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Rating Action:

MOODY'S ASSIGNS B2 TO REMINGTON ARMS' PROPOSED SENIOR NOTES

07 Jan 2003

Approximately $175 Million of Debt Securities Affected.

New York, January 07, 2003 -- Moody's Investors Service assigned a B2 rating to Remington Arms Company, Inc.'s ("Remington") proposed $175 million senior unsecured notes and confirmed the company's existing ratings. The notes will be used to repay existing indebtedness and fund a special dividend to Remington's parent. The rating action reflects the additional leverage and change in ownership indicated by this and auxiliary proposed transactions, as well as Remington's consistently strong generation of operating cash flows. The ratings outlook is stable.

The following ratings were affected by this action:

$175 million senior unsecured notes due 2011, assigned at B2;

Senior Implied, confirmed at B1;

Senior Unsecured Issuer Rating, confirmed at B2.

Proceeds from the proposed $175 million senior unsecured notes, along with $65 million in borrowings under a new asset-based bank credit facility, $30 million in holding company ("RACI") equity issuance, and $31 million in holding company notes, will be used to fund transaction fees of $10 million, repay Remington's $87 million 9.5% senior subordinated notes and $43 million in bank lines and to repurchase $161 million of current shareholders' equity interest at Remington's holding company level (i.e. from the tender of shares from affiliates of Clayton, Dubilier & Rice ("CDR") and management). The proposed share repurchase will be effected by a $100 million cash dividend from Remington (virtually all existing shareholder equity), $30 million in cash from new RACI equity issuance and $31 million in current-pay notes to be issued by RACI. The new $30 million equity contribution will come from affiliates of Bruckmann, Rosser, Sherrill & Co. ("BRS"), which will own at least 48% and most likely a majority of RACI following the transactions. CDR's ownership position will become no more than 49% from 87.1% and will likely be lower, with the balance held by management and directors. The ratings are subject to a review of all final documentation. Moody's does not rate Remington's current or proposed bank credit facilities, and will withdraw its B3 rating on Remington's $87 million 9.5% senior subordinated notes due 2003 upon their repayment.

Remington's ratings are restrained by its pro forma high leverage and moderate free cash flow relative to debt and by its participation in a highly competitive and mature industry which is subject to political/regulatory shifts, land development issues and discretionary spending trends as well as contingent product and environmental liabilities. Additional risks include the company's varying and material working capital needs due to the seasonal nature of the business and its practice of extended dating terms and the meaningful degree of sales and profit concentration from certain customers and products.

Remington's ratings are supported by leading market positions (#1 or #2 in all core markets) and well-known brands, as developed over the company's 186-year history. The ratings reflect Remington's stable operating cash flows which benefit from management's focus on operating efficiency, cost control and product development as well as Remington's stable market share position in almost all categories and the generally stable market aggregates for its industry(ies) overall. In this regard, sales for Remington from 1997 to LTM 09-30-02 have averaged $390 million (within a range of -1.8% and +4.1%) and EBITDA has averaged approximately $64 million, (ranging from $52 to $74 million for this same period). Further, from 1997 to LTM 09-30-02, EBITDA leverage has gone from 3.8x to 2.2x and EBITA interest coverage has gone from 1.7x to 4.1x (inclusive of a $79 million in cash dividends & special payments made by the company in 2000 & 2002).

The stable ratings outlook reflects Moody's expectation that Remington will maintain current operating performance levels and its dominant brand positions. Moody's recognizes Remington's improved LTM sales and profitability, as well as its historical pattern of deleveraging, but notes that debt reduction and financial flexibility may be constrained by the increased debt service requirements resulting from the proposed transaction, as well as by likely dividends to RACI to meet interest payments on the new RACI notes. Moody's expects near-to-intermediate term retained cash flows (EBITDA less capex, interest and taxes) will be approximately $15 million, or 6% of pro-forma debt, that debt-to-EBITDA will be around 3.9x (4.9x on an EBITA basis), and that EBITDA-to-interest will be 2.6x (2.1x on an EBITA basis). Consideration of working capital swings and RACI debt could further limit these measures. Moody's notes that dividends to RACI are governed by bank covenants and senior note indenture provisions (e.g., 50% of net income and interest coverage of 2.25x and additional borrowing capacity of $1.00).

The established track record of BRS and CDR's remaining interest and control provisions support the expectation that Remington will continue to demonstrate disciplined operating and financial policies. Moody's ratings will be sensitive to changes in Remington's market position, cash flow and liquidity profiles, capital structure, ownership composition, and corporate governance.

The B2 rating on the proposed Remington senior notes reflects the benefits of domestic subsidiary guarantees, as well as the notes' senior ranking in the capital structure to subordinated indebtedness of the company and guarantors. The rating also incorporates the notes' effectively subordinated position to a potentially large amount of senior secured indebtedness, which may include a $125 million credit facility and up to $25 million in other permitted indebtedness. In addition, the indenture is expected to contain customary covenants including restrictions on indebtedness, dividends and stock repurchases, liens, investments, affiliate transactions, and asset sales.

Remington Arms Company, Inc., with executive offices in Madison, North Carolina, designs, manufactures, and markets rifles, shotguns, ammunition, and hunting and gun care accessories under the Remington name and fishing products under the Stren name. The company's products are sold through independent dealers, Wal-Mart and sporting goods retailers. Remington was purchased from Dupont in 1993 by affiliates of Clayton, Dubilier & Rice and management. Sales for the twelve-month period ended September 2002 were approximately $406 million.

New York
Andris G. Kalnins
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Russell S. Gorman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S ASSIGNS B2 TO REMINGTON ARMS' PROPOSED SENIOR NOTES
No Related Data.
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