S&P cuts Baxi

Standard & Poor's said it lowered the long-term corporate credit rating on Baxi Holdings Ltd. to B- from B, reflecting weak credit protection measures and further weakening business conditions.

The outlook is negative.

The second-lien debt rating on the £100 million mezzanine notes issued by finance subsidiary Heating Finance plc and guaranteed by Baxi and other subsidiaries was lowered to CCC from CCC+ with the recovery rating unchanged at 6.

The downgrade reflects the deterioration of the company's credit metrics in 2007 and continuation at a weak level in the first quarter of 2008 and should be seen in the light of persisting difficult market conditions in its key markets, according to the agency.

Ratings reflect a highly leveraged financial risk profile, S&P said, with a debt-to-EBITDA ratio that grew to 5.5 times from 4.3 times a year ago.

Ratings also reflect a narrow product focus, exposure to highly competitive and fragmented markets, and a weakened market share in its key U.K. market following a shift toward high-efficiency products, the agency added.

These factors are partially mitigated by still good market positions in the U.K. and Iberian markets, S&P noted.

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