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Rating Action:

Moody's rates Blount's amended and extended sr. credit facilities Ba3

Global Credit Research - 20 Jul 2010

Approximately $425 million of bank debt affected

New York, July 20, 2010 -- Moody's Investors Service assigned a Ba3 rating to the amended and extended senior secured credit facility of Blount, Inc. The amendments will increase the facility size to $425 million and extend its maturities to 2015 for the revolver and to 2016 for the term loans. Proceeds will be used to retire the company's existing debt, including its remaining term loan balances and its $175 million of senior subordinated notes (currently rated B2), all of which mature in 2012. At the same time, Moody's affirmed the company's Ba3 corporate family rating and assigned a B1 probability of default rating. Blount, Inc. is a wholly-owned subsidiary of Blount International, Inc. The rating outlook is stable.

The rating actions consider the company's solid market position in its Outdoor Products segment; the high proportion of this segment's sales going towards replacement markets, a factor which provides some smoothing of the cyclicality inherent in the business; its heavy and diversified mix of international sales (approximately 67% of revenues); the strong turnaround in its performance that began in the third quarter ended September 30, 2009; and reasonably consistent cash flow generation, which has permitted the company to de-lever considerably over the past six years.

At the same time, the ratings acknowledge the company's relatively small size and the limited diversity of its end markets, which essentially target consumers in one industry, outdoor equipment. This concentration in a narrow end market that has difficult, but not unassailable, barriers to entry magnify the risks inherent in economic cycles as they impact manufacturers oriented towards the construction and forest products sectors. In addition, Blount continues to have exposure to volatile steel and energy prices.

The stable outlook reflects the elimination of the potential liquidity events, all in 2012, that loomed over the company. With the refinancing of the $175 million of senior subordinated notes due in 2012 and the extension of the term loans to 2016, the company has acquired substantial breathing room and, in addition, will be able to make sizable optional reductions in the principal.

The Ba3 corporate family rating could be negatively impacted in the event that the company's adjusted debt-to-EBITDA ratio exceeded 4.0x due to either diminished operating performance or increased debt. Factors that could negatively impact operating performance include higher product costs; prolonged weakness in the North American and international end markets; and/or the loss of any portion of business with its largest customers. Debt-financed acquisitions or share repurchases could increase debt.

Factors that could have favorable rating implications include sustained revenue growth, improvement in operating margins and free cash flow generation resulting in further debt reduction such that both free cash flow as a percentage of debt increases to over 15% and debt-to-EBITDA declines to less than 3.5x on a sustainable basis; and/or material growth in its tangible equity base.

The following ratings/assessments were affected:

Corporate family rating, affirmed at Ba3;

Probability of default rating, lowered to B1 from Ba3;

$75 million new senior secured revolver due August 2015 assigned a Ba3 (LGD3, 31%);

$275 million new senior secured term loan due August 2016 assigned a Ba3 (LGD3, 31%); and

$75 million new delayed draw senior secured term loan due August 2016 assigned a Ba3 (LGD3, 31%).

The ratings on the following securities will be withdrawn upon the close of the transaction:

$60 million existing senior secured revolving credit facility, due 2012, Ba1 (LGD2, 19%);

$103.5 million existing senior secured term loan, due 2012, Ba1 (LGD2, 19%);

$3.9 million senior secured term loan, due 2010, Ba1 (LGD2 19%); and

$175 million of 8 7/8% senior subordinated notes, due 2012, B2 (LGD5, 82%).

The elimination of the up-notching of the ratings that had been formerly assigned to the existing revolving credit facility and term loans and the reduction in the Probability of Default rating reflect the following factors: (i) elimination of the loss absorption that had been provided by the senior subordinated notes, (ii) the move to an all first-lien bank debt capital structure, which resulted in the use by Moody's in its Loss-Given-Default framework of a 65% family recovery rate (per the Moody's Loss-Given-Default methodology) rather than the more common 50% family recovery rate, and (iii) the use of the higher family recovery rate (65% rather than 50%) implies a higher probability of default and therefore a lower (B1) probability of default rating.

The senior secured bank credit facility benefits from the collateral package, which consists of (i) a first priority interest in substantially all of the assets of Blount and its domestic subsidiaries, (ii) a pledge of Blount's capital stock (held by its parent, Blount International Inc.), as well as 100% and 65%, respectively, of the stock held at the company's domestic and foreign subsidiaries; and (iii) upstream guarantees from domestic subsidiaries and downstream guarantees from its parent company.

Moody's last rating action for Blount, Inc. occurred December 23, 2009, at which time Moody's affirmed the company's Ba3 corporate family and probability of default ratings, Ba1 on its amended and extended senior secured credit facilities, and B2 rating on its senior sub notes. The principal methodology used in rating Blount, Inc. was Moody's Global Heavy Manufacturing Industry rating methodology, published in November 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Blount International, Inc., headquartered in Portland, Oregon, is a manufacturer of outdoor products and gear-related products. Revenues and net income for the trailing twelve month period ended March 31, 2010, were $523 million and $31 million, respectively.

New York
Joseph A. Snider
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Oman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Blount's amended and extended sr. credit facilities Ba3
No Related Data.
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