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Rating Action:

MOODY'S DOWNGRADES REMINGTON ARM'S RATINGS; SR IMPLIED TO B2; OUTLOOK NEGATIVE

14 Oct 2004

Approximately $200 Million of Rated Debt Affected.

New York, October 14, 2004 -- Moody's Investors Service downgraded the debt ratings of Remington Arms Company, Inc. ("Remington") reflecting the company's weakened financial position following profit erosion over the past several quarters. The ratings outlook is negative.

The following ratings were downgraded:

Senior implied rating, to B2 from B1;

$200 million 10.5% senior unsecured notes due 2011, to B3 from B2;

Senior unsecured issuer rating to B3 from B2.

The ratings downgrade and negative outlook reflect Remington's profit erosion since its leveraged recapitalization in fiscal 2003, which the company attributes to economic weakness and, more recently, to seasonal product mix shifts. Despite the sale of its Stren fishing line business for $44 million earlier this year, Remington has been unable to maintain credit measures appropriate for its prior rating category. In particular, Moody's notes that LTM June 2004 debt-to-EBITDA (adjusted for seasonal working capital) is around 7x and free cash flow is negative. In addition to the economic and seasonal impacts, profit and cash flows have been impacted by investments in new business initiatives in law enforcement/security which have uncertain returns.

Although management has recently indicated a more optimistic outlook for the business, Moody's remains concerned about second half operating performance given ongoing commodity price pressures and weakening consumer spending trends. Further rating downgrades are likely in the event that Remington is unable to stabilize earnings over this period and return to positive free cash flow generation. In addition, the ratings could be negatively impacted if the company increases its debt burden to fund unexpected strategic initiatives. Conversely, the ratings outlook could be stabilized through a sustainable improvement in profitability that supports debt repayment capacity (free cash flow) in the mid-single digits as a percentage of funded debt and continued access to borrowing lines. In this regard, Moody's notes favorably that the bank group has been supportive through credit agreement amendments, the last of which permits the repayment of $5 million of the senior notes. Operating gains could be spurred by a rebound in industry demand or strong acceptance of the company's new products. The ratings would be positively impacted by equity sponsor actions in support of growth and profit enhancement initiatives and/or debt repayment.

Remington's weakened financial condition heightens ongoing rating concerns, including high regulatory and product liability risks and the discretionary nature of its products. Sales also remain largely seasonal (dependent upon the fall hunting season) and weather sensitive. The company continues to be faced with cash payment requirements related to its underfunded pension plan ($6.4 million contribution expected in fiscal 2004), dividend payments to service interest on holding company notes (as governed by Remington's debt agreements), and potential business disruption or operational flexibility issues related to its significantly unionized workforce (approximately 42% in fiscal-year 2003) .

Notwithstanding these concerns, the ratings continue to benefit from the company's long-standing, leading market shares in its key categories (shotguns, rifles, and ammunition), as developed over its 188-year history, and the relatively stable long-term demand profile of the firearms industry. The company's strong market positions and customer relationships are sustained by an ongoing focus on research and development that has consistently produced market-leading product innovations.

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. 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 ("CDR") and management. In 2003, CDR sold the majority of its equity position to affiliates of Bruckmann, Rosser & Sherill. The transaction was concurrent with the company's recapitalization, which funded a $100 million dividend. Sales for the twelve-month period ended June 30, 2004 were approximately $370.7 million.

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

New York
Kevin L. Ziets, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S DOWNGRADES REMINGTON ARM'S RATINGS; SR IMPLIED TO B2; OUTLOOK NEGATIVE
No Related Data.
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