Moody's cuts Insight

Moody's Investors Service downgraded Insight Communications Company, Inc. including cutting its $360 million 12¼% senior unsecured discount notes due 2011 to Caa2 from Caa1 and speculative-grade liquidity rating to SGL-3 from SGL-2 and confirmed Insight Midwest, LP's $500 million 10½% senior unsecured notes due 2010 and $385 million 9¾% senior unsecured notes due 2009 at B2 and Insight Midwest Holdings, LLC's $425 million senior secured revolver due 2009, $425 million senior secured term loan A due 2009 and $1.125 billion senior secured term loan B due 2009 at Ba3. The outlook on all ratings remains negative.

Moody's said it lowered Insight because it expects the company will continue to have difficulty achieving its targeted operating and financial performance levels.

The expected shortfalls going forward mean that it will take that much longer for Insight to grow into its balance sheet and begin reducing leverage as previously projected.

Moody's reminded investors again, as it has repeatedly done in the past, that an acceleration of operational results has been long awaited and often delayed, and contends that the operating environment is likely to become increasingly challenging.

Insight's markets are likely to be characterized by heightened competitive pressure from DBS service providers, Moody's said. As a result, Insight is likely to continue to struggle to maintain its basic subscriber base, particularly in areas where DBS providers introduce local-into-local programming along with aggressive marketing campaigns.

Also of concern is the potential for increasing competition from RBOCs providing DSL service in direct competition with Insight's high speed Internet product (and potentially competing direct video competition by the RBOCs at some point in the future).

Beyond pressure on Insight's top line revenue growth resulting from slower growth (and potentially high churn) resulting from increased competition, Moody's also believes that the company will be forced to spend more heavily on promotional and retention marketing both to add incremental subscribers and to maintain its existing subscriber base.

S&P raises Millipore to investment grade

Standard & Poor's upgraded Millipore Corp. to investment grade including raising its $100 million 6.78% due 2004, $100 million 7.5% notes due 2007 and $250 million senior unsecured revolving credit facility due 2006 to BBB from BB+. The outlook is stable.

S&P said the action was taken in light of Millipore's demonstrated commitment to moderate financial policies and the company's less volatile business mix following the divestiture of its semiconductor business-related Mykrolis unit in 2002.

Millipore's ratings reflect the company's well-established positions as a provider of filters and chromatography used to separate mixtures of compounds for researchers and pharmaceutical manufacturers, as well as the company's moderate use of debt financing, S&P said. The biotechnology manufacturing equipment unit holds much promise, but experiences short-term fluctuations in performance.

Millipore has been able to markedly improve and sustain its financial position since the ratings were lowered in 1998, S&P noted. Lease-adjusted total debt to capital has fallen to 48% from an early 2002 peak of 66%, a decline occasioned by a stock dividend to shareholders of the volatile microelectronics business. Other credit measures continue at strong levels: EBIT interest coverage is more than 6x, while funds from operations to total debt is more than 30%.

S&P puts William Carter on positive watch

Standard & Poor's put The William Carter Co. on CreditWatch positive including its $175 million 10.875% notes due 2011 at B and its $125 million term loan due 2008 and $60 million revolving credit facility due 2006 at BB.

S&P said the CreditWatch listing reflects Carter's plan to use the net proceeds from a proposed $100 million IPO of common stock by its parent company, Carter's Inc., to redeem a portion of its 10.875% subordinated notes due 2011.

Following completion of the transaction, S&P estimates that operating lease-adjusted total debt to EBITDA will be under 3x for 2003, down from about 4x at year-end 2002.

S&P rates Hovnanian notes BB

Standard & Poor's assigned a BB rating to K. Hovnanian Enterprise Inc.'s new $215 million 6.5% senior notes and confirmed all other ratings on Hovnanian and its affiliates including the unsecured debt at BB and the subordinated debt at B+. The outlook is stable.

While the additional debt has no impact on the company's current ratings, it could reduce momentum for very near-term ratings improvement, S&P said.

Hovnanian has grown dramatically in recent years, partially due to several builder acquisitions, S&P noted.

S&P said it acknowledges that Hovnanian's growth has resulted in a strengthened market position and improved geographic diversity, while simultaneously enhancing solid profit margins and materially improving financial measures.

The recent, attractively priced debt offering, while somewhat opportunistic, does lengthen maturities modestly and reduces the need for near-term bank line usage, S&P noted.

Financial measures could weaken temporarily, as management intends to use proceeds toward future working capital. Leverage will increase from about 54% to 58%, excluding cash, and EBIT/interest coverage will reduce from about 6.5x to just under 6.0x, due in part, to the dilutive impact from $250 million in interim cash balances, S&P said.

However, gross profit margins remain strong (25%) and management has stated it intends to use excess cash flow during the next few quarters to reduce leverage to the 50 to 55% range. Once this is achieved, and as coverage measures gradually recover from the redeployment of cash balances, S&P will likely revisit the company's outlook.

Moody's rates Hovnanian notes Ba2

Moody's Investors Service assigned a Ba2 rating to K. Hovnanian Enterprises, Inc.'s new $215 million 6.5% senior notes due 2014 and confirmed all of Hovnanian's existing ratings including its $150 million 10.5% senior notes due 2007, $150 million 9.125% senior notes due 2009 and $100 million 8% senior notes due 2012 at Ba2 and $150 million 8.875% senior subordinated notes due 2012 and $150 million of 7.75% senior subordinated notes due 2013 at Ba3. The outlook is stable.

Moody's said the stable outlook reflects its expectations that Hovnanian will maintain capital structure discipline while pursuing expansion opportunities.

The ratings acknowledge Hovnanian's increased size, scale and market penetration, continuing success in diversifying its operating profits, substantial improvement in its credit statistics, smooth integration of previous acquisitions, long history and significant management ownership, Moody's said.

At the same time, however, the ratings consider Hovnanian's higher-than-average business risk profile given its apparent appetite for acquisitions, greater use of debt leverage than that of its peers, capacity under its credit agreement that could lead to substantial additional debt incurrence, integration risks associated with its most recent group of acquisitions, long land position (although heavily optioned), and the cyclical nature of the homebuilding industry.

Since 1993, Hovnanian has drastically reduced its reliance on earnings coming from the Northeast region. The Northeast region contributed the vast majority of operating earnings in 1993 and continued to do so in 1998, but its contribution to operating earnings in 2002 was substantially less than half of the company's total operating income. For fiscal 2003, the Northeast region's contribution is expected to continue growing on an absolute dollar basis but will fall further as a percentage of total operating income, Moody's said.

The company's credit metrics, which consistently trailed those of most of its Ba2 and Ba3 peer group, caught up with, and began surpassing, its peer group comparables in fiscal 2002, with continued noteworthy improvement seen thus far in fiscal 2003.

© 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.