S&P downgrades Baxi Holdings

Standard & Poor's said it lowered Baxi Holdings Ltd.'s long-term corporate credit rating to B+ from BB- following a review of the company's 2005 financial performance and medium-term prospects. The senior secured debt rating on the £100 million mezzanine notes issued by Heating Finance plc and guaranteed by Baxi was also lowered to B- from B.

All ratings were removed from CreditWatch with negative implications, where they were placed on March 16. The outlook is stable.

S&P said the downgrade reflects recent financial underperformance due to challenges faced within Baxi's key U.K. market. In addition to the general decline in market volumes, the company had not anticipated the speed with which the market would switch to high-efficiency boiler products, leading to a loss in market share to Baxi's key European competitors, the agency said, and the company's market share is now down to about 20% of the U.K. boiler market from closer to 30% in recent years.

The ratings on Baxi reflect the company's highly leveraged financial profile (fully adjusted net debt to EBITDA of more than 5.5x), narrow product focus and significant reliance on the U.K. market for about 50% of EBITDA, the agency said.

These factors are partly mitigated by the company's good market positions in the U.K. and Iberian heating products markets.

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