Ratings Actions & Outlooks
June 4, 2009
S&P Cuts Newport Television To Selective Default
Standard & Poor's lowered its corporate credit rating on Kansas City, Mo.-based TV broadcaster Newport Television Holdings and its operating subsidiary, Newport Television LLC, to 'SD,' or selective default, from 'B-'.
At the same time, S&P lowered the issue-level rating on the company's senior secured term loan B to 'D' from 'B-'. S&P also placed its issue-level ratings on Newport's other outstanding debt on CreditWatch with negative implications.
The ratings downgrade reflects the company's repurchase of a portion of its bank debt in a private transaction at a steep discount to face value, as well as the company's heavily debt-burdened capital structure and fractional interest coverage.
“We view this transaction as tantamount to a default, although it does not constitute a legal default,” the rating agency said. “The company announced that it has repurchased $50.9 million of the principal amount of its bank debt at a significant discount.”
S&P Cuts Lear Corp.
S&P lowered its corporate credit rating on Lear Corp. to 'D,' or default, from 'CCC+' and lowered the issue-level rating on the company's senior unsecured debt that did not receive the scheduled interest payment to 'D' from 'CCC'.
S&P lowered the rating on the senior secured debt to 'CC' from 'B', and the rating on the other senior unsecured debt to 'C' from 'CCC'.
The company announced on June 1 that it has chosen not to make interest payments due that day for its 8.50% senior notes due in 2013 and 8.75% senior notes due in 2016. Under the indentures governing the senior notes, Lear has a 30-day grace period to make interest payments on these notes before there is an event of default.
“We are not confident that Lear will make the payments within the grace period. Among other outcomes, the company might pursue a distressed exchange or file for bankruptcy under Chapter 11,” S&P said.
If Lear pursues a distressed exchange, S&P said it expects to assign a new corporate credit rating within a short time after such an announcement. The new rating will be based on, among other things, S&P's assessment of the company's new capital structure and liquidity profile.
Moody’s Cuts Reichhold Industries
Moody's downgraded Reichhold Industries' corporate family rating, or CFR, and probability of default rating to Caa1 from B2, and the rating on its $195 million senior unsecured notes due 2014 to Caa2 from B3.
The loss given default, or LGD, assessment on the senior notes due 2014 was moved to LGD4 from LGD5 as a result of changes to the company's liability structure. The outlook for the company's ratings remains negative.
The downgrade to a Caa1 CFR reflects weak fourth- and first-quarter results, combined with the expectation that the difficult market conditions faced by the company in many of its key end markets and the global economic slowdown will continue to depress sales volumes and profitability throughout 2009 and into early 2010, the rating agency said.
S&P Cuts Steinway Corporate Credit Rating
S&P lowered its corporate credit rating on Steinway to 'B' from 'B+'. The downgrade reflects the company's weak operating performance during the past two quarters and the credit agency’s belief that credit protection measures may weaken further during the current economy. The outlook is negative.
S&P also revised the recovery rating on the company's $175 million senior unsecured notes to '2', indicating its expectation for substantial recovery in the event of a payment default, from '4'.
"The ratings on Steinway reflect the company's narrow product focus, the discretionary nature of spending on musical instruments, and high leverage," said S&P.
Steinway benefits from its well-established market positions in the concert hall and institutional markets for musical instruments; its widely recognized brand names include Steinway & Sons, Bach, and Selmer and it has geographic diversification.
Steinway's product sales and profitability remain concentrated in pianos, although the company has a diverse portfolio of product offerings in the band and orchestral instrument segment. Piano sales made up 59% and band instruments 41% of 2008 revenues.
Steinway experienced significant sales declines in its band and piano segments in the fourth-quarter of 2008 and during the first quarter of 2009, as a result of the very weak global economy and tight credit markets for its dealer base.
“We believe these factors will continue to affect Steinway's sales and operations in fiscal 2009 and further pressure operating margins, despite management's cost reduction actions taken in 2008,” the credit rating agency warned.
S&P Cuts American Greetings
S&P lowered its ratings on American Greetings Corp., including the long-term corporate credit rating to 'BB' from 'BB+'.
At the same time, the rating agency lowered its rating on the company's senior secured debt to 'BB+' from 'BBB-', one notch higher than the corporate credit rating on the company.
"The ratings on American Greetings reflect its aggressive financial policies, strong market position, and broad product offerings within the greeting card industry," said S&P. "We believe the company faces some near-term integration risk following its recent acquisition of Recycled Paper Greetings and its purchase of the Papyrus brand from Schurman Fine Papers."
“We believe that growth in the company's core greeting card business will continue to be constrained by the industry's slow growth, and mature characteristics,” according to S&P. “While American Greetings may continue trying to expand its AG interactive segment, this segment represents a modest portion of its overall sales.”
Cleveland, Ohio-based American Greetings is the second-largest manufacturer and distributor of greeting cards.
Moody's Downgrades Allis-Chalmers Energy's ratings
Moody's downgraded Allis-Chalmers Energy’s corporate family rating to B3 from B2, its probability of default rating to B3 from B2, and its senior unsecured note ratings to Caa1 from B3. The ratings remain on review for further possible downgrade.
