UPDATE 1-Rushed bankruptcy exits can hurt credit quality-S&P

(Updates with Generation Brands statement)

By Chelsea Emery

NEW YORK, March 22 (Reuters) - More U.S. companies are speeding through bankruptcy court, but that rush can backfire, ratings agency Standard & Poor's said in a recent report.

In increasing numbers, companies are turning to so-called prepackaged or prearranged bankruptcies, in which a majority of creditors sign off on a restructuring plan before the company files its Chapter 11 petition.

The deals can hasten a company's trip through court, but these "quick fixes" can also create credit quality risk, S&P said.

"... While hastened restructurings may be to the advantage of some investors in bankrupt companies, they may also increase the risk that the emergence will be short-lived," S&P said.

The number of public companies filing prepackaged Chapter 11 bankruptcies tripled in 2009 from the year before, according to data firm BankruptcyData.com, and the trend shows no sign of slowing.

This year, companies such as Affiliated Media Inc, the holding company of newspaper publisher MediaNews Group Inc [ANII.UL]; U.S. radio broadcaster Regent Communications Inc RGCIQ.PK and trade magazine publisher Penton Business Media Holdings Inc are just a few to have filed for protection from creditors under a prepackaged or prearranged plan.

S&P did not mention these companies in its report.

Such arrangements have become popular since they drastically cut costs, reduce concerns about the company's longevity and allow the company to quickly cut debt, S&P said.

But the ratings adviser also warned that some companies may still hold too much debt, citing decorative lighting company Generation Brands, formerly known as Quality Home Brands Holdings LLC [QTYHB.UL], as an example.

S&P assigned Generation Brands a low-speculative-grade CCC+ corporate rating

"Generation Brands provides an example of a pre-pack in which secured debt was fully reinstated, resulting in the company remaining highly leveraged at emergence," said S&P.

In response, Chief Executive Officer Tracy Bilbrough said only the company's first-lien debt of about $230 million was reinstated, adding that $105 million can be converted to so-called non-cash pay. This means the company can, if it chooses, increase the principal instead of servicing the debt in cash.

"That's a unique thing that was part of the pre-pack that comfortably allows us to carry our pre-pack debt," said Bilbrough.

Generation Brands emerged from bankruptcy on Jan. 26, just 53 days after filing for Chapter 11.

"In our view, many of the quick fixes that we have seen effected through restructurings, either in court or out of court, may be highly susceptible to another downturn," said S&P. (Reporting by Chelsea Emery; editing by Jonathan Oatis and Diane Craft)