Moody's downgrades GenCorp

Moody's Investors Service said it downgraded GenCorp, Inc.'s corporate family rating to B3 from B2, probability-of-default rating to Caa1 from B2, senior secured credit facilities to Ba3 (LGD1, 5%) from Ba2 (LGD2, 12%) and convertible subordinated notes to Caa2 (LGD4, 60%) from Caa1 (LGD5, 78%) and affirmed its senior subordinated notes at B1 (LGD2, 18%).

The outlook remains negative.

The agency said the downgrade largely reflects GenCorp's increased probability of default, primarily associated with the potential put of the company's $125 million 4% convertible subordinated notes due 2024 on Jan. 16 and $146.4 million 2.25% convertible subordinated notes on Nov. 20, 2011.

Ratings are further constrained by the company's high debt level relative to is size and earnings base, a recent history of negative free cash flow generation and uncertainties surrounding GenCorp's sizeable environmental liabilities.

Moody's said the ratings are supported by strong revenue visibility as implied by a large and growing backlog and GenCorp's substantial excess real estate holdings in the Sacramento, Calif., area, which could provide the company with the ability to reduce debt over the long run if the company completes its re-zoning, entitlement and monetization over the next few years.

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