Moody's cuts Airxcel

Moody's Investors Service downgraded Airxcel Inc. including cutting its $90 million 11% senior subordinated notes due 2007 to Caa1 from B3. The outlook is stable.

Moody's said the downgrade reflects the trend of a gradual decline in Airxcel's credit profile as evidenced by its increasing debt leverage and continuing weak cash flow generation.

The ratings further reflect the cyclicality of the recreation vehicle end-market, high customer concentration and the small size of the RV appliances market that Airxcel operates in.

Despite the downgrade, the ratings continue to recognize the company's good niche market position and its long-standing relationship with leading RV manufacturers such as Fleetwood, Winnebago and Jayco, Moody's said.

Moody's notes that nearly 80% of Airxcel's revenues come from the highly cyclical RV market (including 17% from aftermarket sales), which has experienced considerable fluctuations in recent years. Moreover, the company's sales to the telecom industry, which generated roughly $37 million of revenues in 2000, have declined precipitously. As a result, the volatility of sales to the RV industry and the collapse of the telecom business have combined to lead to a gradual deterioration in the company's credit profile, which Moody's believes is now inconsistent with a typical B1-rated (on a senior implied rating basis) industrial credit.

Airxcel's debt leverage has increased from approximately 5.7 times EBITDA in 2000 to nearly 6.8 times in the 12 months period ended June 2003, Moody's said.

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