Ratings Actions & Outlooks
December 19, 2008
Moody's Cuts Dana
Moody's lowered Dana Holding Corp.'s corporate family rating and probability of default rating to Caa1 from B2.
Moody's also cut ratings of the company's senior secured asset based revolving credit facility to B2 from Ba3, and lowered the rating for the senior secured term loan to B3 from B1. The ratings remain under review for possible further downgrade.
The downgrade results from the expectation of continued erosion in the North American market for SUVs and light trucks over the near term.
Reduced demand is expected to be driven by weakening economic conditions
and consumer aversion of purchasing automobiles from distressed OEMs.
Deteriorating economic conditions in Europe will also pressure Dana's operations. Detroit's three auto makers represent about 28% of Dana's revenues, while Europe represents about 30% of its revenues.
The downgrade also reflects Moody's expectation that these operating pressures will result in credit metrics no longer consistent with the B rating category.
Dana's speculative grade liquidity rating of SGL-3 continues to reflect Moody's expectation that the deterioration of industry conditions could result in negative free cash flow over the next 12 months.
Dana supplies axles driveshafts and structural, sealing, and thermal management products. The company's customer base includes virtually every major vehicle and engine manufacturer in the global automotive, commercial vehicle, and off-highway markets.
S&P Cuts ION Media
Standard & Poor's lowered its corporate credit and issue-level ratings on West Palm Beach, Fla.-based ION Media Networks Inc. by one notch. The corporate credit rating was lowered to 'CCC' from 'CCC+', and the rating outlook is negative.
In addition, the agency revised the recovery rating on the company's first-lien senior secured notes to '4', indicating its expectation of average recovery for lenders in the event of default, from '3'. S&P lowered the issue-level rating on this debt to 'CCC' from 'CCC+'.
"The downgrade and negative rating outlook reflect our concern about ION Media's deteriorating liquidity position because of declining revenues and EBITDA in an unfavorable advertising environment," said Standard & Poor's. "At the current rate of cash consumption, we believe that the company's cash balances, which are its only source of liquidity, could be depleted by mid 2009."
S&P said the 'CCC' corporate credit rating reflects its expectation that ION Media's financial risk will remain very high because of its weak and declining EBITDA, onerous debt burden, dwindling cash balances, and negative discretionary cash flow.
Competition from well-capitalized rivals, continuing reliance on infomercials for a large part of revenue and programming, and up-front expenses to add more syndicated series to the network's programming intensify the company's challenges. ION Media's geographically diversified portfolio of TV stations only minimally offsets these factors.
Mortgage Insurers Downgraded By S&P
Standard & Poor's lowered its counterparty credit and insurer financial strength ratings on Genworth Mortgage Insurance Corp., or GMICO, to 'A+' from 'AA-', Mortgage Guaranty Insurance Corp., or MGIC, to 'A-' from 'A' and Republic Mortgage Insurance Co., or RMIC, to 'A' from 'A+'.
In addition, Standard & Poor's downgraded some affiliates of these operating companies. S&P also lowered its ratings on several mortgage insurer holding companies, including MGIC Investment to 'BB+' from 'BBB', Radian Group to 'BB' from 'BB+', and Old Republic International Corp. to 'BBB+' from 'A-'.
"These downgrades resulted from a sector-wide reassessment of mortgage insurers' loss costs," said S&P. "Our assumptions for key macroeconomic variables have changed since our sector-wide review of mortgage insurers in August, and we now believe unemployment will be greater than 8% in mid-2009, and our peak-to-trough decline in home prices as measured by the S&P Case Shiller index is 30%."
The deterioration in macroeconomic variables will be partially mitigated by reinsurance and rescissions.
Connacher Cut By Moody's
Moody's downgraded Connacher Oil & Gas Ltd's corporate family rating and probability of default rating from B1 to B2 and its $600 million senior second lien note rating to B2 from B1. The notes mature in 2015.
While Moody's affirmed Connacher's SGL-3 speculative grade liquidity rating, it will be closely monitored. The first test would be to confirm that year-end 2008 cash balances match forecasts. Thereafter it will be monitored for trends in bitumen prices. The rating outlook is negative.
In light of expected continued very weak bitumen prices, the downgrade reflects the reduced economic viability of Connacher's Great Divide steam assisted gravity drainage (SAGD) oil sands project and reduced cash flow cover of Connacher's debt structure. Also the downgrade reflects a negative outlook for refining margins for its Montana refinery, and the rating agency's view that Connacher may need to renegotiate a covenant next year on its currently undrawn revolvers in order to begin using it for back-up liquidity.
The SGL-3 speculative grade liquidity rating reflects the possibility that cash balances alone may cover reduced cash outlay over the next four quarters.
Connacher owns a large base of long-lived bitumen reserves with full commercial production of the first phase supplemented by small but material conventional oil and gas production and refining operations. Connacher's oil sands properties span 98,000 acres 50 miles southwest of Fort McMurray, Alberta. Connacher Oil and Gas is based in Calgary, Alberta, Canada.
