www.buyoutsnews.com March 25, 2013 | BUYOUTS | 41 FEATURE STORY

Portfolio Company 'Weakest Links' Each month, Standard & Poor's compiles a list of what it calls "weakest links," or companies most in danger of debt default. Of the 149 in the report published March 7, at least 20 are backed by buyout fi rms. To make the list, companies must have had speculative corporate credit ratings of ‘B-' or lower with either a negative outlook or a negative CreditWatch implication on Feb. 20. Over the long term (1981-2013), an average of 8.18 percent of all global entities Standard & Poor's rates 'B-' defaulted within 12 months, and the average default rate was much higher for entities rated lower than 'B-'. Sponsor Portfolio Affected S&P Rating as of Industry Comments ** Company Debt ($M) Feb. 20, 2013

Apollo Management Altegrity Inc. * 2,035 CCC+ / Outlook Consumer Products S&P cut Altegrity Inc.'s corporate credit rating to 'CCC+' from 'B-' on Jan. 25, 2013. LP's Apollo Negative The revision refl ects S&P's view that "current capital structure is unsustainable Investment Corp. without a marked improvement in profi tability" at the Falls Church, Va.-based affi liate / Goldman, holding company. Altegrity is part of the portfolios of Apollo Investment Corp., Sachs & Company / Goldman, Sachs & Co. and Providence Equity Partners LLC. Providence Equity Partners LLC

Ares Management Orchard Supply 138 CCC / Outlook Retail / Restaurants S&P cut Orchard Supply Hardware LLC's rating to 'CCC' from 'B-' in December 2012 LLC Hardware LLC Negative to refl ect the rating agency's view that the home and garden retailer's fi nancial risk profi le is "highly leveraged" and its business risk profi le is "vulnerable." Ares Management LLC added the San Jose, California-based company to its portfolio in November 2005.

Bain Capital Guitar Center 1,427 B- / Outlook Retail / Restaurants S&P affi rmed Guitar Center Holdings Inc.'s corporate credit rating at 'B-' Negative and revised the ratings outlook to negative form stable on May 8, 2012. The Westlake Village, Calif.-based musical instrument retailer's ratings refl ect S&P's assessment that Guitar Center's liquidity is "less than adequate" but suffi cient to avoid a default within two years. Bain Capital acquired Guitar Center in June 2007 for $1.9 billion.

Bruckmann, Rosser, Sheridan Group 150 CCC+ / Outlook Media and S&P lowered its corporate credit rating on Sheridan Group Inc. to 'CCC+' from 'B-' Sherrill & Co. Inc. Negative Entertainment on Sept. 14, 2011. "We view Sheridan's business risk as vulnerable because it is a specialized printer servicing niche segments, many of which are facing revenue contraction and the need to restructure operations," said S&P Credit Analyst Tulip Lim. Bruckmann, Rosser, Sherrill & Co. made its initial investment in the Hunt Valley, Md.-based provider of commercial printing services in August 2003.

Carlyle Group LLC Synagro 349 CCC / Outlook Chemicals, S&P lowered Synagro Technologies Inc.'s corporate credit rating to 'CCC-' from Technologies Negative packaging, and 'CCC' on Dec. 18, 2012, as a result of the Houston company's highly leveraged Inc. environmental fi nancial risk profi le and weak liquidity. Carlyle Group LLC acquired the recycler services of biosolids in 2007 for about $770 million.

Diamond Castle Community 395 B- / Outlook Finance Companies S&P affi rmed its 'B-' long-term issuer credit rating on Dec. 6, 2012 and revised Holdings Inc. Choice Negative the rating outlook to negative from positive. The revision follows a ruling in Financial Ohio's Ninth Judicial District that a single payment installment loan offered by Inc. * (FKA: a competitor didn't comply with the Ohio Mortgage Loan Act. Diamond Castle CheckSmart Holdings Inc. invested in the Dublin, Ohio-based consumer fi nance company Financial in 2006. A Diamond Castle representative said Community Choice has very low Holdings Corp.) leverage. He put it at less than 4x leverage.

Diamond Castle Bonten Media 171 (++) CCC / Outlook Media and S&P cut Bonten Media Group Inc. to 'CCC' from 'CCC+' in September 2012 because Holdings LLC Group LLC Negative Entertainment of what the ratings agency viewed as New York City-based TV broadcaster's extremely high leverage and 'weak' liquidity. In November 2006, Diamond Castle worked with Randall Bongarten to form Bonten Media Group to buy and manage network-affi liated television stations. A Diamond Castle representative puts Bonten's debt at $157 million.

