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Rating Action:

Moody's upgrades SRAM's Corporate Family Rating to B1; outlook stable

Global Credit Research - 20 Apr 2011

New York, April 20, 2011 -- Moody's Investors Service upgraded SRAM, LLC's Corporate Family Rating to B1 from B2 and its Probability of Default rating to B2 from B3. At the same time, Moody's affirmed the company's senior secured bank credit facility at Ba3 and revised the outlook to stable.

SRAM performed well in 2010 as the economy recovered and discretionary consumer spending increased, especially for fitness related items. For example, revenue grew over 30% and adjusted EBITDA increased over 25%. Combined with debt repayments of more than $60 million, the higher earnings reduced adjusted leverage to 3.1 times at December 31, 2010 from 4.9 times at December 31, 2009.

"The upgrade in SRAM's CFR reflects the company's strong operating performance and Moody's expectation that its performance should continue improving or at least stay the same in the near to mid-term" said Kevin Cassidy, Senior Credit Officer at Moody's Investors Service. The upgrade also reflects Moody's view that consumer spending on fitness related items will remain strong over the next couple of years.

RATING RATIONALE

The B1 Corporate Family Rating reflects SRAM's modest scale with about $525 million of revenue, narrow product focus in bicycle component parts, and susceptibility to discretionary consumer spending. The ratings are also constrained by the company's history of shareholder friendly activity such as dividends and share repurchases as well as by the potential for future shareholder transactions and by the potential for future acquisitions. SRAM's ratings benefit from its: 1) strong credit metrics with both EBITA margins and retained cash flow/net debt over 20%; 2) good market position within the bicycle component industry; 3) extensive product portfolio within the premium segment; and 4) brand recognition among bike enthusiasts and dealers. The ratings also benefit from the company's good liquidity profile, geographic diversification, and stable industry dynamics.

The stable outlook reflects Moody's view that SRAM's strong operating performance and good credit metrics should continue in the near to mid-term. A potential increase in financial leverage to fund a modest shareholder return is consistent with the stable outlook because of the cushion SRAM has built up in its credit metrics. For example, Moody's anticipates financial leverage to be between 2.5 times and 3 times in 2011.

Despite good credit metrics, there is minimal upward rating pressure in the near term given the recent upgrade and potential for a shareholder funded return. Over the longer term, ratings could be upgraded if credit metrics continue to significantly improve and remain very strong for its rating category. For example, debt/EBITDA would need to approach 2 times, EBITA margins would need to be above 20% and retained cash flow/net debt would need to be around 30% for Moody's to consider an upgrade. Moody's would expect all three metrics to be better than what would typically be expected of a B1 consumer durable company to compensate for SRAM's small size and narrow product focus.

There is minimal risk of a rating downgrade in the near term because of SRAM's strong credit metrics and generally stable market category. Over the longer term, a debt funded shareholder return that increased adjusted leverage beyond 5 times for an extended period could result in a downgrade. While not expected, significant deterioration in operating performance resulting in adjusted leverage sustained over 5 times could also trigger a downgrade.

The Ba3 rating on the senior secured credit facility was not upgraded despite the upgrade in the Corporate Family Rating. This is because Moody's had previously applied a one notch override to the LGD notching template in contemplation of a possible upgrade.

The following ratings were upgraded:

Corporate Family Rating to B1 from B2;

Probability-of-Default Rating to B2 from B3;

The following rating was affirmed/assessment revised:

$25 million Senior Secured Revolving Credit Facility expiring 2015 at Ba3 (LGD 2, 28% from 22%)

$290 million Senior Secured Term Loan due 2014 at Ba3 (LGD 2, 28% from 22%)

For additional information, please refer to our Credit Opinion of SRAM published on Moodys.com.

The principal methodology used in rating SRAM was the Global Consumer Durables rating methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Based in Chicago, Illinois, SRAM Corporation is a global manufacturer and marketer of premium branded bicycle components with brand names such as Rock Shock and TruVativ. Revenue for the year ended December 2010 was approximately $524 million.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Kevin Cassidy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades SRAM's Corporate Family Rating to B1; outlook stable
No Related Data.
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