Moody's Downgrades Wolverine Tube
Moody's downgraded Wolverine Tube Inc.'s ratings and the agency said its ratings outlook remains negative.
The downgrade reflects increasing refinancing risk ahead of substantial debt maturities in early 2009. While Wolverine continues to execute on the recapitalization plan announced on Feb. 1, 2007 and believes it will be able to execute on its refinancing plan, in Moody's opinion, the refinancing risk has been heightened by the adverse credit market conditions.
This is compounded by Moody's view that the company's ability to raise capital through asset sales is very limited due to the numerous divestitures over the last several years. Moody's remains concerned about the company's future operating prospects and continued fundamental deterioration given that some of Wolverine's copper tubing products are used in residential heating, ventilation and air-conditioning, refrigeration, and appliances.
Finally, Moody's notes the lack of adequate financial information in light of the delayed third quarter filing and the need to restate the second quarter information.
Wolverine Tube is based in Huntsville, Ala. It is a manufacturer and distributor of copper alloy tube, fabricated products, and metal joining products for use in various applications including refrigeration and air conditioning. The company generated over $1.2 billion of revenues in 2007.
Moody's Cuts Chaparral Energy
Moody's downgraded Chaparral Energy Inc.'s $325 million of senior unsecured notes due 2015 and $325 million of senior unsecured notes due 2017 to Caa3 from Caa1.
Moody's also downgraded Chaparral's Corporate Family Rating to Caa2 from B3, its Probability of Default Rating to Caa2 from B3 and its Speculative Grade Liquidity rating from SGL-3 to SGL-4. The ratings have been placed on review for further possible downgrade.
The downgrade reflects Chaparral's lack of liquidity and significant leverage. Chaparral has approximately $30 million available under its $600 million borrowing base facility.
Chaparral Energy is a privately-held independent oil and natural gas production company.
Moody's Cuts Realogy Corp.
Moody's lowered the corporate family rating of Realogy Corp. to Caa3 from Caa2 following the withdrawal of its offer to exchange new second-lien term loans to holders of its senior unsecured cash pay, unsecured toggle and subordinated notes at a significant haircut.
The offer was withdrawn following a court ruling that the incurrence of the new second lien notes would constitute a breach of the Senior Toggle Notes Indenture. Moody's also lowered the senior secured credit facility to Caa1 from B3 and affirmed the SGL-4 speculative grade liquidity rating. The rating outlook remains negative.
"The lower CFR and senior secured rating reflect Moody's view that there is a significant risk of a default or balance sheet restructuring over the medium term.
Realogy has weak credit metrics with leverage of over 13 times for the 12 months ended September 30, 2008," according to Moody's.
The Caa3 corporate family rating and negative outlook anticipate further earnings pressure over the next few quarters from weak residential homesale volumes and price declines. The SGL-4 rating reflects a weak liquidity profile over the next year with negative free cash flow and modest, if any, headroom under financial covenants.
Moody's raised the Probability of Default Rating to Caa3 from Ca and the senior unsecured cash pay, unsecured toggle and subordinated notes to Ca from C. The raised ratings reflect the lower likelihood of a near term default on these debt instruments after the withdrawal of the exchange offer.
S&P Cuts Perkins & Marie Callender's
Standard & Poor's lowered its corporate credit rating on Memphis, Tenn.-based Perkins & Marie Callender's to 'CCC' from 'B-.' The outlook is negative.
"The downgrade reflects our growing concern that Perkins' liquidity may not be adequate to meet the interest payments on its $190 million unsecured 10% senior notes and $132 million 14% senior secured notes when they come due in April and May 2009, respectively," said S&P.
In addition, Perkins' poor operating performance has led to weakening credit metrics, with leverage that reached more than 11 times as of the 12 months ended Oct. 5, 2008, and interest coverage of less than 1 times.
Greenbrier Cut By S&P
Standard & Poor's lowered its ratings on The Greenbrier Cos. including the corporate credit rating to 'B+' from 'BB-'. The outlook is negative.
"The rating actions reflect the deterioration in key measures of the company's credit quality and follows weakening operating results due to lower railcar deliveries," said S&P. "We expect operating results to weaken further in 2009 with lower orders for freight cars and the possibility of a more competitive operating environment."
The ratings on Lake Oswego, Ore.-based Greenbrier reflect the company's weak business risk profile stemming from the cyclicality of the freight car manufacturing industry and the dramatic decline in demand for new railcars as a result of slower economic growth.
The company also has a highly leveraged financial risk profile, marked by increased debt balances as a result of recent acquisitions. Demand for Greenbrier's railcar products is highly volatile because railroads, shippers, and equipment lessors' capital spending is cyclical.
Greenbrier's financial risk profile is highly leveraged. The company's total debt to EBITDA as of Aug. 31, was about 5.5 times.
S&P warned that it could lower the ratings if liquidity deteriorates significantly or if Greenbrier fails to operate within the range of credit metrics expected for the current rating.
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