Golden Gate Capital Aspect Software 800 B- / Outlook High Technology S&P downgraded the corporate credit rating on Aspect Software Inc. to 'B-' from Inc. Negative 'B' on Aug. 28, 2012. The change refl ects recent revenue decline, diminished profi tability and tightening covenant cushion at the call center software provider. The Chelmsford, Mass.-based company is part of the portfolio of Golden Gate Capital.

Golden Gate Capital/ Atrium Cos. Inc. 185 CCC+ / Forest Products and S&P lowered Atrium Cos. Inc.'s corporate credit rating to 'CCC+' from 'B-' on Kenner & Co. CreditWatch Building Materials Sept. 25, 2012. The agency also placed the rating on CreditWatch with a negative Negative implication. The ratings changes refl ect S&P's assessment that deterioration in the company's liquidity due to weaker-than-expected demand for its products, as well as tightening covenants. The Dallas, Texas-based manufacturer of doors and windows completed a $125 million debt restructuring transaction with its bondholders, Kenner & Co. Inc. and Golden Gate Capital in January 2010.

Hellman & Associated 730 B- / Outlook Forest Products and S&P lowered its corporate credit rating on Cuyahoga Falls, Ohio-based Associated Friedman LLC Materials LLC Negative Building Materials Materials to 'B-' from 'B' on April 26, 2012. "The downgrade refl ects our view that (AMH Holdings Associated Materials remains highly leveraged, with 'less-than-adequate' liquidity, LLC) in our view," S&P Credit Analyst Megan Johnston said. Hellman & Friedman LLC added the maker of building products to its portfolio in 2010 for $1.3 billion. 42 | BUYOUTS | March 25, 2013 www.buyoutsnews.com FEATURE STORY

Portfolio Company 'Weakest Links' Sponsor Portfolio Affected S&P Rating as of Industry Comments ** Company Debt ($M) Feb. 20, 2013

Huntsman Gay iQor Holdings 1,100 B- / Outlook Telecommunications S&P revised iQor Holdings Inc.'s outlook to negative from developing on Aug. 22, Global Capital LLC Inc. Negative 2012, citing tight covenant. "The outlook revision refl ects our view that there are limited prospects for an upgrade over the next year given the company's tight fi nancial covenants," Credit Analyst Catherine Cosentino said. Huntsman Gay Global Capital LLC bought an undisclosed majority stake in iQor in September 2010.

JLL Partners / Builders 140 CCC / Outlook Forest Products and S&P affi rmed its 'CCC' corporate credit rating on Dallas-based Builders Warburg Pincus LLC FirstSource Negative Building Materials FirstSource on Nov. 29, 2012. At the same time, it revised the outlook to negative. Inc. * The ratings changes refl ects S&P's view that the company "could approach, or possibly breach, its minimum liquidity covenants by the end of 2013." Warburg Pincus LLC added the maker of building products to its portfolio in 2006. Builders FirstSource is also sponsored by JLL Partners. A JLL spokesman said, “I imagine that there was a time when Builders First Source could have been characterized as a ‘weak link’. However based on revenue and EBITDA trends, BFS’s current liquidity (>$130 million) and the performance of both the company’s bonds and stock price, I cannot imagine BFS being so categorized today.”

Kohlberg & Co. AGY Holding 175 CCC- /Outlook Chemicals, S&P said it lowered AGY Holding Corp.'s ratings to 'CCC-' from 'CCC+' on Dec. 1, Corp. Negative packaging and 2011, because the maker of glass fi bers' credit quality deteriorated as a result of environmental ongoing weakness in its operating performance. The ratings agency also cited services. a decline in liquidity and the potential for insuffi cient liquidity to meet interest payments in 2012. Kohlberg & Co. added AGY Holdings to its portfolio in 2006.

Kohlberg Kravis Energy Future 37,250 CCC / Outlook Utility S&P raised its rating on Energy Future Holdings and its subsidiaries to 'CCC' on Roberts & Co. / TPG/ Holdings Corp. Negative Feb. 1, 2013, after the completion of several debt exchanges the agency views Goldman Sachs & as distressed. KKR, TPG and Goldman Sachs remain investors in Energy Future Company Holdings Corp. (FKA: TXU Corp.)

Providence Equity Ascend 405 CCC+ / Outlook Media and S&P lowered its corporate credit rating on Ascend Learning LLC to 'CCC+' from 'B-' Partners LLC Learning LLC Negative Entertainment on Jan. 28, 2013 because of weaker-than-expected operating performance at the company, along with extremely high leverage, increasingly negative discretionary cash fl ow, and the agency's expectation that the company will need another amendment to its fi rst-lien credit facility when the covenant steps down on March 31, 2014. The Burlington, Mass.-based provider of educational products is part of Providence Equity Partners LLC's portfolio.

