S&P cuts ArvinMeritor to junk

Standard & Poor's downgraded ArvinMeritor Inc. to junk including cutting its senior unsecured debt to BB+ from BBB-, Arvin Capital I's preferred stock to B+ from BB and Arvin Overseas Finance BV's senior unsecured debt to BB+ from BBB-. The outlook is stable.

S&P said the downgrade reflects ArvinMeritor's continuing weak credit protection measures and uncertainty in the timing and robustness of potential improvement in the company's end-markets.

ArvinMeritor's largest business segment - light vehicle sales to the original equipment market - will likely face continuing difficult conditions in 2003, including soft demand, high raw material costs, and pricing pressures, S&P said. These conditions may offset the positive impact on the company's financial results of cost-control initiatives and a good backlog of new business.

In addition, S&P said it is concerned that cash payments required to support ArvinMeritor's postretirement benefits obligations over the intermediate term will impede debt pay-down and constrain the company's strategic initiatives. Other factors pressuring intermediate-term financial results are margin depression from the acquisition of Zeuna Staerker GmbH & Co KG, weak aftermarket demand, and resistance to pricing initiatives in the aftermarket.

ArvinMeritor's operating margin in the second quarter declined to 3.2%, from 4.9% in the 2002 second quarter, S&P said. For the 12 months ended March 31, 2003, funds from operations (FFO) to debt, adjusted for operating leases and accounts receivable sales, measured 13.5%, and total debt to EBITDA was 3.3x. Over the intermediate term, FFO to debt is expected to reach 25%, total debt to EBITDA should remain in the 3x-3.5x range, and EBITDA interest coverage is expected to be around 4x.

S&P raises Penn National Gaming outlook

Standard & Poor's raised its outlook on Penn National Gaming Inc. to positive from stable and confirmed its existing ratings including its senior secured debt at B+ and subordinated debt at B-.

S&P said the outlook revision follows Penn National's continued steady operating results during the quarter ended March 31, 2003, and the expectation that this trend will continue in the near term.

Also, the company successfully completed the acquisition of Hollywood Casino, which further diversifies its cash flow base and provides entry into several of the largest riverboat gaming market in the U.S., S&P said Despite the significant debt incurred to fund the acquisition, Penn National's credit measures are good for the rating given the flexibility that had been created prior to the transaction.

For the three months ended March 31, 2003, EBITDA (excluding Shreveport and earnings from joint ventures) was $50.3 million, an increase of more than 50% compared to the prior-year period. Same-store EBITDA (excluding the acquired assets in Aurora & Tunica) grew by more than 20% during this period, S&P said. Penn National experienced broad EBITDA growth across its portfolio. In particular, Charles Towns Races continued its momentum, Casino Rouge significantly increased EBITDA, and the Mississippi assets have maintained their solid performance. Based on current operating trends, consolidated EBITDA (excluding Shreveport) for fiscal 2003 is expected to exceed $240 million, driven by continued strong performance at the Charlestown facility and steady performance at the company's other facilities, including the acquired assets.

As a result, consolidated total debt to EBITDA is expected to be close to 4x, and EBITDA coverage of interest expense close to 3x, S&P added. These credit measures provide Penn National some cushion for future growth opportunities.

Moody's puts Collins & Aikman Products on review

Moody's Investors Service put Collins & Aikman Products Co. on review for possible downgrade including its $500 million 10.75% guaranteed senior notes due 2011 at B1, $400 million 11½% guaranteed senior subordinated notes due 2006 at B2 and $175 million guaranteed senior secured revolving credit due 2005, $79 million guaranteed senior secured term loan A due 2005 and $293 million guaranteed senior secured term loan B due 2005 at Ba3.

Moody's said the review is in response to management's announcements regarding the disappointing first quarter 2003 conversion of increased revenue into profits, together with sharply reduced operating margin expectations for the balance of 2003.

Management reported that twelve of Collins & Aikman's plants were responsible for generating negative $18 million of EBITDA on just $117 million of revenues (which represented 11% of Collins & Aikman's total sales) during the first quarter of 2003, Moody's noted. While the company's other 75 plants performed solidly for the period and generated an approximately 9.5% EBITDA margin, the negative performance at these 12 plants brought Collins & Aikman's consolidated adjusted EBITDA margin down to only about 6.7% for the first quarter. This represented a 40% decline in the first quarter EBITDA margin year-over-year, despite a $120 million increase in revenues.

