S&P upgrades Yell

Standard & Poor's upgraded Yell Group plc including raising its £500 million notes due 2011 to B+ from B and Yell Finance BV's $200 million 10.75% notes due 2011 and $288.25 million step coupon notes due 2011 to B+ from B. The outlook is positive.

S&P said the upgrade follows Yell's IPO and listing on the London Stock Exchange.

The rating action reflects the fact that Yell's aggressive financial profile will improve after the IPO due to the debt reduction measures being taken in conjunction with the offering, S&P said. Stock exchange listing also means a wider equity capital markets access in the future.

Pro forma for the IPO, Yell has net debt of about £1.34 billion ($2.2 billion), or 4.3x lease-adjusted EBITDA in the year to March 2003, compared with the pre-IPO level of about 5x. Based on the IPO price of 285 pence, Yell has a market capitalization of about £2 billion, S&P said.

Yell's classified directories business is stable and has low capital intensity, which should allow it to generate free cash flow after capital expenditure and equity dividends of about £100 million per year, S&P said. These expectations are supported by Yell's history of organic revenue growth in the mid-single-digit percentage range, as well as potential for operating margin improvement within the U.S. business.

Moody's rates Valentia notes Ba3, Eircom notes B1

Moody's Investors Service assigned a prospective Ba3 rating to Valentia's planned €500 million notes, a prospective Ba1 rating to its proposed €1.4 billion bank facility and a prospective B1 rating to Eircom Funding's planned €500 million senior subordinated notes.

The new financial package is being prepared by shareholders to refinance the existing rated bank loan and will enable Eircom to distribute a substantial equity dividend of about €447 million and redeem about 65 million preference shares. Under the existing bank facility the proposed dividend and preference share redemption would not have been possible due to contractual limitations on restricted payments.

The ratings reflect Valentia's dominant position in the Irish fixed-line telecommunications market (through Eircom) and the competitive advantage afforded by the company's significant scale and network reach; the strong operational cash flow provided by Valentia's businesses; a favorable competitive environment and attractive telecommunications marketplace which has already realized significant tariff rebalancing; and management's success in reducing costs and improving cash flow and the potential for the company to continue to realize material cost reductions, Moody's said.

The ratings also take into consideration Valentia's highly debt leveraged capital structure and limited financial flexibility; Moody's perception of an increased risk tolerance by the shareholders demonstrated by returning to a more leveraged capital structure rather than deleveraging, as was expected by Moody's; a standard high-yield covenant package which provides substantially weaker protection to bondholders relative to protection provided to creditors under the existing bank facility (albeit, the new bank facility covenants will provide greater protection to bondholders as long as these covenants remain in force); on-going regulatory and competitive risks, including the expectation for continued competitive pressures and tariff reductions; uncertainty regarding the company's longer-term plans for mobile telephony and a degree of resultant event risk; and Valentia's dependence on the fixed-line telecommunication business.

Following the transaction, leverage levels will be significant with pro forma net debt/EBITDA (before redundancy costs) of approximately 4.2x at year-end March 2002 (4.5x including preferred stock) versus 3.3x prior to the transaction (3.7x including the preferred). Moody's considers the preference shares, which mature after the notes, to be substantially debt-like rather than quasi equity.

S&P rates Valentia, Eircom notes BB+

Standard & Poor's assigned a BB+ senior unsecured debt rating to the proposed €500 million notes to be issued by Valentia Telecommunications Ltd. and a BB+ senior subordinated debt rating to related entity Eircom Funding's proposed €500 million notes. S&P also confirmed Valentia's senior unsecured bank loan at BBB-. The outlook is stable.

Proceeds from the proposed notes will be used as part of the refinancing of Valentia's outstanding €2.4 billion bank loan. The notes mature in 2013 and there are no ratings triggers causing debt acceleration. Valentia plans to refinance the remainder of the bank loan with a new €1.4 billion bank loan and pay a net dividend of €462 million.

The ratings on Valentia are supported by the continuing strong market position and consequent strong profitability of Eircom's fixed-line business, S&P said. The ratings also benefit from the significant improvement in Eircom's operational performance, following the closure and sale of a number of loss making businesses since the takeover of Eircom by Valentia, and improved capital efficiency helped by lower capital expenditures.

Valentia's high leverage represents the main risk factor and, furthermore, S&P said it believes it will be challenging for the group to improve profitability significantly in the future, as Eircom's core fixed-line business has limited growth potential given its already high market share.

