S&P lowers Williams Cos. to junk, on watch

Standard & Poor's downgraded The Williams Cos. Inc. two notches to junk and put it on CreditWatch with negative implications. Ratings lowered include Williams' senior unsecured debt, cut to BB from BBB-, and preferred stock, lowered to BB- from BB+. The senior unsecured debt of Northwest Pipeline Corp., Texas Gas Transmission Corp., Transcontinental Gas Pipe Line Corp. and Williams Gas Pipelines Central Inc. was cut to BB+ from BBB and Transco Energy Co.'s senior unsecured debt and WCG Note Trust's senior secured debt was cut to BB from BBB-.

S&P said the action is in response to the deteriorating liquidity position of the company, especially in the near term.

The fall in the company's stock price after announcing a severe dividend cut makes the possibility of issuing equity in the near term unlikely, S&P noted.

Additionally, Williams' inability to renew the $2.2 billion 364-day revolver, which expired Tuesday, on an unsecured basis is not commensurate with an investment grade rating, S&P said.

S&P added that it had expected the line to be renewed on an unsecured basis within the $1.5 billion to $1.0 billion range, which would have mitigated the current "liquidity crunch."

In addition, current market conditions have added substantial execution risk to Williams planned $3 billion debt reduction over the next year, S&P continued.

The inability to issue equity means that the debt reduction must be accomplished through assets sales alone, which increases execution risk, S&P said.

S&P said the Creditwatch will focus on the events of the next two months, "where liquidity is tight."

About $800 million of debt at Williams and Transco mature in late July and early August 2002 and about $180 million could come due from existing ratings triggers, S&P said. Additionally, margin calls ranging from $175,000 to $600,000 may come due because of the sub-investment grade rating of the company.

S&P raises Lear outlook

Standard & Poor's raised its outlook on Lear Corp. to positive from stable and confirmed its ratings including its senior secured and senior unsecured debt at BB+.

S&P said Lear could be upgraded in the next one to two years if it continues to generate solid free cash flow and reduce debt levels.

Lear has reduced debt by about $1.3 billion since its $2.3 billion acquisition of UT Automotive in 1999, S&P noted.

The company made 14 acquisitions for $4.6 billion from 1994 to 1999, but has not made any significant purchases since 1999.

Lear is expected to refrain from making significant debt-financed acquisitions for the next few years in order to improve its credit profile to a level consistent with an investment-grade rating, S&P said.

Lear could be upgraded if the company continues to report solid operating results and improves its credit statistics such that total debt to EBITDA will average below 2.5 times and funds from operations to total debt averages 25%-30%, S&P said.

Potential impediments to a higher rating would be deterioration in the operating environment, difficulties in executing the company's current restructuring program, or large acquisitions.

S&P rates Manitowoc notes B+, off watch

Standard & Poor's rated The Manitowoc Co. Inc.'s planned $175 million senior subordinated notes due 2012 at B+, removed the company's existing ratings from CreditWatch with negative implications and confirmed them. Ratings confirmed include Manitowoc's $125 million revolver, $200 million term A loan due 2005 and $150 million term B loan due 2006 at BB and its €175 million senior notes due 2011 at B+. The outlook is negative.

Manitowoc's proposed acquisition of Grove Investors, a leading manufacturer of mobile hydraulic and truck mounted cranes, for $270 million, ($200 million debt and $70 million equity) broadens its position in the crane business, S&P said. The transaction will enlarge Manitowoc's crane product lines and provide some synergy opportunities, but it also will increase debt leverage initially, and increase exposure to the highly cyclical and challenging crane business.

The acquisition will be funded with $200 million in cash and 2 million shares of Manitowoc's common stock currently valued at about $70 million, S&P added.

Grove, which emerged from Chapter 11 reorganization in September 2001, had sales of $675 million.

Pro forma for the acquisition, which is expected to close by August 31, 2002, Manitowoc's total debt to EBITDA would be 3.6 times and total debt to capital would be about 69%, S&P said.

Following integration and cost savings, the rating agency expects total debt to EBITDA to fluctuate around 3.0x and EBITDA interest coverage should range between 4.0x-4.5x. In addition, funds from operations to total debt is expected to average around 20%.

S&P says no change to AMC

Standard & Poor's said AMC Entertainment Inc.'s ratings and outlook are unchanged on the$19.3 million first quarter charge related to the forgiveness of loans to executive officers. S&P rates AMC's corporate credit at B with a positive outlook.

But S&P said that the transaction is not consistent with the spirit of the company's stated goals of maximizing its cash flow and improving its credit profile.

The transaction will also preclude the company from potentially applying the related monies in a more productive manner, S&P added.

