Moody's lowers Tegrant

Moody's Investors Service said it downgraded Tegrant Corp.'s corporate family and probability-of-default ratings to Caa2 from B3, its $50 million senior secured first-lien revolver due 2013 and $213 million senior secured first-lien term loan due 2013 to Caa1 (LGD3, 37%) from B2 (LGD3, 37%) and its $75 million senior secured second-lien term loan due 2015 to Caa3 (LGD5, 85%) from Caa2 (LGD5, 85%).

The outlook is negative.

The agency said the downgrade was driven by a material shortfall in year-to-date revenue and operating results as compared to previous expectations, resulting in very high leverage and poor interest coverage metrics. Moody's expects weak demand for some of Tegrant's products to continue over the intermediate term.

In addition, the agency said Tegrant's liquidity profile is of concern. While the company reportedly had $15 million of cash on hand at the end of September, free cash flow is expected to remain negative over the next 12 months and the revolver is fully drawn. It is highly likely, in Moody's opinion, that an amendment will be needed for the quarter ended Sept. 30, when the leverage covenant stepped down to 6.5 times from 6.75 times.

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