Moody's lowers Euramax outlook to negative

Moody's Investors Service said it changed the outlook for Euramax International to negative from stable to reflect weakness in sales to the recreational vehicle market and certain construction markets in the United States, resulting margin erosion and the risk of financial covenant violations in 2008 if the company's performance does not improve.

For the period ended Sept. 30, the company was in compliance with all three financial covenants governing its first-lien credit facilities, but headroom had narrowed on two of the ratios - minimum interest coverage and maximum leverage - as a result of declining EBITDA in 2007, the agency noted.

In 2008, both ratios tighten at several intervals such that there would be a covenant violation if there was no improvement upon the actual ratios achieved as of Sept. 30, Moody's said, noting that however, since many of the company's markets, for example Europe, are performing relatively well and Euramax is expected to remain free cash flow positive, it is not unreasonable to believe that the company's banks would waive any covenant violations as long as market conditions do not worsen.

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