Ratings Actions & Outlooks
May 2, 2008
Moody's Downgrades Airborne Health, Ratings Remain Under Review
Moody's Investors Service downgraded the Corporate Family Rating and senior secured credit facilities of Airborne Health to Caa1 from B3.
The downgrade reflects continuing legal issues which followed the settlement of a class action lawsuit in November 2007, and delays in seeking and obtaining covenant amendments from the company's senior secured lenders. The ratings remain under review for a further downgrade.
Based in Bonita Springs, Fla., Airborne Health markets a health formula that is designed to support the immune system. The company's products are distributed nationwide through about 70,000 supermarkets, drugstores, discounters, club stores, and other retail locations. Airborne generated net revenue of $126 million for the twelve months ended January 31, 2008.
Notwithstanding a considerable amount of cash on the balance sheet and no revolver borrowings, liquidity is constrained by potentially substantial legal claims and is exacerbated by the option afforded the senior lenders to accelerate the debt outstanding, according to the rating agency.
Moody's believes that the ongoing uncertainty with respect to these issues is likely to divert management attention from operational issues. The downgrade also takes into account the company's relatively small revenue base, high leverage, undiversified product offering, the potential effects of an economic slowdown on consumer spending, higher than anticipated seasonality in the category, and dependence on larger retail customers for the distribution of its products amidst intense competition from a variety of branded and private label products.
S&P Cuts Alaska Air ratings, Citing High Fuel Prices, Poor Economy
Standard & Poor's lowered its ratings on Alaska Air Group and its major operating subsidiary, Alaska Airlines Inc., including lowering the long-term corporate credit ratings on both to 'B+' from 'BB-'.
Alaska Air Group is the holding company for Alaska Airlines and Horizon Air Industries. Alaska Airlines, the eighth-largest US airline, accounts for approximately 87% of consolidated revenues, and operates hubs at Seattle; Portland, Ore.; Anchorage, Alaska; and Los Angeles, primarily serving destinations in Alaska from the lower 48 states, as well as cities along the West Coast of the US, Canada, and Mexico. The company also provides east/west service to eight destinations, primarily from Seattle, and began serving Hawaii from Seattle and Anchorage in October 2007.
"The downgrade is based on an expected weakening in the company's financial profile in 2008 because of sustained high fuel prices and weaker demand in the second half of 2008 as a result of the slowing economy," according to Standard & Poor's. "While Alaska Air Group's earnings performance will be helped by a fuel-hedging program that is second best among the US airlines, we expect the company to report a loss, albeit less than those of its competitors," the rating agency said.
Although the company's credit ratios are expected to weaken, it does benefit from relatively strong liquidity for its size. The company had more than $1 billion of cash and short-term investments, with no exposure to auction-rate as of April 24.
The rating agency warned that it expects “Alaska Air, like other U.S. airlines, to report a loss in 2008, albeit less than most other airlines. We could revise the outlook to negative if higher-than-expected fuel prices or sustained economic weakness continue to erode the company's financial profile.”
Moody's Revises SVP’s Outlook to Negative
Moody's revised its rating outlook for SVP Holdings Ltd. to negative from stable and lowered the company's probability of default rating because of concern that the company will face a period of limited cushion in its financial covenants due to the potential impact of softer discretionary consumer spending on near term growth plans.
Hamilton, Bermuda-based SVP Holdings Ltd. is the world's largest manufacturer, marketer and distributor of consumer sewing machines. Products are sold under the "Singer", "Husqvarna", "Viking" and "Pfaff" brands in 188 countries. The company was formed in September 2004 to facilitate the acquisition of Singer Sewing Company by Kohlberg & Co.
"Our expectation is that continued soft consumer spending could likely limit the prospects for revenue and profitability growth over the remainder of the year and, when combined with the contractual revision of bank covenant levels and timing of new product launches, may leave the company with limited cushion under its financial covenants," according to Moody’s.
As a result of these risks, the PDR was downgraded to B2 from B1 to reflect the increased risk of default over the next 12 months.
Given the company's high financial leverage, any negative variance under operating or financial expectations, unexpected uses of cash, or covenant violations could trigger a downgrade of the ratings.
S&P Cuts French Lick Resorts & Casino
S&P lowered its corporate credit rating on French Lick Resorts & Casino to 'SD' or selective default from 'CCC'. At the same time, Standard & Poor's lowered its issue-level rating on FLRC's senior notes to 'D' from 'CCC'.
For more information on related topics, visit the following:
