S&P cuts DeCrane Aircraft

Standard & Poor's said it lowered its ratings of DeCrane Aircraft Holdings Inc., including the senior secured bank debt to B- from B and subordinated debt to CCC from CCC+. The outlook is negative.

The downgrade reflects DeCrane's "very weak financial profile, constrained liquidity, and the uncertain prospects for recovery in the depressed corporate aircraft market," the agency said.

The company is currently marketing an $80 million second-lien secured loan due 2008, which will not be rated. The proceeds are to be used to pay down the existing first-lien secured credit facility, which is being amended to loosen financial covenants, extend the maturities of the various tranches in the facility, and reduce near-term amortization.

The proposed changes will improve DeCrane's near-term liquidity somewhat and assist efforts to weather the prolonged downturn in the corporate aviation market, S&P said.

The company's overall financial profile is expected to remain weak through the intermediate term.

The ratings benefit somewhat from DeCrane's leading position in niche markets for corporate aircraft interiors, especially cabinetry.

The proposed refinancing follows the company's sale of its Specialty Avionics Group in April for $140 million, with $130 million of the proceeds used to repay bank debt. The financial covenants in the facility were also relaxed at that time.

Although DeCrane's absolute level of debt has declined significantly, the loss of earnings and cash flow from Specialty Avionics Group, in combination with expected lower earnings at the remaining businesses, will likely result in poor credit protection measures in 2003. The sale of Specialty Avionics Group reduced both the size and diversity of DeCrane's revenues base, but will eliminate most exposure to the depressed commercial aircraft market and allow the company to focus on its core corporate aircraft-related operations.

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