TEXT-S&P lwrs Delance Ltd rating to 'CC', outlk neg


(The following statement was released by the rating agency)

Sept 25 - Standard & Poor's Ratings Services said today it lowered its long-term corporate credit rating on Delance Ltd., the holding company of Russian car retailer Rolf Group (Rolf), to 'CC' from 'CCC+'. The outlook is negative.

At the same time, the issue rating on the unsecured notes issued by the group's financing vehicle Colgrade Ltd. and guaranteed by Delance Ltd. and Rolf Group were lowered to 'C' from 'CCC'. The '5' recovery rating on the notes remains unchanged, indicating our expectation of modest (10%-30%) recovery in the event of payment default.

The rating action follows Rolf's recent announcement of a public offer to exchange its existing $250 million notes due in 2010 either for a cash amount of between 60% or 80% of face value, or for a combination of a cash amount of 21% of face value and 79% converted into new notes. "Under our criteria, we view a proposed exchange offer at a discount to par by a company under substantial financial pressure as a distressed debt exchange and tantamount to a default," said Standard & Poor's credit analyst Varvara Nikanorava.

In addition, we understand that the company's financial restructuring measures will include refinancing its existing bilateral bank facilities with the proceeds of a new syndicated facility as well as resetting financial covenants. This reflects, in our view, the company's increasingly weak financial position and the need to secure its liquidity.

Furthermore, Rolf has announced the sale of a 40% shareholding in its Mitsubishi distribution business, through which Rolf generates most of its revenues, to Mitsubishi Motors Corp. (B+/Negative/--) for a minimum equity consideration of $72 million, with possible further payments leading to a maximum $200 million in total if certain conditions are met.

It is our understanding that all these transactions are interdependent and that Rolf aims to close them all at one time.

"Upon the completion of the tender offer, we expect to lower the corporate credit rating on the company to 'SD' (selective default) and lower the rating on the notes to 'D' (default), said Ms. Nikanorava. "Following the financial restructuring and subject to sufficient information, we would then assign a new corporate credit rating to Rolf based on the company's new capital structure, maturity schedule, and liquidity profile, as well as on other financial and business risk factors."

Ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. It can also be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011. Primary Credit Analyst: Anna Stegert, Frankfurt (49) 69-33-999-128; anna_stegert@standardandpoors.com (New York Ratings Team)



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