Sun Capital PaperWorks 180 B- / Outlook Chemicals, S&P lowered its corporate credit rating on PaperWorks Industries Holding Corp. Partners, Inc. Industries Negative packaging, and to 'B-' from 'B' on Feb. 6, 2012, as a result of recent operating conditions in the Holding Corp. environmental paperboard industry. The ratings agency expects these conditions will likely services result in PaperWorks having a weaker-than-previously anticipated cash fl ow generation and will likely result in an increased risk of a covenant breach. Sun Capital Partners Inc. invested in the full-service packaging provider in September 2008.

Vestar Capital MediMedia USA 266 CCC+ / Outlook Media and S&P downgraded MediMedia USA to 'CCC+' from 'B-' on May 31, 2012, as the Partners Inc. Inc. Negative Entertainment Yardley, Pa.-based company is restructuring its operations. S&P said it sees the risk the company may face as covenant compliance may be extremely thin for the rest of 2012. Vestar Capital Partners Inc. invested in the provider of content and marketing services in October 2006.

Vestar Capital Sun Products 2,100 B- / Outlook Consumer Products S&P lowered its corporate credit rating on Sun Products Corp. to 'B-' from 'B' Partners Inc. / AXA Corp. Negative on Dec. 6, 2011. "The downgrade refl ects weaker-than-expected operating Private Equity SA of performance and cash fl ow generation, which has led to a deterioration credit France protection measures," said S&P Credit Analyst Mark Salierno. Vestar Capital Partners Inc. and AXA Private Equity SA added Wilton, Conn.-based Sun Products to their respective portfolios in September 2008.

Welsh Carson Ozburn-Hessey 350 B- / Outlook Transportation S&P cut its rating on Ozburn-Hessey Holding Co. LLC to 'B-' from 'B' on Nov. 3, Anderson & Stowe Holdings Co. Negative 2011. "The downgrade refl ects OHL's deteriorating operating profi tability and cash LLC fl ow adequacy, resulting from customer attrition, and challenges integrating acquisitions," S&P Credit Analyst Anita Ogbara said. Welsh Carson Anderson & Stowe added the Brentwood, Tenn.-based provider of supply chain management solutions to its portfolio in 2007. A Welsh Carson spokesman said he expects an upgrade from S&P as well as a change in outlook to stable from negative, citing improved performance at Ozburn-Hessey. In October, Ozburn-Hessey sold Turbo Logistics Inc. and used the entire $50 million in cash proceeds to pay down debt. The spokesman also said Ozburn-Hessey now has $80 million in liquidity (in November 2011) compared with $20 million the same time a year earlier. www.buyoutsnews.com March 25, 2013 | BUYOUTS | 43 FEATURE STORY

Portfolio Company 'Weakest Links' Sponsor Portfolio Affected S&P Rating as of Industry Comments ** Company Debt ($M) Feb. 20, 2013

Welsh Carson Smile Brands 240 B- / Outlook Health care S&P cut its rating on Smile Brands Group Inc. to 'B-' from 'B' on Nov. 21, 2012. Anderson & Stowe Group Inc. * Negative The outlook on the Irvine, Calif.-based provider of dental support services was also lowered to negative. S&P made the changes based on its continuing view that Smile Brands has a "vulnerable” business risk profi le. Welsh Carson Anderson & Stowe acquired a majority stake in Smile Brands in 2010.

TOTAL 48,586

Source: Standard & Poor's Global Fixed Income Research / SEC fi lings / press releases / secondary press reports / fi rm and company Web sites. * These portfolio companies were added to the "weakest links" list since Nov. 16, 2012. ** Buyouts contacted the U.S.-based sponsors for comment about its portfolio company’s inclusion in the S&P “weakest links” report. Their responses, if any, are included in this fi eld. (++) A Diamond Castle Holdings LLC representative said the debt is $157 million, not $171 million.

LBO-Backed Companies That Received a D or SD rating from S&P In 2013 Company Default Sponsor(s) Sector Affected Debt Reason Date ($Mil)

Energy Future Competitive January 31 Kohlberg Kravis Roberts & Co. / TPG / Goldman Sachs Utility 10.00 Downgraded to 'SD' Holdings Co. (subsidiary following the completion of Energy Future Holdings of several distressed debt Corp. ) exchanges.

Energy Future Intermediate January 31 Kohlberg Kravis Roberts & Co. / TPG / Goldman Sachs Utility 8,802.00 Downgraded to 'SD' Holding Co. LLC (subsidiary following the completion of Energy Future Holdings of several distressed debt Corp. ) exchanges.

Texas Competitive Electric January 31 Kohlberg Kravis Roberts & Co. / TPG / Goldman Sachs Utility 32,655.00 Downgraded to 'SD' Holdings Co. LLC (subsidiary following the completion of Energy Future Holdings of several distressed debt Corp. ) exchanges.

