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Rating Action:

Moody's upgrades Coleman Cable's CFR to B1

21 Mar 2007
Moody's upgrades Coleman Cable's CFR to B1

Approximately $220 million of debt affected

New York, March 21, 2007 -- Moody's Investors Service has upgraded the corporate family rating of Coleman Cable, Inc. (Coleman) to B1, the existing $120 million senior unsecured notes to B2 and the speculative grade liquidity rating to SGL-2, following the company's strong fiscal 2006 performance and improved liquidity. In addition, the rating agency assigned a B2 rating to the proposed $100 million senior unsecured note offering which is expected to partially fund the acquisition of Copperfield LLC (Copperfield). The new ratings reflect both the overall probability of default of the company, to which Moody's assigned a B1 rating, and the family loss given default assessment of LGD4. The rating outlook is stable. This action concludes Moody's review for upgrade commenced on March 12, 2007.

On March 20, 2007, Coleman announced that it would finance its $213 million acquisition of Copperfield with net proceeds from the issuance of $100 million in senior unsecured notes along with borrowings under a refinanced revolving credit facility. The rating on the $100 million senior unsecured notes is subject to final documentation. Copperfield is one of North America's largest private fabricators and insulators of copper electrical wire and cable.

Ratings assigned with a stable outlook

$100 million senior unsecured notes at B2, LGD5, 75%

Ratings upgraded with a stable outlook:

Corporate family rating to B1,

Probability of default rating to B1,

$120 million senior unsecured notes to B2, LGD5, 75%,

Speculative grade liquidity rating to SGL-2.

The B1 corporate family rating reflects the improved operational performance, liquidity and capital structure of Coleman in 2006, as well as the anticipated positive impact on revenues and earnings from the acquisition of Copperfield. During 2006, Coleman grew sales by 22%, improved margins and generated significant operating cash flows despite a volatile copper pricing environment and decreasing sales volumes. The improved operating performance is a result of Coleman's success in passing copper price increases along to its customer base, which Moody's expects will continue during 2007. In addition, the company used a $115 million equity offering to eliminate borrowings under its existing, unrated revolver, resulting in improved FCF and leverage metrics. The rating also contemplates that the debt-financed acquisition of Copperfield will temporarily raise the company's leverage in 2007. Moody's anticipates that the earnings potential and improved free cash flow prospects of the combined company will allow for significant de-leveraging during the first year. Moody's added that the acquisition of Copperfield will further Coleman's customer and product diversification, increase its scale, mitigate raw material volatility through improved purchasing power, reduce capital expenditure requirements and provide meaningful cost saving opportunities.

The rating agency anticipates that the new $100 million senior unsecured notes will be pari-passu to the existing $120 million 9.875% senior unsecured notes. The $220 million of notes will mature in 2012 and benefit from the senior unsecured guarantees of current and future domestic subsidiaries. The new notes will be offered in the United States to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and outside the United States pursuant to Regulation S under the Securities Act. Certain covenants apply to the existing notes including a debt incurrence test based on fixed charge coverage of at least 2x, as well as standard language regarding change in control, asset sales and sale and leaseback transactions.

The stable outlook incorporates Moody's view that the combined company will generate positive free cash flow in 2007 and 2008 while reducing its leverage, in terms of debt-to-EBITDA, below 3.5x. The outlook anticipates continued volatility in the price of copper and that the company will maintain ample liquidity to support temporary spikes in working capital requirements resulting from copper price increases. Moody's notes the combination of the two companies will likely result in the initial deterioration of Coleman's EBITDA margins despite its increased scale.

The SGL-2 rating recognizes the company's improved liquidity which will enable it to fund the cash needs of the business including working capital requirements and capital expenditures over the next twelve months. Moody's expects free cash flow generation to improve in 2007, allowing the company to repay a portion of its acquisition related borrowings under its new revolving credit facility. Coleman was in compliance with its covenants as of December 31, 2006. Moody's anticipates that the company will remain in compliance all covenants over the next twelve months. Substantially all of the assets of the borrower and its subsidiaries are pledged under its existing revolving credit facility, thereby limiting alternate liquidity from the sale of non-core assets.

Coleman Cable, Inc., headquartered in Waukegan, Illinois, is a leading manufacturer and innovator of electrical and electronic wire and cable products for security, sound, telecommunications, and electrical, commercial, industrial and automotive industries. Pro-forma revenue for the combined company is expected to exceed $940 million in 2006.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

No Related Data.
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