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Ratings Actions & Outlooks
September 26, 2008
Moody's Cut Pilgrim's Pride On Expectations Of 4Q Loss
Moody's Investors Service cut the ratings of Pilgrim's Pride Corp., including the company's corporate family rating and probability of default rating, to B2 from B1.
The rating agency said this action follows Pilgrim's Pride's announcement that it expects to report a significant loss in the fiscal fourth quarter ending Sept. 27 and that it is in discussions with its revolving credit banks on a temporary waiver of the fixed charge coverage covenant for that quarter.
The review for possible downgrade of the company's ratings continues pending receipt of permanent amendments to its revolving credit agreements and improved liquidity. Pilgrim's Pride anticipates that its fiscal 2008 feed grain costs will rise by more than $900 million over fiscal 2007's. Chicken prices have not kept pace with this input cost inflation; Pilgrim's Pride has noted that the market price for breast meat on August 11th was approximately $1.33 per pound, well below the average price of over $1.80 four years earlier.
Pittsburg, Texas-based Pilgrim's Pride is the world's largest chicken company. Sales for the 12 months ended June 28 were approximately $8.5 billion.
Moody's Downgrades Radio One
Moody's downgraded Radio One's Corporate Family Rating and Probability of Default rating to B2 from B1.
In addition, Moody's downgraded the company's senior secured bank credit facilities to Ba3 from Ba2 and its senior subordinated notes to Caa1 from B3.
The rating outlook is negative.
The downgrades were prompted principally by ongoing weakness in the company's operating performance and a correspondingly weak liquidity profile given Moody's expectation that minimal cushion is expected to be maintained under tightening financial maintenance covenants as stipulated in the senior secured credit agreement.
The company's ratings reflect significant financial leverage, continued weak operating performance (partly due to softness in several of the company's largest markets) and modest free cash flow generation relative to debt.
In addition, Moody's expects the company to have minimal cushion under its financial maintenance covenants governed by its senior secured credit agreement, yielding a weak liquidity profile over the forward rating horizon. Ratings also incorporate the inherent cyclicality of the advertising business, Moody's belief that radio is a mature business facing secular pressure and the increasing fragmentation of advertising spread over a growing number of media.
The ratings are supported by the company's diverse geographic presence, complementary properties targeting the African-American audience and a meaningful proportion of local advertising revenue.
Radio One, headquartered in Lanham, Maryland,is a radio broadcaster that primarily targets African-American and urban listeners. The company owns 53 radio stations located in 16 urban markets in the US. Radio One also owns a publishing business, interests in a cable/satellite network, REACH Media and Community Connect Inc., an online social networking company. The company's 2007 revenues were approximately $330 million.
Juniper Generation Outlook Changed By Moody's
Moody's changed the outlook on Juniper Generation LLC's Baa3 senior secured rating to negative from stable.
The rating action reflects Moody's expectation that the California Public Utility Commission will ultimately change the Short Run Avoid Cost, or SRAC, pricing potentially resulting in a significant reduction to Juniper's cash flow. Depending on the final form of these changes to SRAC, Moody's expects that Juniper's debt service coverage ratio is likely to drop from its historical coverage ratio of approximately 2 times though the extent of such a decrease is uncertain. "That being said, cash flow under Juniper's PPAs with Pacific Gas and Electric and Southern California Edison should continue to be sufficient to cover Juniper's obligations including senior debt service through the 2014 maturity of the bonds," the rating agency says.
The negative outlook also reflects Moody's view that revising SRAC will continue to remain a contentious process resulting in continued uncertainty on the final changes and timing of implementation. Moody's notes that the CPUC has already modified its original decision on the changes to SRAC and that certain elements of the contemplated pricing change are still to be determined. Additionally, Cogeneration Association of California and Energy Producers and Users Coalition filed in September 2008 a rehearing request on CPUC's latest decision on the SRAC changes.
Moody's will likely take further rating action once there is more clarity as to the ultimate changes to SRAC pricing, the timing of the implementation and the implications of the ultimate changes of SRAC on Juniper's cash flow and credit metrics.
Juniper's rating outlook could be stabilized if Juniper is able to achieve debt service coverage ratios of at least 1.4 times on a sustainable basis under the revised SRAC pricing.
Changes in SRAC that lead to Juniper realizing debt service coverage ratios below 1.4 times or changes that result in much more volatile cash flows will likely have negative rating pressure on Juniper.
Juniper is a holding company for nine fully or partially owned gas-fired cogeneration projects in California with a net equity interest of 298 MWs, a related O&M service company, WCAC Operating Company California LLC and a related fuel supply services company, WCAC Gas Services LLC.
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