Moody's cuts Roller Bearing

Moody's Investors Service downgraded Roller Bearing Co. of America, Inc. including lowering its $110 million 9.625% senior subordinated notes due 2007 to Caa1 from B3. The outlook remains stable.

The downgrade reflects Roller Bearing's significant debt load, moderate profitability and weak cash flow generation, Moody's said. The ratings further incorporate the highly competitive, mature and cyclical nature of the bearing industry, the long-term trend of a contracting manufacturing base in the U.S. and some margin pressures from increasing steel prices despite the company's efforts to pass through cost increases to customers.

At the same time, the ratings recognize Roller Bearing's good market position in certain types of niche products and its high percentage of after-market replacement sales.

Cash flow generation has also been weak in recent years. The company's free cash flow in both fiscal 2003 and the 12 months to period December 2003 turned negative after capex and dividends upstreamed to the holding company, Moody's said. Looking forward, although improving conditions in the U.S. manufacturing sector may help operating performance, continuing pricing pressure, rising raw material cost and substantial interest expense will likely continue to depress earnings and cash flows.

At year-end 2003, Roller Bearing's debt was approximately $186.5 million, or 6.3 times reported trailing 12 months EBITDA of $29.7 million. Including holding company debt, total debt was approximately $225.1 million, or 7.6 times reported trailing 12 months EBITDA of $29.7 million.

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