S&P cuts Silicon Graphics outlook to negative

Standard & Poor's revised its outlook on Silicon Graphics Inc. to negative from positive and affirmed its ratings, including the CC subordinated debt, to reflect recent losses, limited liquidity and a significant debt maturity in September 2004.

While SGI has a good technology position in high-end computing and graphics solutions, it has been struggling to establish revenue stability and restore profitability, hampered by economic weakness and reduced levels of information technology spending, S&P said.

Near-term liquidity is adequate, but limited. Cash and marketable investment balances were $141 million at June 27. The company expects to use about $40 million of cash to support operations in the September quarter and required debt amortization in fiscal 2004 is about $17 million.

The company has fully utilized capacity under its secured $50 million credit facility expiring in April 2005 to secure letters of credit. In addition, the facility is subject to acceleration if SGI does not successfully extend the maturity of its senior convertible notes on or before March 5, 2004.

In August, SGI announced the withdrawal of its exchange offer with respect to the $230 million of outstanding 5.25% senior convertible notes due September 2004 but is continuing to work with holders to restructure this obligation, S&P noted.

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