Moody's cuts Furniture Brands to junk

Moody's Investors Service said it assigned Ba1 corporate family and probability-of-default ratings to Furniture Brands International Inc. and downgraded its $400 million guaranteed revolving credit facility due 2011 to Ba1 (LGD4, 59%) from Baa3.

This concludes the review for possible downgrade begun in December, and the outlook is stable.

The agency said the downgrade was based on deterioration in the company's margins and credit metrics over the past two years and continuing challenges in addressing weakness in its mid-tier Broyhill brand, which, combined with moderating demand trend in its higher-end brands, will likely preclude a return to previous operating margins and cash flow for the foreseeable future.

"Although some of the company's higher-end brands are not as large as Broyhill in terms of revenue, in the past their strength provided a buffer against the operating struggles. However, with softness now creeping in across all brands, Moody's believes there is a risk that the company's operating difficulties will linger," Kevin Cassidy, vice president and senior analyst at Moody's, said in an agency rating.

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