Ratings Actions & Outlooks
June 12, 2008
S&P Cuts Builders FirstSource On Weak Housing Market
Standard & Poor's lowered its corporate credit rating on Dallas-based Builders FirstSource Inc. to 'B' from 'B+'. The credit rating agency also lowered the issue-level rating on the company's senior secured debt to 'B' from 'B+'. The ratings remain on CreditWatch with negative implications, where they were placed on April 2.
"The ratings downgrade and continued CreditWatch listing reflect our assessment that the company's operating performance will continue to be hurt by challenging market conditions due to ongoing weakness in the US residential construction market," according to S&P. "As a result, we expect that earnings will be pressured as long as these conditions persist, which will lead to a material weakening of credit measures and tighter liquidity."
Moody's Lowers JHCI's Rating to B3; Outlook Negative
Moody's Investors Service lowered JHCI Acquisitions Inc.’s corporate family rating to B3 from B2. The rating outlook has been changed to negative from stable.
The ratings were lowered in recognition of weaker-than-expected operating results that have occurred since the June 2007 acquisition of Jacobson Cos. by Oak Hill Capital Partners.
As a result, the company's credit metrics and liquidity profile have deteriorated below levels anticipated when Moody's assigned the original rating to JHCI in May 2007. Moody's expects that the weaker operating environment will persist through 2008 and into 2009 as the domestic economy impacts the company's operational performance.
According to Moody's, "Jacobson, like many companies in the industry, will continue to face significant headwind from what is expected to be a deep and possibly prolonged recession in the transportation sector." As such, key credit metrics such as EBIT to interest and debt to EBITDA will likely remain at levels more appropriate for the B3 rating category over the near term, the rating agency says.
Of particular concern to Moody's are financial covenant restrictions imposed by terms of the company's senior secured credit facilities. As of March 31, JHCI's leverage ratio exceeded the maximum level permitted under the agreement.
JHCI is not currently drawn on this facility, and Moody's does not expect that the company will need to draw on it in the near term. Since the leverage covenant is only applicable if the facility is drawn, this breach does not constitute a default under the covenants. However, because the excess leverage will prevent JHCI from using the facility, Moody's believes that the removal of an important external source of liquidity for any length of time is a material impairment of the company's liquidity profile.
Moody's assesses JHCI's overall liquidity profile to be adequate, as moderate to strong cash balances and expected operating cash flows will likely cover all but unexpected capital expenditure needs, which the company has reduced in line with the weaker operating environment. JHCI faces no material debt maturities until 2014, and only modest amortization of debt over the near term. Still, the lack of access to a credit facility that would otherwise provide important flexibility to weather any further deterioration in overall market conditions amplifies the company's risk profile over the near term.
The negative outlook reflects concern over the near term about the company's liquidity condition, particularly to the extent that the company lacks access to its credit facility due to covenant restrictions. The outlook also anticipates on-going difficulties in the company's transportation businesses that will coincide with soft economic conditions in the US over the near term.
Moody's Puts Smithfield's Ratings On Review for Downgrade
Moody's placed under review for possible downgrade the long-term ratings of Smithfield Foods Inc., including the company's Ba2 corporate family rating and Ba2 probability of default rating.
For more information on related topics, visit the following:
