Moody's affirms Ohmstede

Moody's Investors Service said it affirmed FR X Ohmstede Acquisitions Co.'s B2 corporate family rating, B1 first-lien bank debt rating and Caa1 second-lien bank debt rating.

The outlook remains stable.

The affirmation follows the announcement of Ohmstede's forthcoming dividend recapitalization and upsizing of its first-lien term loan by $65 million to $170 million and its second-lien term loan by $20 million to $70 million. Proceeds from the term loan upsizing will be used to pay an $86 million dividend to shareholders - a distribution, Moody's notes, that comes less than one year after First Reserve acquired the company from Tanglewood Investments and that materially exceeds First Reserve's and management's original equity contribution.

The B2 corporate family rating reflects Moody's concern that shareholders are extracting significant capital from the company relative to their initial investment and relevering the balance sheet to do so. Given cyclicality in Ohmstede's end markets, the agency said it believes a somewhat more conservative stance towards the capital structure might better position the company to weather less robust points in the market cycle. The company's pro forma total debt-to-EBITDA ratio was 5.7x at the end of 2006.

The ratings also reflect the working capital usage required to finance Ohmstede's organic growth, its impact on operating cash flow and the company's small scale and limited end-market and customer diversification, the agency said.

The ratings are supported by Moody's expectation that the company will generate mid to high single digit revenue growth, solid interest coverage and near-term cash flows; by Ohmstede's better-than-expected performance relative to when it was first rated July 2006; and by its competitive advantage as a one-stop provider of products and services support.

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