Total 41,467.00

Source: This table includes companies that received a 'D' or 'SD' rating from S&P, as of March 15, 2013. As of this date, Buyouts identifi ed at least 3 companies S&P rated either 'D' or 'SD' as having U.S.-based fi nancial sponsors.

Continued from p. 40

Warburg Pincus LLC -backed maker of build- ine BFS being so categorized today.” He Three Energy Future Holdings Corp. sub- ing products joined the list after S&P added the business had increased revenue sidiaries received a ‘Selective Default’ rating affirmed the Dallas company’s ‘CCC’ corpo- by more than 50 percent over the last eight from S&P in January. Energy Future rate credit rating and lowered the ratings quarters and EBITDA has improved to more Holdings is sponsored by Kohlberg Kravis outlook to negative in late November. At the than $6 million in December 2012 from Roberts & Co ., TPG Capital and Goldman time, S&P said the change reflects its view negative $44 million two years earlier. Sachs. The units are Texas Competitive that Builders FirstSource “could approach, Despite the latest additions, no firm had Electric Holdings Co. LLC with $32.7 billion or possibly breach, its minimum liquidity more than two portfolio companies in the in debt, Energy Future Intermediate covenants by the end of 2013, as it draws ‘weakest links’ list. Also, the 20 businesses Holding Co. LLC ($8.8 billion) and Energy down its cash balance to fund an expected were spread out over 11 categories. Media Future Competitive Holdings Co. (no affect- interest coverage shortfall and increased and entertainment had the most represen- ed debt). The downgrades followed the com- working capital needs.” tatives with four. Chemicals, packaging and pletion of several debt exchanges that S&P A JLL Partners spokesman said in a writ- environmental services tied for second viewed as distressed. ten statement, “I imagine that there was a along with the forest products and building There were also three portfolio compa- time when Builders First Source could have materials group with three each. nies that filed for bankruptcy protection been characterized as a ‘weak link’. over the last three months, plus one that However based on revenue and EBITDA Defaults And Bankruptcies will eventually lead to a buyout shop taking trends, BFS’s current liquidity (>$130 mil- The number of portfolio companies land- control of a media and entertainment com- lion) and the performance of both the com- ing on the list of defaulters or filing for pany. pany’s bonds and stock price, I cannot imag- bankruptcy has slowed. Golden Gate Capital and August Capital ’s 44 | BUYOUTS | March 25, 2013 www.buyoutsnews.com FEATURE STORY

LBO-Backed Companies That Filed For Bankruptcy Protection In 2013 Company Date Filed Sponsor(s) Sector/Business Reasons Cited / Notes Description

Golden January 8 OpenGate Capital Supplies milk and milk Filed for Chapter 7 and plans to liquidate after it failed to reduce operating expenses. Guernsey Dairy products. LLC

Geokinetics Inc January 16 Avista Capital Provides seismic data Filed for Chapter 11 as part of a restructuring support deal. In December, the company didn't Holdings LP to the oil and gas make an interest payment on its 9.75% senior secured notes due 2014. sector.

Conexant February Golden Gate Capital / A developer and maker Hurt by weakness in the semiconductor industry, and "outsized and untenable real estate Systems 28 August Capital of microchips. costs." As part of the fi ling, an affi liate of Soros Fund Management LLC will acquire Conexant.

Source: Buyouts and peHUB.com research. As of March 15, 2013

Conexant Systems filed for bankruptcy pro- Dairy LLC filed for Chapter 7 in January. One bankruptcy filing is proving to be tection in February because of weakness in The milk supplier plans to liquidate an opportunity for Colony Capital LLC . The the semiconductor industry, and what it because it failed to reduce operating costs. Santa Monica, Calif.-based firm will called “outsized and untenable real estate OpenGate Capital bought the business become the majority shareholder of costs.” An affiliate of Soros Fund from Dean Foods Co. in September 2011. LodgeNet Interactive Corp. when it exits Management LLC will acquire Conexant Avista Capital Holdings LP’s Geokinetics bankruptcy protection; the filing occurred after it emerges from bankruptcy. Golden Inc. filed for Chapter 11 in January, as well. in January and was part of a deal reached Gate and August Capital purchased the The provider of seismic data to the oil and in December. A syndicate formed by an microchip developer and maker for about natural gas industry received an invest- affiliate of Colony Capital agreed to pro- $200 million in 2011. ment from Avista Capital in September vide a $60 million cash infusion to OpenGate Capital’s Golden Guernsey 2006. LodgeNet. O © 2012 Thomson Reuters. All rights reserved. 002316 1012. 002316 reserved. rights All Reuters. Thomson © 2012

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