Moody's downgrades Evergreen

Moody's Investors Service said it downgraded the ratings of Evergreen International Aviation Inc., completing a review for possible downgrade that was initiated on March 29.

Moody's downgraded Evergreen's $215 million 12% senior second secured notes due 2010 to Ca from Caa2, senior implied rating to Caa2 from B3, and senior unsecured issuer rating to C from Caa3.

The outlook is stable.

Moody's said the ratings were downgraded in consideration of the deterioration in operating performance resulting from the loss of a substantial amount of revenue from the company's largest customer, the U.S. Department of Defense's Air Mobility Command (AMC). As this reduced AMC volume was only effective from January 2004, Moody's estimates that the full impact of this development will extend at least partially into fiscal 2005 (ending February 2005). Moreover, because of the potential implications of the current business and financial situation, Evergreen's auditors have issued a going concern opinion for the company's financial statements.

The reduction in AMC business was a chief concern when Moody's placed Evergreen's ratings under review for possible downgrade in March 2004, citing possible violation of covenant levels prescribed by Evergreen's existing bank facilities as well as uncertainty about adequacy of cash flow generation to meet near-term interest payments, particularly coupon payments due on the company's 12% senior notes.

Despite the fact that the company has since replaced the bank facility with a new $100 million revolving credit facility containing more liberal covenant levels, and that the company was able to make its May 2004 bond coupon payment, Moody's said it remains concerned that revenues and cash flows may not return to levels required to support covenant compliance and debt service over the next 12 months.

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