Moody's cuts DDi, rates new convertible at Caa1

Moody's lowered the ratings of DDi Corp., including the $100 million 5.25% convertible subordinated debentures due 2008 to Caa1 from B3, and its subsidiary Dynamic Details Inc., plus assigned a Caa1 rating to DDi's proposed $75 million convertible subordinated notes due 2007. The ratings outlook is negative.

The ratings downgrades are based on Dynamic Detail's 62% year-over-year decline in revenues to $64.5 million for fourth quarter and expectations of $61 million to $63 million of revenues for first quarter, the third consecutive quarter in which revenues would have declined precipitously from year earlier levels.

Current market conditions, which have led to a reduction in demand for the company's quick-turn design and manufacturing services from high technology and telecom original equipment manufacturers, would continue to erode revenues and cash flow, thereby increasing the company's debt leverage.

Notwithstanding the somewhat more robust business patterns that are emerging this month, the debt leverage would not be ameliorated by the current financing. On a pro forma basis reflecting the proposed convertible, debt-to-capitalization would have been 72.4% at yearend 2001.

With the new deal, Dynamic Details will likely comply with the senior leverage test under its amended bank credit facility, Moody's said, but of greater concern is the schedule of EBITDA requirements going forward, particularly in regard to the uncertain timing and trajectory of a recovery in communications and data networking, which accounts for 55% of revenues and contributes to the negative outlook.

Nevertheless, the ratings derive support from Dynamic Details technology leadership position and enhanced liquidity from the new deal. The application of 50% of proceeds toward term loan principal amortization, also in accordance with the amended credit facility, could engender support from the lending group if further covenant relief is required.

Additionally, the company would have on hand an estimated $80 million of pro forma fourth quarter end cash and marketable securities, supplemented by about $37 million of revolving credit facility availability.

S&P ups Express Scripts to investment grade

Standard & Poor's raised its corporate credit rating on pharmaceutical benefit manager Express Scripts Inc. to BBB- from BB+ based on the company's strong position in the expanding pharmaceutical benefit management industry, continued solid operating performance and growing cash flows, offset by the intense competition in the industry.

Express Scripts plans to close on its announced $515 million acquisition of rival National Prescription Administrators at the end of first quarter. The acquisition of NPA, which manages $2.5 billion in annual drug spend and processes 42 million retail network and three million mail-order pharmacy claims, will increase Express Scripts' purchasing power as well as provide the company with opportunities for increased operating efficiencies.

However, the PBM industry remains highly competitive.

Given Express Scripts' solid cash-flow-generation prospects and moderate financial policies, Standard & Poor's expects the company to quickly de-lever.

The NPA acquisition will be funded and financed with mostly debt and cash on hand.

However, pro forma for the addition of roughly $450 million in bank debt relating to the NPA acquisition, Express Scripts' credit protection measures are still consistent with its investment grade ratings, projected earnings before interest, depreciation and amortization coverage of interest at nearly nine times, and funds from operations to total debt of over 30%.

Fitch cuts Loews senior debt to AA-

Fitch Ratings downgraded the Loews Corp. senior unsecured debt rating to AA- from AA and subordinated debt to A+ from AA-. Also, the outlook was changed to negative from stable.

The rating downgrade and outlook is the result of the unpredictability of CNA Financial Corp.'s operating earnings and cash flow going forward and Loews implicit support of CNA, one of the company's major subsidiary.

Fitch said the outlook is expected to be resolved following a review of CNA and an assessment of the impact on Loews financial flexibility and cash flow given its commitment to CNA.

The ratings of Loews continues to be supported by its strong liquidity position, which stems from a $4.2 billion investment portfolio, generally conservative financial practices and the cash flow generative ability of its operating subsidiaries, in particular, Lorillard Tobacco.

These positive attributes are somewhat offset by the company's exposure to tobacco-related litigation and CNA's ongoing restructuring efforts to improve it operations.

S&P rates L-3 shelf

Standard & Poor's assigned preliminary ratings of to L-3 Communications Corp.'s $1 billion senior and subordinated shelf registration, with the senior debt at BB and subordinated at B+, and affirmed all other ratings on the firm.

Ratings on L-3 reflect a slightly below-average business risk profile and somewhat elevated debt levels, but credit quality benefits from an increasingly diverse program base and efficient operations.

Acquisitions are very important for revenue growth, and the balance sheet has become leveraged because of debt-financed transactions. However, management has a good record of restoring financial flexibility by issuing equity.

L-3's exposure to a challenging competitive environment is mitigated by some well-supported programs with a high percentage of sole-source contracts.

Financial staying power could improve materially due to the expanded base of profitable businesses. Nevertheless, credit quality would remain constrained by an aggressive acquisition program, with potential for large transactions.

S&P rates ST Assembly convertibles BB+

Standard & Poor's assigned a BB+ rating to ST Assembly Test Services Ltd.'s recently issued $200 million 1.75% convertible bonds due 2007. The outlook is negative.

S&P downgrades Elan

Standard & Poor's downgraded Elan Corp. plc and removed the company from CreditWatch with negative implications. The outlook is stable.

Ratings lowered include Elan's bank facility, lowered to BBB- from BBB, its LYONS due 2018 and senior notes, lowered to BB+ from BBB-, and the former Dura Pharmaceuticals Inc. convertibles due 2002, lowered to BB+ from BBB-.

S&P rates Merrill STRIDES linked to Texas Instruments AA-

Standard & Poor's assigned a AA- rating to Merrill Lynch & Co. Inc.'s issue of $40.8 million 7% Callable STRIDES linked to Texas Instruments due 2004.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.