Nonetheless, the size of the transaction is not significant enough to materially change the company's liquidity position,S&P said. The potential for an upgrade will continue to depend on the company's ability to improve its key credit ratios and discretionary cash flow, as well as the absence of any further transactions of this nature.

S&P rates Agrilink's loan B+

Standard & Poor's rated Agrilink Foods Inc.'s $470 million senior secured credit facility at B+. Furthermore, the company's B+ corporate credit rating and B- subordinated debt rating were confirmed and removed from CreditWatch. The outlook is positive.

The loan consists of a $200 million secured revolver due in 2007 and a $270 million term loan B due in 2008. Security is a first perfected lien on virtually all assets. Proceeds from the loan and a $175 million equity investment from Vestar Capital Partners IV LP will be used to repay the existing bank facility and complete the company's recapitalization.

Agrilink's ratings reflect the company's highly leveraged financial profile following its recapitalization by Vestar and its participation in the very competitive packaged foods industry, S&P said.

Partially offsetting the negatives are the firm's leading position as the largest marketer of branded frozen vegetables in the U.S. with a strong national brand, Birds-Eye, and a portfolio of regional and private label brands. In addition, the firm has solid niche market positions in pie fillings, canned meats, and snacks. The ratings also reflect Agrilink Foods' position as an innovator in the frozen meal replacement category, which is dominated by larger companies, S&P added

Pro forma for the recapitalization, EBIDTA to interest coverage is expected in the 2.5 times, total debt to EBIDTA is expected at about 4.5 times and operating margins is expected at about 12%.

S&P rates Otis Spunkmeyer loan B+

Standard & Poor's assigned a B+ rating to Otis Spunkmeyer Inc.'s proposed $140 million credit facility due 2008. The outlook is stable.

The facility is secured by substantially all the domestic assets, 100% of the stock of domestic subsidiaries and 65% of the stock of foreign subsidiaries.

The credit facilities derive strength from a secured position but S&P said its simulated default scenario (which incorporates severely distressed cash flows that would trigger a default on payment) indicated it is unclear whether the distressed enterprise value would be sufficient to fully cover the entire loan balance when fully drawn.

The ratings reflect Otis Spunkmeyer's narrow business focus and the high debt leverage that will follow its $288 million acquisition by Code Hennessey & Simmons from its current owner First Atlantic Capital, S&P said.

The ratings also reflect the competitive operating environment.

Mitigating these rating concerns are the firm's leading market share in the frozen cookie dough market, strong brand recognition and solid niche distribution infrastructure, S&P said.

Pro forma for the acquisition, Otis Spunkmeyer will be highly leveraged, S&P said. Lease adjusted total debt to EBITDA (including debt at the holding company) will be about 3.8 times. EBITDA coverage of interest expense is expected to be about 2.7x.

While S&P said it expects the company to engage in limited acquisition activity Otis Spunkmeyer's management will likely reinvest cash flow in its business through new product offerings, limiting any debt reduction.

S&P upgrades Romacorp

Standard & Poor's upgraded Romacorp Inc. including its $75 million 12% senior unsecured notes due 2006, raised to CCC- from D and its $18 million senior secured revolving credit facility due 2003, raised to CCC from D. The outlook is negative.

S&P said the action follows Romacorp's delayed payment of interest to holders of its $57 million 12% senior unsecured notes due in 2006.

S&P added that Romacorp's ratings reflects its very limited liquidity, highly leveraged capital structure, weak operating performance, and participation in the highly competitive restaurant industry.

Romacorp has been experiencing poor operating performance. Same-store sales decreased 5.7% in fiscal 2002 while EBITDA margins fell to 9.2%, from 10.6% in fiscal 2001 and 16.2% in fiscal 2000, S&P said.

EBITDA margins were negatively affected by higher labor, rent, and utility costs and an increase in baby-back ribs prices, which represent about 25% of the company's cost of sales. As a result, EBITDA in fiscal 2002 declined by 18% to $11.7 million from $14.3 million in fiscal 2001 and $19.2 million in fiscal 2000.

Liquidity is constrained; the company had only $2.6 million available under its $18 million revolving credit facility and about $1 million of cash and cash equivalents on the balance sheet as of March 24, 2002, S&P said. Moreover, the availability on Romacorp's revolving credit facility will reduce by $0.25 million per month from September 2002 until June 2003, when the credit facility reduces to $5.5 million. Management will also be challenged to comply with the amended covenants for EBITDA performance.

Moody's upgrades ConMed, rates loan Ba3

Moody's Investors Service upgraded ConMed Corp.'s ratings and assigned a Ba3 rating to its $75 million senior secured revolving credit facility due 2007 and $100 million senior secured term loan due 2009. Ratings raised include ConMed's $130 million 9% senior subordinated notes due 2008, upgraded to B2 from B3. The B1 rating on its $490 million senior secured credit facilities will be withdrawn. The outlook is stable.

