S&P ups BEA outlook

Standard & Poor's raised its outlook on BEA Systems Inc. to stable from negative, and confirmed its B subordinated debt rating.

The revision reflects improving profitability and stable cash flow generation despite a difficult spending market for software products and growing competition from IBM Corp., S&P said.

Free cash flow levels have remained stable in fiscal 2003, generating adequate internal liquidity for ongoing operations. BEA has no material debt maturities before 2006. BEA has no bank lines or other external sources of liquidity.

Unrestricted cash balances grew to $1.3 billion in January from $1 billion a year earlier and are expected to remain adequate to support growth initiatives.

S&P cuts Shaw to junk

Standard & Poor's lowered the ratings of Shaw Group Inc. to below investment grade, including cutting its senior secured debt to BB+ from BBB- and senior unsecured debt to BB from BBB-.

Also, S&P assigned a BB senior unsecured rating to Shaw's proposed $250 million notes due 2010, the proceeds of which are earmarked to purchase up to $384.6 million of its 0% convertibles in a modified dutch auction through March 26.

The downgrade reflects heightened concerns that liquidity will decline over the next several quarters mainly due to working capital use as the firm works off its power EPC backlog.

Furthermore, financial flexibility may decline because three projects that have been cancelled may require additional near-term funding on Shaw's part, while cash inflows from either future asset dispositions or legal remedies are uncertain, S&P said.

Nonetheless, the new senior note issue and expected cash on hand should make the likely put on Shaw's remaining outstanding convertible balance in May 2004 manageable.

Liquidity is fair, with about $277 million of unrestricted cash, $55 million of marketable securities and $97 million of restricted cash.

Shaw's new $250 million bank credit facility will initially be used for letters of credit. However, the liquidity profile is tempered by restrictions on usage of the bank facility, as well as security given to the senior lenders.

The outlook is stable due to a focus on risk management and the expectation of maintaining at least fair financial flexibility limit downside risk.

S&P rates Chesapeake notes B+, convertibles CCC+

Standard & Poor's assigned a B+ rating to Chesapeake Energy Corp.'s new $300 million senior unsecured notes due 2013 and a CCC+ rating to its $200 million convertible preferred stock. Existing ratings are confirmed including its senior secured debt at BB, senior unsecured debt at B+ and preferred stock at CCC+ and remain on CreditWatch with positive implications.

S&P noted it put Chesapeake positive watch on Feb. 25 following Chesapeake's announcement that it has signed agreements to purchase oil and gas exploration and production ssets from El Paso Corp. and Vintage Petroleum Inc. for a total consideration of $530 million.

The positive watch reflects that: Chesapeake is acquiring properties with low cost structures in its core Mid-Continent operating area that have a high degree of overlap with Chesapeake's operations, which should provide cost-reduction opportunities; Chesapeake intends to fund the transactions with a high percentage of equity; Chesapeake has announced an offering of 8 million common shares (about $160 million of net proceeds are expected) and $200 million of convertible preferred securities with the balance funded with debt; Chesapeake has hedged a high percentage of its 2003 production, which in combination with a favorable outlook for natural gas prices in 2003 will assure the company of ample cash flow for debt service, reserve replacement capital spending, and capital for growth; Chesapeake is issuing $300 million of new notes, which will improve financial flexibility by extending its debt maturity profile.

Nevertheless, Chesapeake still remains highly indebted (about $0.72 per million cubic feet equivalent pro forma the El Paso and Vintage transactions) and intends to continue growing aggressively through acquisitions, S&P said.

S&P says Thermo Electron unchanged

Standard & Poor's said Thermo Electron Corp.'s ratings are unchanged including its corporate credit rating at BBB+ with a stable outlook on news that it will redeem all its outstanding 4 3/8% convertible subordinated debentures due 2004 originally issued by Thermolase Corp.

S&P said the ratings already reflected the likelihood of such redemptions, particularly with ample financial flexibility provided by cash and short-term available-for-sale investments of more than $800 million as of December 2002.

Ratings continue to reflect Thermo Electron's solid position in the instrumentation market, diversity gained from serving a variety of end markets, and moderate financial profile, S&P noted.

Moody's cuts DDi

Moody's Investors Service downgraded DDi Corp. including cutting its $100 million 6¼% convertible subordinated notes due 2007, $100 million 5¼% convertible subordinated notes due 2008 and DDi Capital Corp.'s $16 million 12.5% senior discount notes due 2007 to C from Caa3 and Dynamic Details, Inc.'s $18.7 million guaranteed senior secured tranche A term loan due 2004, $49.8 million guaranteed senior secured tranche B term loan due 2005 and $50 million guaranteed senior secured revolving credit facility due 2004 to Caa2 from B3. The outlook remains negative.

