S&P confirms The Pantry

Standard & Poor's confirmed The Pantry Inc. including its senior secured first lien bank loan at B+, senior secured second lien bank loan at B- and senior subordinated debt at B-. The outlook is stable.

S&P said the confirmation follows The Pantry's announcement that it intends to acquire the 138-store Golden Gallon convenience store chain.

The proposed acquisition could result in add-on financing to The Pantry's existing bank loan and subordinated notes, S&P said.

S&P said the confirmation is based on The Pantry's stable operating performance in a challenging economy and the company's past success in integrating acquisitions.

The transaction is expected to improve its market position in Tennessee and Georgia and could result in cost savings and revenue enhancement through consolidating overlapping operations and better purchasing benefits.

Leverage on a lease-adjusted basis is not expected to increase significantly as a result of this transaction.

The stable outlook assumes the successful integration of the Golden Gallon acquisition.

Lease-adjusted EBITDA coverage of interest is at just below 2x, and total debt to EBITDA is in the mid-5x area, S&P said. These credit measures are not expected to be significantly affected by the Golden Gallon acquisition, and they could improve if The Pantry is able to realize synergies in cost savings and purchasing.

Moody's rates Broder Brothers notes B3

Moody's Investors Service assigned a B3 rating to Broder Brothers, Co.'s) proposed $175 million issue of guaranteed senior unsecured notes due 2010. The outlook is stable.

Proceeds from the notes, together with a portion of the new $175 million guaranteed senior secured credit facility due 2006 to 2008 and an infusion of new equity from the financial sponsor, Bain Capital, along with management and certain other investors will be used to pay a purchase price of $230 million for Alpha Shirt Company Holdings, Inc., extinguish approximately $75.4 million of Broder's existing debt, finance Alpha's seasonal working capital needs of approximately $2.7 million and pay approximately $22 million of transaction fees and expenses.

Moody's said the ratings for the pro forma combined company are constrained by that entity's weak balance sheet with financial leverage of approximately 5.4% of free cash flow (defined as cash flow from operations less capital expenditures and cash dividends); deeply negative tangible equity of approximately $117 million (related to Broder's recapitalization transaction in May of 2000); acquisition risk which could be financed with a largely unused revolving credit facility; limited volume growth in the current economic environment; significant concentration to key suppliers and Broder's weak historical operating results.

However, the ratings are supported by the benefits of the Alpha acquisition which include becoming the largest industry player (three times larger than the nearest competitor with over 10% market share); access to a broader product selection, key brands, and private label opportunities; as well as Alpha's history of higher earnings and better infrastructure.

Further, the ratings are supported by the company's fairly high return on assets resulting from low level of fixed costs; broad and well diversified customer base; national distribution system and adequate near term liquidity, Moody's said.

The stable outlook is based on Moody's opinion that the operating leverage of the combined company should generate a modest increase in unit sales and should allow improvements in cost and efficiency despite the challenging economic environment. Improved profitability and cash flow generation could result in steady de-leveraging.

Moody's rates Tom Brown notes Ba3

Moody's Investors Service assigned a Ba3 rating to Tom Brown, Inc.'s planned $225 million 10-year senior subordinated notes. The outlook is stable.

Moody's said the ratings are supported by a relatively sound reserve and production growth history at competitive unit costs, aided by a long focus in Rocky Mountain basins and achieved with conservative (though rising) leverage; sound unit cash flow cover of three-year average reserve replacement costs, aided by now a sharply reduced Rockies natural gas price discount and up-cycle prices; reasonable pro-forma leverage on PD reserves; learning curve and full-cycle cost benefit of a long Rockies focus; an extensive diversified prospect inventory; and a more diversified price, prospect, and regulatory risk mix gained with Matador's West/East Texas properties.

Moody's also noted expected rising organic production on rising capital outlays, depending on capital productivity; up-cycle hedges on 80% of Matador 2004 PDP production; Matador's fit with Tom Brown's East Texas Mimms Creek field; a large Rockies/Texas acreage position supports prospect generation; and production and prospect diversification across nine basins and many geologic play types.

Negatives are the full price paid for Matador with commensurate upside needed from Matador; 60% of pro forma production faces chronic, periodically severe Rockies natural gas price discounts (though currently reduced by expanded pipeline take-away capacity); a modest reserve scale; Tom Brown's need to reverse its organic production trend (down-to-flat since the second quarter of 2002 on reduced Rockies capital spending); long Rockies drilling permit delays; uneven acquisition success under prior executives; and sensitivity of the Rockies and East Texas drilling programs to realized prices under $3/mcf, Moody's said.

The ratings are also restrained by the inherent risks of a mature, acquisition-prone, high capital intensity, depleting asset, commodity sector.

Moody's rates Fisher Scientific loan Ba3

Moody's Investors Service rated Fisher Scientific International Inc.'s $250 million guaranteed senior secured term loan due March 31, 2010 at Ba3. The outlook for all ratings remains stable.

Proceeds from the term loan will be used to help support the acquisition of Perbio.

The ratings reflects the company's strong and improving financial performance, supported by substantial recurring revenues, track record in successfully integrating acquisitions, market position and the rapidity with which it is likely to reduce its debt burden, Moody's said.

Ratings also reflect the company's intermittent restructuring charges, its negative tangible net worth and the modest growth expected for its scientific research and industrial business segment, Moody's added.

Fisher's financial performance has seen improvement, such as EBITDA has grown from $218 million in 2000 to $318 million in 2002. Despite the increase in debt, EBITDA/Interest should continue to improve, rising to above 4.0x by the end of 2003. This improving financial performance, which was putting upward pressure on the existing ratings, will offset the assumption of significant new debt and acquisition integration risks.

According to Moody's, the company is likely to reduce leverage, as measured by Total Debt/EBITDA, to levels comparable with existing ones within 12-18 months of completing the transaction.

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