Reasons for the shortfall in margins and cash flow generation were cited to have spanned a gamut of operating failures, including excessive scrap; premium freight and labor inefficiencies; failure to achieve targeted materials savings and commercial recoveries; launch inefficiencies; and higher-than-expected start-up costs, Moody's said. These newly identified issues are masking improvements currently being generated from the restructuring actions taken during 2002.

Collins & Aikman also continues to face several other challenges which are inhibiting 2003 cash flow generation and straining its credit protection measures relative to peers within the company's current rating category, Moody's said. Most notably, the company accepted price give-backs averaging between 2%-3% in 2003 in return for large future year programs. Increases in oil prices have since slowed the company's momentum in achieving expected materials savings to offset the price give-backs. In addition, three major DaimlerChrysler programs (Pacifica, Durango HB, and the LH-to-LX "large car" platform conversion) are in a state of massive transition.

S&P rates Ingles Markets notes B+

Standard & Poor's assigned a B+ rating to Ingles Markets Inc.'s planned $100 million 8.875% senior subordinated notes due 2011 and confirmed its existing ratings including its corporate credit at BB. The outlook is stable.

S&P said Ingles Markets' ratings reflect the company's high leverage and moderate interest coverage. These factors are somewhat offset by the relatively low business risk associated with the supermarket industry, the company's stable operating performance, and its solid market position in the small towns and suburban communities in which it operates.

Comparable-store sales declined 0.9% in the first half of 2003, but increased 0.9% in 2002 and 3.6% in fiscal 2001, S&P noted. Moreover, operating performance improved from 1992 to 2002 due to substantial investment in both store remodels and new store construction; the company's lease-adjusted operating margin rose to 8.1% in 2002 from only 5.1% in 1992.

Despite Ingles' leading market positions in western North Carolina, South Carolina, and Georgia, S&P said it believes the company will continue to face intense competition from Wal-Mart Stores Inc. supercenters and large supermarket chains, limiting its pricing flexibility.

Lease-adjusted EBITDA coverage of interest is in the low-2x area, and lease-adjusted total debt to EBITDA is in the mid-5x area. However, these measures are expected to improve somewhat during the next two years, primarily through expansion of private label and other higher-margin product categories, S&P said.

Moody's lowers Regal outlook, rates loan Ba2, convertibles B3

Moody's Investors Service lowered its outlook on Regal Entertainment Group to stable from positive and assigned a B3 rating to its new $125 million of senior unsecured convertible notes due 2008 and a Ba2 rating to Regal Cinemas, Inc.'s new $315 million senior secured term loan D due 2008. Existing ratings were confirmed including Regal Cinemas' $145 million senior secured revolver due 2007 and $210.9 million senior secured term loan C due 2008 at Ba2 and $350 million 9 3/8% senior subordinated notes due 2012 at B2.

Moody's said the actions broadly incorporate the higher financial leverage and weaker liquidity position of the company following completion of its large-scale planned decapitalization, risks which are, however, mostly mitigated by the former flexibility which had been built into the ratings to accommodate such potential financial engineering and/or acquisitions, and as supported further by the large size and strong underlying intrinsic value of the company's free cash flow generating asset base.

Regal's ratings continue to reflect the company's moderately high degree of financial leverage, particularly in consideration of its massive off-balance sheet operating lease obligations; modest coverage of interest and rents by pre-rent cash flow; planned capital investments and dividend payments, which combined will reduce retained free cash flow; and a now much diminished liquidity profile (notwithstanding the near-full availability under the revolver) pro forma for the pending transactions, Moody's said.

Moreover, the ratings also incorporate certain concerns about the theatrical exhibition industry more broadly, including lingering excess domestic screen capacity, persistent box office volatility and dependence on a relatively few Hollywood studios for "good" film product, and the need to further rationalize and consolidate circuits.

