Fitch keeps Solutia on watch

Fitch Ratings kept Solutia Inc. on Rating Watch Negative including its senior secured bank facility at B- and senior unsecured debt and senior secured notes rating at CCC.

The negative watch reflects the ability of the firm to successfully obtain additional bank covenant waivers and renegotiate the credit facilities which expire in August 2004, Fitch said.

The settlement resolving the polychlorinated biphenyls (PCBs) litigation in Anniston, Alabama against the company removes the additional risk that had potentially hindered Solutia's refinancing efforts.

However, weak earnings and cash flow generation along with future bond maturities, continue to present near-term liquidity issues for the company, Fitch added.

S&P upgrades US Unwired

Standard & Poor's upgraded US Unwired Inc. including raising its corporate credit rating and $130 million secured bank loan to CCC- from CC and removed the rating from CreditWatch. It confirmed its $200 million senior subordinated discount notes due 2009 at C.

S&P said the action follows the expiration of the sub-par tender offer on US Unwired's 13.375% senior subordinated discount notes due 2009. S&P said it would have viewed completion of the transaction as tantamount to a default on original debt issue terms.

S&P confirmed IWO Holdings Inc. including its $160 million senior unsecured notes due 2010 at C and removed it from CreditWatch.

The outlook on both companies is negative.

S&P said the ratings reflect very high financial risk from an overwhelming debt load and weak liquidity caused by negative discretionary cash flow incurred during the companies' extended wireless business start-up period.

Operating cash flow has been slow to ramp up given heavy industry competition and the soft economy, while capital expenditures to construct wireless networks have been high. Ratings further reflect limited recoverable asset value because the wireless spectrum licenses used by the companies are held by Sprint Corp. These factors are slightly mitigated by the company's 593,000 wireless subscribers.

US Unwired and IWO Holdings are experiencing high financial pressure from dwindling liquidity and have elevated bankruptcy risk, S&P added. US Unwired generates free cash flow, but largely because of a substantial amount of non-cash interest on its senior notes, which will require cash interest payments beginning in May 2005. It is uncertain whether US Unwired will meet its bank covenants in the second half of 2003.

IWO Holdings has consumed cash through June 2003 and will exhaust the interest reserve on its senior notes in 2004, S&P said. The company also defaulted on payments to its credit facility in June 2003. IWO Holdings currently has an interest reserve to make the Jan. 15, 2004 interest payment on its 14% senior subordinated notes, but could default on the notes before January 2004 if the company's banks accelerate the credit facility. The IWO Holdings banks and noteholders have no recourse to US Unwired assets.

Despite the considerable financial challenges facing US Unwired and IWO Holdings, the companies' consolidated wireless churn declined to 2.7% in the second quarter of 2003, from 3.6% in the first quarter, S&P noted. The credit quality of the subscriber base is strengthening. EBITDA and free cash flow are also improving. However, this positive operating momentum may not be sufficient to avoid further defaults or bankruptcy, especially given the still-competitive wireless business environment.

S&P confirms Unicco, off watch

Standard & Poor's confirmed Unicco Service Co. including Unicco Finance Corp.'s $105 million 13% senior subordinated notes due 2007 at CCC+ and removed it from CreditWatch negative. The outlook is stable.

S&P said the actions follow Unicco's recent announcement that it had refinanced its senior secured revolving credit facility and obtained waivers for covenant violations under its notes indenture.

These actions resolved covenant compliance issues resulting from the company's financial support of affiliated insurance company Ashmont Insurance Co. Ltd.

Before Unicco began self-insuring its workers' compensation and general liability risks in April 1, 2002, its insurance program was administered by a fronting insurance carrier, and its deductible obligations were reinsured by Ashmont. Due to the adverse financial performance and the relative illiquidity of its investment portfolio, Ashmont became unable to make required ongoing deductible payments relating to prior policy years. Subsequently, Unicco has made loans and payments to fund Ashmont's obligations, and this may have violated certain covenants and provisions of its notes indenture.

Furthermore, Ashmont's illiquid financial situation has resulted in the accumulation of a net deficit of $14.4 million on its balance sheet. Unicco has been advised by its independent auditors that its balance sheet is required to reflect a liability for Ashmont's net deficit under Generally Accepted Accounting Principles. Unicco's management estimates that the remaining liabilities of Ashmont total approximately $18 million.

Unicco's ratings reflect its leveraged financial profile and very competitive industry conditions, S&P said. These factors are somewhat mitigated by the company's modest but fairly predictable cash flow generation from its portfolio of diverse services and the attractive growth rates in its fragmented niche markets.

Unicco continues to be highly leveraged. Lease-adjusted EBITDA coverage of interest was about 1.6x, and lease-adjusted total debt to EBITDA was more than 7x for the 12 months ended March 30, 2003, S&P said.

© 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.