S&P cuts Protection One senior debt to CCC-

Standard & Poor's said it lowered its corporate credit and senior unsecured ratings on Protection One Alarm Monitoring Inc. to CCC- from B and lowered its subordinated debt rating to C from CCC+.

The ratings remain on CreditWatch with negative implications.

S&P said the rating action reflects increased default risk associated with the sale of Protection One, because of significantly lower expected proceeds.

Based on revenues, Topeka, Kan.-based Protection One is the third-largest security alarm monitoring company in the nation and is 88%-owned by Westar Industries Inc., which is the financing arm and a wholly owned subsidiary of Westar Energy Inc. (BB+/developing/--).

S&P said Protection One has relied on Westar Industries to provide funds through its senior credit facility as a primary source of liquidity. As of September, Protection One had about $547 million of total debt outstanding, excluding operating lease adjustments.

Westar Energy recently advised Protection One that it was considering possible bids for Westar Industries' 88% interest in Protection One and the debt owed to Westar Industries under the senior credit facility, rather than bids for Protection One in its entirety. At the same time, Westar Energy also informed Protection One that the aggregate consideration in these bids was less than the $215.5 million outstanding principal balance under the senior credit facility.

In its September 10-Q SEC filing, Westar Energy reduced its estimated proceeds from a sale of its interests in Protection One by $165.6 million and stated that there was a substantial risk Westar Energy might not recover the outstanding balance of the senior credit facility. Westar Energy has indicated it hopes to complete the sale of Protection One late this year or early next year.

In light of Westar Energy's recent disclosures, S&P said it believes there is an increased potential for a future purchaser of Protection One to restructure Protection One's other debt obligations.

As of Sept. 30, Protection One was in compliance with all financial debt covenants and it had access to $12.9 million under the senior credit facility, about $16 million in cash balances, and was owed $31.7 million under its tax-sharing agreement with Westar Energy.

However, S&P said Protection One lacks the funds necessary to repay its senior credit facility or repurchase its debt securities, which may become due upon the sale of Protection One.

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