The ratings are supported, however, by Regal's still relatively strong balance sheet, even after removing more than 20% of the equity base through the proposed special dividend; the expectation that the company's core operations will continue to perform at industry-leading levels, generating a meaningful amount of free cash flow on a sustained basis, which in conjunction with a reduction in the forward dividend rate should facilitate the replenishment of excess cash balances; and management commitments with respect to a much higher level of equity-contributions in the context of financing potential future acquisitions than had been anticipated and/or necessary for rating preservation in the past, Moody's said.

The outlook change to stable from positive reflects the diminished prospect of formerly favorable rating momentum and near-term upgrade potential following the meaningful diminution in Regal's credit profile after completion of the proposed transactions at a level that Moody's believes to be above and beyond that embedded in the prior rating cushion and flexibility which had been afforded.

Moody's puts Central Parking on review

Moody's Investors Service put Central Parking Corp. on review for possible downgrade including its $175 million senior revolving credit facility due 2008 and $175 million senior secured term loan B due 2010 at Ba2 and $78 million convertible Trust Issued Preferred Securities (TIPS) at B1.

Moody's said the action is in response to weakening financial performance and concern that Central Parking's margins and coverage ratios will remain under pressure. As of the March 31, 2003 quarter, the company required a waiver for both its leverage and senior leverage ratio covenants.

The company's ratings have benefited from the belief that the recurring nature of parking based on commuting habits, shopping, and entertainment would result in higher predictability, Moody's said. While this may still be reasonably accurate, Moody's will be re-visiting this premise along with an emphasis on management's ability to control its cost structure.

Moody's rates Jefferson Smurfit notes B2

Moody's Investor's Service assigned a B2 rating to Jefferson Smurfit Corporation (U.S.)'s new $300 million senior notes and confirmed its ratings along with ratings of Smurfit-Stone Container Corp.'s other 100%-owned subsidiaries, Stone Container Corp. and Stone Container Finance Co. of Canada. The senior unsecured debt is rated B2. The outlook is stable.

Moody's said the ratings continue to reflect high debt leverage, volatility in pricing of core products and an aggressive acquisition strategy.

The ratings are also constrained by the company's complex corporate structure, which may prevent the optimal use of financial resources and its substantial unfunded pension obligations.

The company is very highly concentrated in containerboard, a relatively volatile commodity. Small changes in pricing result in dramatic changes in earnings and cash generation, Moody's said. This, in conjunction with Smurfit-Stone Container's high debt level, can result in periods of weak debt protection measurements. Management remains comfortable with a leveraged capital structure.

While the company intends to use free cash flow to reduce debt, Moody's expects Smurfit-Stone Container to periodically increase debt to finance future acquisitions and other obligations.

S&P rates Province notes B-, upgrades loan

Standard & Poor's assigned a B- rating to Province Healthcare Co.'s new $150 million senior subordinated notes due 2013, confirmed its corporate credit at B+ and subordinated debt at B- and upgraded its bank debt including its $200 million revolving credit facility due 2006 to BB- from B+. The outlook is stable.

The upgrade of the senior secured bank loan rating reflects the reduction in the total amount of secured bank debt outstanding, S&P said. It also reflects the growth in the company's assets and cash flow.

At their current levels, these measures offer a strong likelihood of full recovery of the total possible secured bank debt in the event of default, S&P said.

Province's ratings reflect the company's improving, but still-limited, hospital portfolio diversity, and its vulnerability to adverse operating trends, S&P said. These factors are offset somewhat by the company's strong market position in small, non-urban markets.

Furthermore, the company has significant revenue concentration in a small number of facilities and is highly dependent on governmental payors, with nearly 60% of revenues derived from them, S&P noted. The company's margins, which approximate 17.5%, therefore are vulnerable to uncertainties of government payments to hospitals. Province's acquisition activity has been heavily debt financed. Notwithstanding recent use of free cash flow for modest debt repayment, the company's debt to capitalization rose to 54% in 2002 from 49% in 2001, an increase indicative of the company's aggressive growth strategy.

S&P raises Pliant outlook, upgrades loan, rates notes B-

Standard & Poor's assigned a B- rating to Pliant Corp.'s proposed $250 million senior secured notes due 2009, upgraded its senior secured credit facility to BB- from B+, raised the outlook to stable from negative and confirmed its other ratings including its subordinated debt at B-.

