Moody's downgrades Fender

Moody's Investors Service said it downgraded Fender Musical Instruments Corp.'s $170 million term loan and $50 million revolver under the first-lien credit facility to B2 from B1, $100 million second-lien credit facility to Caa1 from B3 and corporate family rating to B2 from B1. The outlook is stable.

The agency said the downgrade reflects deterioration in the company's operating performance in the first quarter of 2006, stemming from softening consumer demand and further exacerbated by weaknesses in the company's inventory management system in 2005 that caused higher inventory levels. The weak operating performance has precipitated the need for the company to amend its financial covenants.

The ratings also reflect the continuing challenges the company faces in operating in a competitive environment and a high leverage structure, which Moody's expects will exceed 5x (adjusted debt/EBITDA) by the end of 2006.

Offsetting these concerns are Fender's record of cash flow generation and debt reduction, a history of product innovation, leading market position and strong brand value, the agency said.

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