S&P cuts GenCorp ratings

Standard & Poor's said it lowered its ratings on GenCorp Inc., including lowering the corporate credit rating to BB- from BB and the senior secured bank loan rating to BB from BB+, and removed the ratings from CreditWatch.

The outlook is stable.

S&P said the downgrade reflects expectations of a weak financial profile in 2004 as a result of problems at GenCorp's GDX Automotive unit and higher pension expense. GDX is a leading provider of automotive vehicle sealing systems and accounts for around 65% of GenCorp's revenues. Lower volumes, unexpected costs associated with a new product launch, and pricing pressures resulted in an operating loss in the Aug. 31 third quarter of fiscal 2003. The unit was profitable in the fourth quarter and is expected to remain so in 2004 but at a very low level.

S&P said GenCorp has taken actions to improve profitability at GDX, including replacing management and closing a plant in France to reduce overcapacity. However, the benefits of these steps are unlikely to be fully realized in 2004. Also, further reductions in capacity may be necessary to restore acceptable profitability.

In addition, although GenCorp's defined benefit pension plan remains fully funded, the amortization of losses sustained in prior years is likely to result in a fairly large non-cash pension expense in 2004, putting further pressure on earnings.

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