Moody's Upgrades Directed Electronics' Credit Ratings

VISTA, Calif., Feb. 2, 2006 -- Directed Electronics, Inc. , the largest designer and marketer of consumer branded vehicle security and convenience systems in the United States based on sales and a major supplier of car and home audio, mobile video and satellite radio products, announced today that the following press release was recently issued by Moody's Investors Services:

MOODY'S UPGRADES DIRECTED ELECTRONICS DEBT RATINGS TO B1; OUTLOOK IS STABLE

Approximately $220 Million of Rated Debt Affected.

NEW YORK, January 30, 2006 -- Moody's Investors Service upgraded Directed Electronics' debt rating to B1 from B2, concluding a review for possible upgrade initiated on November 23, 2005. The rating action follows the repayment of $74 million of unrated subordinated debt with IPO proceeds. The rating outlook is stable.

In December 2005, Directed Electronics completed its IPO raising approximately $84 million of net proceeds from newly issued common shares. The proceeds were used to repay the company's two unrated subordinated notes aggregating $74 million and to terminate certain agreements.

The ratings upgrade reflects the significant decrease in adjusted financial leverage* and improvement in interest coverage from the repayment of subordinated notes with the IPO proceeds (for the LTM ended September 30, 2005, adjusted leverage measured as debt/EBITDA decreased to 3.7x from pre IPO levels of over 5x and interest coverage (EBITDA/interest) increased to almost 4x from just over 2x before the IPO). The ratings upgrade also recognizes the growth and product diversification opportunities associated with Directed's exclusive supply agreement with SIRIUS satellite radio and its acquisition and integration of Definitive Technology; Directed acquired Definitive Technology in September 2004.

Directed's ratings remain constrained by its limited financial flexibility resulting from high, albeit decreasing, debt levels, largely assumed to fund a recapitalization in 2004, and uncertainty in consumer spending trends. The company's financial flexibility could be further challenged given the investment requirements to support the new Sirius business. Moody's believes that working capital expenditures will lead to a modest increase in leverage in the fourth quarter of 2005. The ratings also reflect the modest demand of certain of Directed's historical product offerings the last couple of years, which is expected to continue. The material weaknesses in internal controls over financial reporting are also factored into the ratings as is the company's increasing sales concentration with Circuit City and Best Buy.

The company's outsourced production model results in relatively strong operating margins (mid to high teens) and cash flow, although margins have moderated the last couple of years and are expected to further decrease in 2006 due to the increased product mix towards the lower margin satellite radio business. The company's leading market share in the security and convenience segment of the automotive aftermarket, strong brand names, strong distribution capabilities and a history of product innovation also support the company's ratings. The company's liquidity is good with consistent operating cash flow, expected availability under the $50 million revolver and a proven ability to access the capital markets.

The stable ratings outlook reflects Moody's expectation that Directed will build upon its growth initiatives with Definitive Technology and Sirius satellite radio without a significant impairment of its credit profile. Moody's expects management to sustain its strategic direction, which is centered on growth in its core categories and distribution channels with further penetration of audio and video categories, and expansion into new strategic relationships such as Sirius satellite radio. The stable outlook assumes that the company's financial leverage, measured by adjusted debt/EBITDA, will not increase significantly in the medium term and that the company will sustain strong double digit operating margins.

A positive outlook or another ratings upgrade could be considered if the company demonstrates the sustainability of the Sirius and Definitive Technology businesses without a significant deterioration in its traditional product offerings. Key credit metrics driving potential upward ratings pressure would be warranted if adjusted leverage were to fall below 3x and have the momentum for further decline, if interest coverage continues to exceed 4x, and if operating margins are maintained at or about their current mid teen levels.

Downward ratings pressure could arise with leveraged acquisitions, a severe pull back in consumer spending, significant erosion in market share or EBIT margins or a material change in strategy. A significant deterioration in Directed's core security and entertainment businesses could also lead to downward ratings pressure. Key credit metrics driving potential downward rating pressure would be debt/EBITDA greater than 5x, interest coverage falling below 3x and low double digit EBIT margins. Another large dividend or implementation of a share repurchase program could also cause the ratings to be downgraded.

  Ratings upgraded:
  Corporate family rating to B1 from B2;
  Senior secured term loan to B1 from B2;
  Senior secured revolving credit facility to B1 from B2

* In accordance with Moody's Global Standard Adjustments, the following analytical adjustments were made to Directed's proforma results: capitalize operating leases, expense capitalized interest and expense unrecorded stock compensation (and adjust cash flow for the income tax benefit).

About Directed Electronics

Directed Electronics is the largest designer and marketer of consumer branded vehicle security and convenience systems in the United States based on sales and a major supplier of home and car audio, mobile video, and satellite radio products. As the sales leader in the vehicle security and convenience category, Directed offers a broad range of products, including security, remote start, hybrid systems, GPS tracking, and accessories, which are sold under its Viper, Clifford, Python, and other brand names. Directed's car audio products include speakers, subwoofers, and amplifiers sold under its Orion, Precision Power, Directed Audio, a/d/s/, and Xtreme brand names. Directed also markets a variety of mobile video systems under the Directed Video, Directed Mobile Media and Automate brand names. In the home audio market, Directed designs and markets award-winning Definitive Technology and a/d/s/ premium loudspeakers. In August 2004, Directed began marketing and selling certain SIRIUS-branded satellite radio products, with exclusive distribution rights for such products to Directed's existing U.S. retailer customer base.