In addition, Eircom will continue to face significant regulatory risk as ComReg, the regulatory authority, is taking further action to increase competition.

S&P rates Focus Wickes notes B+, loan BB-

Standard & Poor's assigned a B+ rating to Focus Wickes (Finance) plc's planned £225 million subordinated notes due 2011 and a BB- rating to Focus Wickes (Investments) Ltd.'s planned £525 million bank loan due 2010. The outlook is stable.

S&P said the ratings reflect the Focus group's highly leveraged financial profile, offset by its strong free cash flow generation and underpinned by its joint number-two position in the growing and largely noncyclical U.K. DIY retail market, which should enable it to rapidly reduce debt and improve credit measures.

The £225 million notes of Focus Wickes (Finance) are only rated one notch below the corporate credit rating because they rank junior only to the £525 million senior debt and ahead of all operating companies' creditors, including trade creditors. This reflects that they benefit from second security on exactly the same security package as afforded to senior debt. In addition, all companies are located and operate in the U.K., which is a very creditor-friendly jurisdiction.

S&P said it expects the group will reduce its current high debt and improve credit measures. In particular, earnings before interest, taxes, debt, amortization, and rents (EBITDAR) coverage of cash net interest plus rents is expected to improve by 2004 to 1.6x.

Moody's rates Focus Wickes notes B3

Moody's Investors Service assigned a prospective B3 rating to Focus Wickes Group (Finance) plc's proposed £225 million mezzanine notes and confirmed the company's senior secured facilities at B1. The outlook is stable.

Moody's said the transaction follows the recapitalization of the business and concurrent acquisition by Apax Partners Ltd of 28.9% stake in the recapitalized company.

The ratings reflect increased financial risks from the group's substantial re-leveraging of the balance sheet to approximately 6.1-times pro forma adjusted debt to EBITDAR as of October 2002; the increased debt burden will place added pressure on the company to continue growing internally generated cash flows and, as synergies from the acquired businesses have mostly been reaped already, future cash flow growth will hinge largely on the company's ability to continue growing its top-line and focusing on more profitable areas of the business in particular; continual need for store openings and refurbishments, while characteristic of the retail sector, require ongoing investment and a stringent management of working capital, however the company is expected to have some flexibility in its capital expenditures as store conversions tend to be rapid and require limited investment ahead of time.

Positives include the significant progress management has made in integrating the Wickes and Great Mills acquisitions; the company's solid market position in the U.K. DIY market with an estimated market share of 12%; encouraging industry fundamentals with growth rates expected to exceed 6% per year over the medium term; and Moody's expectations that future improvements in profitability are likely to come from increased use of own brand products, efficiency gains from category management and additional improvements in procurement.

The stable outlook reflects Focus Wickes' substantial debt leverage, but also takes into consideration management's track record of meeting expectations thus far and successfully integrating the acquired businesses to date, Moody's added.

S&P says International Specialty unchanged

Standard & Poor's said International Specialty Products Inc.'s ratings are unchanged including its corporate credit at BB with a negative outlook following the announcement that it intends to acquire an additional 10 million shares of Hercules Inc.'s stock.

ISP proposes a tender offer for five million shares at $12 per share, followed by the purchase of an additional five million shares of Hercules stock through open market purchases. Upon completion of the purchases, ISP would beneficially own 18% of Hercules common stock.

While the cost of the purchases is uncertain, at $12 per share 10 million shares would cost about $120 million.

With more than $600 million of cash and securities as of March 31, 2003, ISP has the liquidity to complete the share purchases without a significant deterioration in credit quality at the current rating, S&P said. This determination incorporates the terms of a stand-still agreement that ISP has committed to enter into upon election of the board nominees.

S&P puts Smithfield on watch

Standard & Poor's put Smithfield Foods Inc. on CreditWatch negative including its senior secured notes at BB+, senior unsecured notes at BB and subordinated notes at BB-.

S&P said the action follows Smithfield's announcement that it has agreed to acquire substantially all of the assets and certain liabilities of Farmland Industries Inc.'s pork production and processing business for about $363.5 million.

S&P said it expects the transaction will be financed with a combination of debt and equity, in a manner that would not hurt the credit protection measures for the current rating.

On Smithfield's completion of an expected sizable equity offering to help fund the acquisition, the ratings on the company would be affirmed. Failure to complete an offering in a timely manner would potentially result in a ratings downgrade or affirmation, S&P said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.