Ratings Actions & Outlooks
June 18, 2009
S&P Cuts E*Trade
Standard & Poor's lowered its long-term counterparty credit rating on E*TRADE Financial Corp. The rating agency also cut the company’s senior debt ratings on the 8.0% notes due 2011 and the 12.5% springing lien notes due 2017, to 'CC' from 'CCC-'.
The outlook is negative.
The rating actions follow E*TRADE's announcement of a $400 million common equity offering and a debt exchange for two issues of long-term debt.
"These actions, if successful, will modestly improve the bank's equity foundation, lengthen the maturity structure of the holding company's long-term debt, and materially lower interest servicing requirements We view these transactions as a short-term fix to a long-term problem," says S&P.
The rating agency added that “the holding company will still carry a relatively large amount of long-term debt on its balance sheet, and its financial capacity to service the remaining interest-bearing debt remains weak.”
The Office of Thrift Supervision, E*TRADE Bank's chief regulator, had advised the company to increase capital at the bank and lower holding company debt. "Failure to do so could lead to supervisory action. Even without the threat of supervisory action, we believe E*TRADE's financial capacity to service existing debt is weak," S&P said.
Moody's Cuts AmerCable's Rating
Moody's lowered AmerCable Inc.’s corporate family rating to B3 from B2 and the ratings on the first lien senior secured credit facilities to B2 from B1.
The downgrade reflects a contraction in sales and operating profit for the quarter ended March 31 that was driven by lower demand in the oil and gas segment and Moody's expectation for continued pressure on the oil and gas segment as capital spending by oil & gas customers moderates.
In Moody's opinion, the company's small-scale increases its vulnerability to the weak environment. The downgrade also reflects Moody's concern over the company's ability to maintain compliance with the financial covenants governing its credit facilities given the potential for lower profitability levels and covenant step-downs.
Headquartered in El Dorado, Ark., AmerCable develops, manufactures and sells highly engineered, jacketed electrical cable products, cable assemblies and customer-driven solutions for power, control and instrumentation applications used in severe operating environments.
S&P Cuts Entravision To B
S&P lowered its corporate credit rating on Santa Monica, Calif., Spanish-language media company Entravision Communications Corp. to 'B' from 'B+'. At the same time, S&P lowered its issue-level rating on the company's secured debt to 'B' from 'B+'.
The recovery rating on this debt remains unchanged at '3', indicating the rating agency's expectation of meaningful (50% to 70%) recovery for lenders in the event of a payment default.
"The ratings downgrade reflects Entravision's weak first-quarter operating results and our expectation of continued deterioration in credit metrics over the intermediate term, especially as we expect the company's rate of debt repayment to slow," says S&P.
The 'B' rating reflects Entravision's high debt leverage and narrowing cushion of compliance with financial covenants, intense Spanish-language media competition, and expectations of continued weak advertising demand in 2009.
S&P Cuts Jacuzzi Brands
S&P lowered its ratings on Jacuzzi Brands Corp., including the corporate credit rating to 'CCC' from 'CCC+'. The outlook is negative.
At the same time, the credit rating agency lowered its ratings on the company's $170 million first-lien term loan, $15 million synthetic letter–of-credit facility, and $150 million second-lien term loan to 'CC' from 'CCC-'.
The recovery ratings on these issues remains at '6', indicating expectations for negligible (0% to 10%) recovery in the event of a payment default.
The downgrade reflects Jacuzzi's continued weak operating performance and tightening liquidity position. “While we expect the company's liquidity to be sufficient to meet obligations in the next few quarters, Jacuzzi will face materially increased debt service requirements in early 2010 when interest expense under its second-lien term loan becomes due in cash,” says S&P.
Moody’s Cuts Penhall To Caa2
Moody's downgraded the corporate family and probability of default ratings of Penhall Holding Co. to Caa2 from Caa1. The rating outlook is negative.
The downgrade reflects Penhall's highly leveraged capital structure and an expectation that declining U.S. non-residential construction activity through 2010 will drive net losses.
The downgrade follows a decline in revolver availability that occurred over the seasonally weak first quarterf and an updated view that as construction and credit markets remain soft Penhall may need to further borrow on its revolving credit line to fund internal deficits and scheduled debt amortizations in 2009.
Equipment price declines could also diminish availability under the company's asset-based revolving credit facility in 2010, when the next independent appraisal is applied to the borrowing base formula. In Moody's view, should the revolver's covenant tests activate near-term, compliance would be unlikely.
A key concern for Penhall will be how much gross profit such work may generate to help cover fixed costs, as price competition should be stiff. Greater demand for time-based commercial service work, beyond lower-margin, fixed price job contracts, would help improve fixed cost coverage and free cash flow capability.