Moody's said it raised ConMed in response to its recent equity offering, the proceeds of which were use to repay debt, and to the continued modest improvement in its performance in recent periods.

Combined, these factors have led to a considerable improvement to ConMed's credit profile, Moody's said.

The ratings also reflect the company's position as one of the leading players in its markets and the favorable growth trends expected for the industry, Moody's said. Additional positive factors include the diversity of ConMed's product lines as well as the recurring nature of a significant portion of its revenues, both of which leads to stability in revenues and cash flow.

Negatives include ConMed's moderately high leverage, the high level of competition in the industry, which includes major companies with significantly greater financial and other resources, weakness in certain of ConMed's segments (particularly for patient care and recently for powered instruments) and the decline in the company's margins in recent years, Moody's added.

Moody's rates Pinnacle Towers' loan B1

Moody's Investors Service rates Pinnacle Towers Inc.'s $300 million senior secured term loan at B1, $40 million senior secured revolver at B1, senior implied at B1 and senior unsecured issuer rating at B2. In addition Moody's withdrew Pinnacle Holdings Inc.'s senior implied rating of Caa2 and $325 million 10% senior notes due 2008 rating of Ca. Also, Pinnacle Towers Inc.'s $520 million senior secured credit rating of B3 was withdrawn. The rating outlook is stable.

The new credit facility will be used in conjunction with a $200 million equity investment to recapitalize the company and exit from Chapter 11.

The rating reflects relatively low leverage at around 4 times debt to EBITDA and improved balance sheet. Constraining the ratings is continued concerns over the quality of the company's customer base, Moody's said.

Pro forma for the reorganization, the company will have $300 million in term loans outstanding plus another $15 million in seller notes, which is supported by first quarter EBITDA of $21.5 million. "The reorganized Pinnacle will have a simple capital structure with only the bank debt, a small amount of seller notes, and the equity provided by the new sponsors, Fortress Investment Group and Greenhill Capital Partners. Consequently, free cash flow should be used primarily to repay debt going forward," Moody's said.

Moody's rates Moore loan Ba2

Moody's Investors Service assigned a Ba2 rating to Moore North America Inc.'s $125 million senior secured revolver due 2007, $75 million senior secured acquisition term loan A due 2007 and $200 million senior secured term loan B due 2008. The outlook is stable.

Moody's said the ratings are restrained by the competitive, consolidating and technologically susceptible nature of the industry Moore operates in, the short track record of the existing management team with regard to Moore's specific business and the volatility of firm earnings and cash flows due

to Moore's historically material charges for employee benefits and restructuring costs.

Moore also has high effective leverage (when adjusted for accrued liabilities, capitalized annual rents and post-retirement exposure) and its fresh potential to incur further total leverage under the proposed covenants; particularly as they relate to management's stated intention to pursue a rapid acquisition strategy and opportunistic stock repurchases/dividend programs, Moody's said.

Positives include Moore's top-tier critical mass position in its selected market segments (number 3 overall in its category at over $2.1 billion in revenue), the broad industry knowledge and consolidation experience that the new executive management team brings to the issuer, the relatively high degree of asset support for the facilities as proposed, the strong fixed coverage and maximum leverage covenants proposed in the secured bank loan agreements, the strong opening liquidity and ongoing access to liquidity provided in the agreement(s) and the quick and decisive action that new management has illustrated with regard to focusing on cost cutting and Moore's core competencies, and in addressing Moore's need to adopt aggressive cross-marketing initiatives, Moody's said.

Moody's lowers Manitowoc outlook, rates notes B2

Moody's Investors Service lowered its outlook on The Manitowoc Co., Inc. to stable from positive, confirmed its existing ratings and assigned a B2 rating to its proposed $175 million senior subordinated notes due 2012. Ratings confirmed include Manitowoc's $125 million senior secured revolving credit facility due 2006, $200 million senior secured term loan A due 2006 and $150 million senior secured term loan B due 2007 at Ba2 and its €175 million senior subordinated notes due 2011 at B2.

Moody's said it lowered Manitowoc's outlook because of the increase in leverage as a result of its recently announced acquisition of Grove Investors, Inc., significant integration risks, as well as continued weakness in the crane end-markets.

Factors that could cause a negative rating action include protracted weak demand for the company's crane products and difficulties in generating anticipated cost savings from integrating Grove, Moody's said. Factors that could lead to a positive rating action include a strong recovery in the company's end-markets and lower leverage through improvement in operating performance and/or equity capital issuance.

© 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.