's review of the company's capital structure after the settlement of the exchange offers. S&P said that while the new capital structure has somewhat less debt, the company will have a higher cash interest burden.

The ratings on Rexnord reflect the company's highly leveraged financial profile, which the agency said more than offsets Rexnord's leading market positions and good product and end-market diversity. The total debt-to-EBITDA ratio was 7.5 times at the end of 2008.

S&P said Rexnord's highly leveraged balance sheet and thin cash flow protection result from equity sponsor Apollo Management LP's acquisition of the company in July 2006, the February 2007 acquisition of Jacuzzi Brands Inc.'s water management business and a subsequent dividend payout.

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