Moody's downgrades Salton

Moody's Investors Service said it downgraded Salton Inc.'s corporate family and probability-of-default ratings to Caa2 from Caa1 and its subordinated debt rating to Ca (LGD5, 88%) from Caa3 (LGD6, 91%).

The outlook remains negative.

The agency said the downgrade reflects Salton's continued operational challenges including reduced domestic sales, pricing pressure, increasing global raw material costs, inventory shortages and a weak foreign retail market. Despite recent improvements in the company's cost structure, improvements in sales of the George Foreman line (which accounts for 40% of Salton's revenues) and new product introductions, the company incurred a negative reported EBIT in its most recent fiscal year.

The rating downgrade also reflects uncertainties around liquidity, Moody's said, because the company's senior credit facilities have been amended and compliance with minimum fixed charge coverage and minimum EBITDA will be required after March 2007. Salton also faces significant debt maturities over the next 18 to 24 months, and the agency predicted that Salton will not be capable of meeting the debt from operating cash flow.

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