Near-term prospects for non-stimulus related road projects in California, a key Penhall market, have diminished with California's budget issues.
Penhall Holding is the largest provider of concrete cutting, breaking and highway grinding services in North America.
S&P Cuts Ethan Allen To BB
S&P lowered its corporate credit and senior unsecured debt ratings on Danbury, Conn.'s, Ethan Allen Interiors Inc. to 'BB' from 'BBB-.' The outlook is negative.
At the same time, Standard & Poor's lowered its rating on the $200 million senior unsecured notes due 2015 of the company's wholly owned subsidiary, Ethan Allen Global Inc., to 'BB' from 'BBB-', and assigned a '3' recovery rating, indicating the expectation of meaningful recovery in the event of a payment default.
"The rating actions reflect the company's very weak operating results in recent quarters, which have resulted in credit protection measures that are well below our expectations for the previous rating," said Standard & Poor's.
Although the company has taken actions to reduce operating expenses and strengthen its competitive position, S&P said it believes near-term operating performance may decline further, given the current weak economy and expectations for continued challenges in the North American residential furnishings industry.
The ratings on Ethan Allen reflect the company's vulnerability to reduced discretionary spending in an economic downturn and its exposure to the highly competitive residential furnishings industry. Continued declines in the housing market and their effects on the furniture industry remain a significant rating concern.
S&P Cuts Sabre Holdings
S&P lowered its ratings on travel distributor Sabre Holdings Corp., specifically the long-term corporate credit rating, to 'SD,' or selective default, from 'B', and the issue-level rating on the company's senior notes due 2011 to 'D' from 'CCC+'.
"The rating actions reflect the company's open market purchases of $76 million of its senior notes due 2011 at a cost of $44 million in April 2009," said S&P.
The rating agency says the debt repurchase met its criteria for a distressed debt redemption. "We expect to review the effect of the debt repurchase on the company's financial profile in the next few days, and to subsequently raise the corporate credit rating on Sabre Holdings back to 'B' and the issue-level rating on the senior notes due 2011 back to 'CCC+' on conclusion of our review," says S&P.
Moody’s Cuts Sagittarius Restaurants
Moody's lowered the ratings of Sagittarius Restaurants LLC, including its corporate family rating to Caa2 from Caa1 and its probability-of-default rating to Caa2 from Caa1. The rating outlook is negative.
The downgrade to Caa2 reflects Sagittarius' very weak credit metrics and eroding liquidity.
The deterioration of the credit metrics was driven by the company's weak operating performance in 2008 as its operating margin declined considerably due to sluggish guest traffic and higher commodity cost and labor cost that could not be fully offset by menu price increases.
Although the operating profit improved in the first quarter 2009 largely due to lower commodity costs that more than offset the declined revenue, Moody's expects the current operating environment will likely remain challenging for both its Del Taco and Captain D's concepts, as the declining guest visitation trend continues and competition intensifies, that could lessen the benefit on food cost from commodity price moderation.
"We are concerned about the liquidity as well as the sustainability of its current capital structure," the rating agency says.
The negative outlook reflects the company's worsening guest traffic trend witnessed by both concepts in the recent past.
Sagittarius, Nashville, Tenn., operates and franchises Mexican and seafood QSRs under two brand names, Del Taco and Captain D's. The company had 1,067 units in 31 states at the end of 2008. Revenue for the company for the 12 twelve months as of March 22 were approximately $597 million.
S&P Cuts Citadel To CCC
S&P lowered its corporate credit and issue-level ratings on Citadel Broadcasting Corp. by one notch. The corporate credit rating was lowered to 'CCC' with a negative outlook from 'CCC+' with a negative outlook.
"We believe that Citadel may be unable to comply with new covenants added to its credit agreement following the completion of its fourth amendment, specifically the requirement to have at least $150 million of available cash as of Jan. 15, 2010," says S&P.
Cash balances were $25.4 million as of March 31. Although S&P expects the company to continue to generate healthy discretionary cash flow, based on its estimates for further significant EBITDA declines in 2009, it does not believe the company will be able to generate enough free cash flow to comply with this covenant.
The company's revenue and EBITDA declined about 23% and 50%, respectively, in the first quarter of 2009.
Although Citadel reduced total debt balances by roughly $405 million in 2008, S&P does not believe that the company will be able to maintain this rate of debt repayment in 2009, due to lower cash balances, economic weakness that could pressure discretionary cash flow, and "our expectation that it will be difficult to complete any asset sales over the intermediate term."
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