Moody's said the downgrade follows DDi's announcement of plans to restructure its debt obligations in the wake of covenant violations under its bank credit facility. The company missed its minimum EBITDA requirement of $1 million for the second half of fiscal 2002 by about $1.9 million. The company further announced that it would not make the interest payments due March 1 on its 5¼% convertible subordinated notes and April 1 on its 6¼% convertible subordinated debt.

The downgrades are based on Moody's current estimates of principal recovery under DDi Corp.'s respective debt obligations. Moody's said it believes that DDi Corp.'s bank lenders, which, on the whole, have remained supportive, could have to settle for significantly less than full principal recovery on the term loans.

Moody's notes that only about 75% of revenues through the third quarter of fiscal 2002 ended Sept. 30 were derived domestically, suggesting that prospective recovery of nearly $42 million accounts receivable available as of Dec. 31 would be pared substantially, given the banks' sole collateral lien on the assets of the domestic subsidiaries. Furthermore, the reliability of a vast majority of the company's research and development driven customer base over the remaining course of this protracted technology spending downturn cannot be readily embraced. Some additional prospective recovery could be assumed from inventories of $28 million, up from about $19 million at the end of the third quarter, but it is doubtful that any meaningful amounts would be salvaged from PP&E, given the excess printed circuit board fabrication capacity that abounds in North America today.

The company's $38 million of cash, cash equivalents and marketable securities available as of Dec. 31, certain of which are maintained in restricted accounts held by the banks, would be likely to be drawn upon for outside consulting fees and in the course of continued restructuring efforts.

In Moody's opinion, the prospects for recovery on the convertible subordinated debt are modest.

Moody's cuts FelCor preferred

Moody's Investors Service downgraded FelCor Lodging LP's preferred stock to B3 from B2 and confirmed its senior unsecured debt at Ba3. The outlook remains negative.

Moody's said the action follows a review of FelCor's liquidity position, leverage structure and business strategy.

The negative outlook reflects what is anticipated to be a continued challenging operating environment for the lodging sector, at least through 2003, Moody's added.

Moody's said that during 2002 FelCor's negative 8.1% RevPAR trend underperformed the broader lodging industry. Its underperformance can be attributed to hotel concentrations in weaker markets and exposure to underperforming brands.

However, FelCor continues to maintain some financial flexibility, having a moderately leveraged balance sheet (on a book basis) and a material level of unencumbered assets. Despite the REIT's weak 2002 performance, as of Feb. 28, 2003, the REIT remained in compliance with the covenants of its bank credit facility and senior unsecured bonds.

Moody's also noted that as of Feb. 28, 2003 with $175 million of cash, FelCor should retain sufficient liquidity to meet all its capital requirements and fixed charge obligations over the next 12 months.

Moody's said the B3 preferred stock rating reflects the increased likelihood of non-payment of preferred dividends should FelCor's interest coverage fall below 2.0X under its bond indentures.

Moody's confirms Host Marriott

Moody's Investors Service confirmed Host Marriott Corp.'s senior unsecured debt at Ba3 and preferred stock at B3 and maintained a negative outlook.

Moody's said the confirmation follows its review of the REIT's 2002 operating results, as well as an assessment of Host Marriott's near-term liquidity position and financial flexibility, and longer-term business strategy and financial policies.

The negative outlook reflects what is likely to be another challenging year for hotel owners, particularly in the full-service segment, in 2003.

The confirmation of Host Marriott's ratings reflects the REIT's strong liquidity position, good relative performance of its upscale hotel portfolio, and management's success in obtaining greater financial and strategic flexibility through renegotiations of management contracts which allow for greater flexibility to sell non-core assets, Moody's said.

Host Marriott's liquidity position is supported by $361million of unrestricted cash and continued access to its undrawn $300 million bank credit facility.

Host Marriott continues to focus on improving the quality of its portfolio, as demonstrated by its asset sales and purchases during 2002. The REIT is expected to sell assets during 2003, the proceeds of which will be used to reduce leverage, Moody's noted.

Offsetting these positives is Host Marriott's high leverage, especially secured debt, which provides the REIT with less financial flexibility, especially during this stressed environment, Moody's added. Host Marriott has been in breach of it one of its bond covenants beginning in the third quarter of 2002; this breach is not a default, but does constrain the REIT's ability to increase debt, except for access its bank credit facility. The REIT is operating close to the covenants in its bank credit facility, and will likely need to amend these covenants in order to continue to retain access.

© 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.