S&P said it upgraded the bank loan to reflect lenders' improved prospects for full recovery due to the smaller proportion of priority debt relative to the pledged collateral (pro forma for the partial repayment of outstanding bank debt), and the benefits of a substantial subordinate debt cushion.

The improved outlook is because successful completion of the senior secured notes issuance would ease liquidity pressures and significantly improve the company's onerous debt amortization schedule in the intermediate term, S&P said.

The stable outlook reflects the expectations that almost full availability under the $100 million revolver (upon completion of the notes issuance), and minimal debt maturities until 2006 should provide sufficient liquidity while the company's operating performance, cash generation and credit measures strengthen to appropriate levels, S&P said.

The ratings reflect Pliant's below-average business position in flexible packaging segments, which is overshadowed by very aggressive debt leverage and subpar credit measures, S&P added.

Operating performance in the first quarter of 2003 reflects sequential earnings improvement, and mid-single digit volume growth. Still, the escalation in prices of plastic resins in the first quarter of 2003 have resulted in gross margin compression, which is expected to be gradually recouped through price increases to customers. Overall, operating margins have declined to about 15% in 2002 and the first quarter of 2003, from 17% in 2001. The company's estimated EBITDA guidance of $132 million in 2003 reflects relatively flat volumes year over year, and increased raw material costs, partially offset by ongoing cost reduction efforts.

The company's financial profile was significantly weakened following a recapitalization in May 2000, and Pliant remains very aggressively leveraged with total debt (adjusted for capitalized operating leases) to EBITDA of above 6x for the 12 months ended March 31, 2003, S&P said. Credit measures are subpar with EBITDA to interest coverage at about 1.6x, and the company has not generated free cash flows in the past three years. In 2003, internally generated cash from operations is expected to cover limited capital expenditures (at about 60% of depreciation). Benefits of cost savings combined with improved pricing are expected to support modest free cash flow generation in subsequent years, to meet reduced debt maturities.

Fitch confirms Citgo, off watch, raises PDV America

Fitch Ratings confirmed the senior unsecured debt of Citgo Petroleum Corp. at B+, assigned a BB rating to Citgo's $200 million secured term loan and raised the rating of the senior notes of PDV America, Inc. to B from B-. All ratings were removed from Rating Watch Negative. The outlook is stable.

The removal of the Rating Watch reflects the significantly improved liquidity position of Citgo as a result of management's actions following the general strike in Venezuela, Fitch said. In February, Citgo issued $550 million of 11 3/8% senior unsecured notes. Citgo has also entered into a $200 million three year term loan secured by the company's 15.8% interest in the Colonial Pipeline and 6.8% interest in the Explorer Pipeline. The company also established a new $200 million dollar accounts receivable securitization facility.

At the end of the first quarter, Citgo had $481 million of cash, no borrowings under its $545 million credit facilities and approximately $175 million of availability under the new securitization program, Fitch said.

The ratings, however, reflect Fitch's expectation that the proceeds from the recent $550 million bond offering will be used to pay the maturity of PDV America's $500 million of senior notes in August 2003. Fitch views the PDV America senior notes to ultimately be an obligation of PDVSA.

The ratings also reflect the potential for further interference from PDVSA as Citgo enters a period of high capital requirements to meet the upcoming low sulfur regulations, Fitch said. Citgo estimates the total capital expenditures to meet environmental regulations to be approximately $1.3 billion over the next five years. Financial flexibility could be limited by further dividend payments or additional force majeure situations interrupting CITGO's supply of heavy Venezuelan crude.

Moody's puts Salton on review

Moody's Investors Service put Salton, Inc. on review for possible downgrade including its $150 million 12¼% senior subordinated notes due 2008 and $125 million 10¾% senior subordinated notes due 2005 rated B2.

Moody's said the review is in response to Salton's release of third quarter operating results, which reflected a reduction in the company's pricing strategy for certain items, inventory and SKU rationalization initiatives, and its exposure to a challenging sales and economic environment. These results were significantly below Moody's expectations and raise concerns (relative to its current rating level) regarding Salton's sustainable debt repayment capacity.

© 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.