Rating Actions & Outlooks
January 19, 2010
Moody's Outlook On Ozburn Hessey's Remains Negative
Moody's affirmed Ozburn Hessey Holding Co.’s corporate family rating, but its outlook on the company remains negative.
The negative outlook reflects potential for a financial ratio covenant breach due to an aggressive step down schedule through 2011.
The outlook also acknowledges limited free cash flow prospects as a result of low earnings and possibility that lack of meaningful volume gains later in 2010 could sustain the low earnings level. In addition to potentially sustained weak free cash flow, the revolver size decrease has reduced financial flexibility. Furthermore, the turnaround in Global Freight Management and Logistics, Ozburn's recently challenged customs brokerage unit, may take longer to realize than planned.
Ozburn-Hessey Holding Co. is based in Nashville. It is a provider of third-party logistics and related services, including warehouse management, truck brokerage, customs brokerage, freight forwarding, and dedicated contract carriage. Ozburn-Hessey is a wholly-owned subsidiary of OHH Acquisition Corp, which is controlled by private equity group Welsh, Carson Anderson & Stowe.
Ozburn-Hessey's gross revenues were approximately $745 million for the last twelve months ended September 30.
Moody's Downgrades BMO To Aa2
Moody's downgraded the long-term ratings of the Bank of Montreal, or BMO, and its subsidiaries. BMO's deposit rating dropped to Aa2 from Aa1 and its bank financial strength rating (BFSR) fell to B- from B.
This rating action includes downgrades of BMO's subsidiaries, including the rated entities of its primary U.S. holding company, Harris Financial Corp.
“The downgrade of BMO reflects our view that the bank's wholesale investment bank exposes the bank to greater earnings volatility than previously incorporated in its ratings and the fact that BMO allocates substantial capital to this business,” says Moody’s.
Moody's estimates BMO has taken C$2.7 billion in pre-tax charges related to its wholesale investment banking activities. Moody's also believes the bank's risk-adjusted profitability will remain constrained due to weak earnings from its U.S. retail and wholesale banking businesses for the foreseeable future. These two factors, taken together, prompted the downgrade of the bank's BFSR to B- from B and its long-term deposit rating to Aa2 from Aa1. The return of BMO's outlook to stable reflects the strength of the bank's Canadian retail financial services franchise and its strong capitalization."
Bank of Montreal is based in Toronto. It reported total assets of C$388 billion as of Oct. 31.
Moody's Says Blockbuster's Earnings Highlight Longer Term Credit Concerns
Moody's said Blockbuster's sizable earnings revision has no immediate impact on its Caa1 corporate family and probability of default ratings, but the revision did spark concerns about its long-term credit position.
"However, the earnings revision does highlight several of our longer term credit concerns which are currently incorporated into the Caa1 corporate family rating" said Moody's. "These include, ongoing price deflation across the industry, a secular shift in how consumers rent movies, heavy discounting by Wal-Mart, and the impact of evolving technology.”
Moody's said it believes that Blockbuster's liquidity over the next year will be adequate.
Blockbuster. a movie rental chain. has 7,100 stores are located throughout the U.S. Annual revenues are about $4.7 billion.
Moody's Cuts MetoKote
Moody's downgraded the corporate family rating, or CFR, MetoKote Corp. to Caa2 from Caa1 while confirming the Caa2 probability of default rating.
The review of the company had been prompted by a violation of its leverage covenant for the 12-month period ending July 2009 along with concern about the near term scheduled maturity of its revolving credit facility in May 2010.
While MetoKote obtained covenant relief and extended the revolver maturity to August 2011, the revolving credit commitment was reduced to $10 million from $30 million and $7 million of balance sheet cash was applied to the term loan.
The downgrade of the CFR reflects the still weak operating conditions, higher debt service costs, and significant capital expenditure requirements associated with new contracts -- all of which Moody's believes may pressure the company's limited balance sheet cash and revolver availability in coming periods.
Moreover, the downgrade reflects a fundamental valuation that, in the rating agency’s opinion, suggests a less than full recovery in a restructuring scenario.
MetoKote has high operating leverage and will need to adjust its cost structure on current facilities to restore operating margins in an environment of sustained lower production volumes.
MetoKote provides outsourced industrial coating services to manufacturers in North America, Europe, and Brazil. End markets served include automotive, heavy truck, agriculture, construction, metal furniture, appliances, and consumer products. For the trailing twelve-month period ended July 31, 2009, the company's global operations generated approximately $145 million in revenue.
Moody's Downgrades Bosque
Moody's downgraded the rating of Bosque Power Co's senior secured credit facilities to Caa2 from B3.
The outlook remains negative.
Despite the fact that the company's expansion project is finally operational after an extended delay, the downgrade reflects a sizeable draw the company made on its debt service reserve fund in order to make its December debt service payment together with its failure to put in place additional energy hedges by the middle of January as required by its credit agreement because of very poor market conditions. The downgrade also reflects its continued inability to generate meaningful operating cash flows to pay down its debt, and as a result a very likely default on its financial covenants when its fourth quarter financial results are published barring a further equity cure.
The negative outlook considers the potential for an adverse outcome to Bosque's pending arbitration hearing with its EPC contractor, which the company currently has virtually no ability to afford given its very limited liquidity position and the possibility that the project could face a payment default in the second quarter if cash flows do not improve.
Bosque is a special purpose entity whose sole asset is the Bosque generating facility, which is located in Laguna Park, Texas. The facility consists of two combined cycle gas turbines with an aggregate generating capacity of approximately 800 megawats. Bosque is 97.85% owned by Arcapita, a private equity firm, and its affiliates and 2.15% by Fulcrum Power Services, an energy services and investment company.
Moody's Downgrades Texas Industries
Moody's downgraded Texas Industries Inc.'s corporate family rating and probability of default rating to B2 from B1.
The rating downgrade results from continued weakness in Texas Industries' end-markets and resulting impact on the company's operating performance and credit metrics.
As a result of substantive volume declines of approximately 30% to 40% from peak levels and weakening pricing power, the company's operating margins declined from typical 9% to 12% to 4% to 5%, while adjusted debt-to-Ebitda leverage has increased from 3.1 times in May 2008 to about 5.8 times at present.
While Texas Industries is expected to realize benefits from federal stimulus spending targeting public works and infrastructure construction in its markets, it is unlikely that general industry conditions will improve materially over the next 18 months as private spending remains depressed, thus limiting opportunities for the company to strengthen its operating profile and credit metrics.
Therefore, Moody's views Texas Industries' intermediate-term credit profile better positioned in the B2 rating category.
The B2 corporate family rating reflects the company's exposure to cyclical construction end-markets, its elevated financial leverage, and currently weakened operating profile.
Texas Industries is based in Dallas. It manufactures cement, aggregates and ready-mixed concrete. The company serves end-use markets such as public works, commercial, industrial, institutional and residential construction sectors, and energy markets. Texas Industries typically generates approximately 80% of its revenues in Texas and 20% in California, which in the LTM period ending November 2009 were approximately $688 million.
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