The downgrade reflects weaker than expected earnings as a result of deepening sector weakness in North America which is expected to result in financial leverage levels that are incompatible with the prior B2 corporate family rating.
The ratings remain under review for downgrade reflecting the company's announcement that it is commencing a cash tender offer on its $255 million 9% senior notes due 2014 and $250 million 8.5% senior notes due 2017.
Allis-Chalmers is based in Houston. It is a provider of oilfield services and products for oil and gas companies.
Fero Corp Cut By S&P
S&P lowered its ratings on Cleveland, Ohio-based Ferro Corp., including the corporate credit rating, to 'CCC+' from 'B-'.
"The rating downgrade reflects our expectation that continued demand softness across the company's end markets will result in weaker operating results in 2009," Standard & Poor's said.
"While the company's amendment to its credit agreement in March 2009 loosened financial covenants, we are concerned about compliance with the new minimum EBITDA covenant in the next few quarters. Moreover, cash collateral requirements related to the company's metal deposits program have reduced liquidity in the past quarter," according to S&P.
The outlook is negative. The outlook incorporates S&P's heightened concern over liquidity if business conditions fail to improve in the second half of 2009, placing further pressure on cash flow generation, liquidity, and covenant compliance. A recessionary business environment and sustained weak end markets may further hurt earnings and cash flow generation in the near term.
Moody’s Cuts Arclin Corporate Family Rating
Moody's lowered Arclin Canada Ltd's corporate family rating, or CFR, to Caa3 from Caa1 due to the lack of progress in negotiating an amendment to the financial covenants in its revolver and term loans and the failure of the sponsor to commit additional capital. The outlook is negative.
Moody's also lowered the ratings on the first lien facilities, $20 million revolver and $183 million term loan, to Caa3 from B3 and the second lien notes were downgraded to C from Caa3.
The downgrade reflects the fact that financial results are expected to be extremely weak in 2009 and that the company may need to execute some form of a distressed exchange with existing term loan holders or file for bankruptcy if an agreement can not be reached. Arclin has been negotiating with its lenders since February on the terms of an amendment to its credit facilities.
Arclin, headquartered in Mississauga, Ontario, is a manufacturer of adhesive resins and overlay products for use in adhesion and surfacing applications in the construction, furniture, and general industrial businesses.
S&P Cuts Verso Paper Holdings
S&P lowered its ratings on Memphis, Tenn.-based coated-paper manufacturer Verso Paper Holdings. The outlook is negative.
"The downgrade reflects our expectation that the steep decline in demand for coated paper in the U.S. and its impact on Verso's revenues and profitability will be more significant than we previously anticipated," said S&P. "As a result, the company's total adjusted leverage will likely increase to well above 10 times, a level that we would consider to not be consistent with the previous 'B' rating."
S&P said it expects that Verso's liquidity profile will remain adequate for its 'B-' rating in the near-term, with pro forma revolver availability of around $100 million, a lack of meaningful debt maturities until 2012, and the expected elimination of maintenance covenants governing its credit facility.
In addition, S&P said it expects cash balances to increase as 2009 progresses due to payments received under alternative-fuel-mix tax credits. Verso Paper is likely to end the year with cash of more than $100 million.
Verso is the second-largest coated paper manufacturer in North America and accounts for about 15% of total production capacity.
Moody’s Cuts Forbes Energy Services
Moody's downgraded Forbes Energy Services' corporate family rating, or CFR, to B3 from B2 and the probability of fefault rating, PDR, to Caa1 from B2. The outlook is changed to negative.
"The downgrade reflects the severe downturn in demand for well services and the adverse effect on Forbes Energy's rig utilization and pricing," says Moody's. "The swift change to surplus workover rig capacity combined with the company's small size in comparison to the market leaders could result in a prolonged deterioration in earnings and cash flows."
The magnitude and expected duration of the decline in Forbes earnings will lead to weaker credit metrics than can be borne at the B2 rating level, resulting in the downgrade of the CFR to B3.
The reduction in E&P capital spending that started in the fourth quarter of 2008 has rapidly accelerated in 2009 leading to a decline in utilization across the North American onshore oilfield services sector, including a sharp decrease in well-servicing and fluid logistics activity. This lower activity has also pressured pricing, leading to a large decrease in Forbes' cash flows compared to 2008 levels that the Moody’s believes is likely to extend throughout 2009 and well into 2010.
Forbes Energy Services is an oilfield services company based in Alice, Texas, and is a wholly owned subsidiary of Forbes Energy Services Ltd.
Moody's Downgrades RRI Energy To B1
Moody's downgraded the long-term ratings of RRI Energy, including the corporate family rating, to B1 from Ba3 and its probability of default rating to B1 from Ba3.
Moody's also downgraded the company's senior secured ratings to B1 from Ba3 and RRI's senior unsecured ratings to B2 from B1.
"RRI's cash flow generation and key financial credit metrics are declining due to reduced production volumes and marginsm," says Moody’s. However, "the company is expected to also reduce its overall debt outstanding with the proceeds from the recent divestiture of its retail electric provider operations and the maturity of the OPH notes in May 2010."
Houston’s RRI is an independent power producer.
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