S&P upgrades Bio-Rad

Standard & Poor's upgraded Bio-Rad Laboratories Inc. including raising its $100 million senior secured revolver due 2004 and $100 million senior secured term loan due 2004 to BBB- from BB- and $150 million 11.625% senior subordinated notes due 2007 to BB- from B. The outlook is stable.

S&P said the action reflects Bio-Rad's success with integrating the 1999 acquisition of Pasteur Sanofi Diagnostics, more than doubling EBITDA and extending its well-established positions in competitive niche markets.

Despite the company's defensible positions in the markets of in vitro diagnostics and life sciences, Bio-Rad Labs remains a relatively small player in each, competing with significantly larger companies that are more diversified and have greater financial resources, S&P said. Moreover, Bio-Rad's heavy international presence, which accounts for about 65% of sales, subjects its revenues to swings in exchange rates and ongoing changes in global economic conditions. Bio-Rad's life science business is also vulnerable to reductions in government funding for life science research and changes in biopharmaceutical companies' R&D spending.

Financially, the company has returned to its historically conservative posture, as it steadily reduced the borrowings used to fund a series of acquisitions in the diagnostic market by about $150 million since 1999, S&P noted. Lease-adjusted total debt to capital was reduced to about 25% from a peak of 55%. Total debt to EBITDA is now less than 1.0x, while funds from operations to debt has risen to more than 70%. There is no defined benefit pension plan.

Moody's keeps AK Steel on review

Moody's Investors Service said it is keeping AK Steel Corp. on review for downgrade including its $125 million senior secured notes due 2004 at Ba2 and $117 million 9% guaranteed senior notes due 2007, $33.5 million 8.875% guaranteed senior notes due 2008, $450 million 7.875% guaranteed senior notes due 2009 and $550 million 7.75% guaranteed senior notes due 2012 at B1. The speculative-grade liquidity rating remains SGL-2.

Moody's said the continuing review is so that it can more closely examine: AK Steel's prospective cost competitiveness as more domestic integrated steel producers reshape their labor contracts, manning levels and pension and healthcare liabilities; the expected impact of steel industry consolidation on operating capacity, customer relationships and selling prices; the company's growth plans and acquisition criteria; the magnitude and timing of potential cash contributions to AK Steel's underfunded defined benefit pension plans.

Moody's said it expects to complete its review by July 2003.

S&P rates Muzak notes B, loan BB-

Standard & Poor's assigned a B rating to Muzak LLC's proposed $200 million senior unsecured notes and a BB- rating to its proposed $60 million senior secured revolving credit facility and confirmed the B+ corporate credit rating on Muzak and its parent Muzak Holdings LLC. The outlook remains negative.

The proposed refinancing will improve Muzak's maturity structure by postponing until 2009 debt maturities that had been scheduled to escalate in 2004, S&P said. Even so, financial risk remains high and Muzak will need to continue to grow its operating cash flow and reduce consolidated leverage to preserve its credit profile.

The proposed transaction will modestly increase interest expense because bank debt will be replaced with higher rate notes. In addition, Muzak's senior discount notes require cash interest payments starting in September 2004.

The ratings reflect Muzak's high financial risk due to its reliance on debt and debt-like preferred stock to fund its growth, S&P said. The ratings also reflect business risk due to Muzak's lack of operating diversity and the limited demand for its products, evidenced by its limited target market penetration despite its long operating history.

EBITDA margins of 32.5%, after adding back charges for retroactive royalty reserves, for the year ended March 31, 2003, have been relatively steady as cost reductions have been offset by higher insurance and satellite costs, elevated churn, and lower equipment sales in 2001, S&P said. EBITDA margins, taking in account the cash effect of commissions, remain somewhat lower at 30.6%, although cash margins have increased as the gap between cash outlays and commission amortization has narrowed. Margins have modest upside potential as sales grow.

Debt to EBITDA, pro forma for the proposed transaction, remains high at 5.4x, or 7.1x including the liquidation value of the mandatorily redeemable preferred stock, S&P said. Pro forma EBITDA coverage of total interest expense plus pay-in-kind preferred dividends is thin at 1.2x, but increases to 2.2x on a cash basis.

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