Moody's cuts North Atlantic

Moody's Investors Service said it downgraded North Atlantic Holding Co.'s probability-of-default rating to Caa2/LD from Caa2 and North Atlantic Trading Co., Inc.'s 9¼% senior notes due 2012 to Caa3 (LGD5, 86%) from Caa2 (LGD4, 59%).

The agency also confirmed North Atlantic Holding's corporate family rating at Caa2 and its 12¼% senior notes due 2014 at Ca (LGD6, 96%).

This concludes the review for possible downgrade begun on March 26.

The downgrade reflects the completion of the company's exchange of 79.6% of the 12¼% notes and 57% of the 9¼% notes for new notes. The 12¼% notes were exchanged at the rate of $812.50 of new notes for each $1,000 of original notes, and the 9¼% notes were exchanged at the rate of $950.00 for each $1,000 of original notes.

The "LD" designation reflects Moody's view that this transaction was a distressed exchange, causing direct economic losses to the noteholders who accepted the exchange and indirect losses, through a reduction in priority in bankruptcy, for noteholders who did not exchange their notes. The default was "limited" because loans in the liability structure were unaffected.

The agency noted that it will withdraw the companies' ratings because North Atlantic will no longer be publicly reporting its financial statements and Moody's is unlikely to be able to obtain sufficient financial information to effectively monitor the rating.

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