Moody's downgrades Unifi

Moody's Investors Service said it downgraded Unifi Inc.'s senior implied rating to Caa1 from B2 and its $250 million issue of 6½% senior unsecured notes due 2008 to Caa2 from B3.

The negative outlook was confirmed.

The downgrade reflects Moody's expectation that the company will generate weaker-than-anticipated operating cash flow and gross margins over the next 18 months despite major restructuring initiatives initiated over the past two years. The ratings also incorporate the potential for cash restructuring charges for fiscal 2005 and the higher-than-anticipated asset impairment charges of $38 million taken in the third quarter of fiscal 2004.

Moody's said the rating also considers the event risk and uncertain impact to cash flow from a number of areas, including the achievement of operating benefits from the integration of the Kinston facility, the potential loss of third-party sales from the Kinston plant, the potential loss of multinational sales from the closed Ireland plants, the potential loss of revenue from the home furnishings segment from the elimination of tariffs on sheeting products in January 2005 and the potential for further asset impairment given the lack of EBIT return on assets.

Measured as total debt to EBITDA, leverage increased to 5.6x for the fiscal year ended June 27 from 2.9x for the fiscal year ended June 29, 2003.

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