Moody's downgrades Revlon

Moody's Investors Service said it lowered Revlon Consumer Products Corp.'s corporate family rating to Caa1 from B3, probability-of-default rating to Caa1 from B3, $160 million senior secured asset based revolving credit facility due 2009 to B1 from Ba3 (LGD 2, 11%), $800 million senior secured term loan facility due 2010 to B3 from B2 (LGD 3, 35%), $387 million 9½% senior notes due 2011 to Caa2 from Caa1 (LGD 4, 61%) and $217 million 8 5/8% senior subordinated notes due 2008 to Caa3 from Caa2 (LGD 6, 93%).

The speculative grade liquidity rating was affirmed at SGL-4, and the outlook remains negative.

The agency said the downgrade reflects the higher risk of future debt restructurings that may be unfavorable to current bondholders, as well as the significant liquidity and financial challenges that Revlon faces in the next six to 12 months. In order to comply with the 2004 Credit Agreement requirement that the 8 5/8% senior subordinated notes be reduced to not more than $25 million in principal amount by October 2007, Revlon needs to refinance these notes in the near term. While the company has a number of refinancing options, the risk of a refinancing that is unfavorable to current bondholders has increased given Revlon's weaker-than-expected operating performance due to its unsuccessful launch of Vital Radiance and the costs involved in exiting this brand.

Revlon's long-term ratings also reflect Moody's expectation that the company will be able to maintain its current liquidity through a possible amendment to its bank credit agreement and by raising $75 million in equity by early 2007 (this issuance is backstopped by MacAndrews & Forbes). While Moody's views the increased equity offering commitment as an important mitigant to risks associated with the high leverage levels, Revlon's sources of available liquidity are dependent upon the successful completion of a number of critical financings, the assurance of which is not necessarily guaranteed.

Debt to EBITDA was 11x for the last 12 months ended in June.

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