S&P puts Associated Materials on watch

Standard & Poor's put Associated Materials Inc. on CreditWatch negative including its $165 million 9.75% senior subordinated notes due 2012 at B and $125 million term loan due 2009 and $40 million revolving credit facility due 2007 at BB-.

S&P said the follows Associated Materials' announcement that it will acquire Gentek Holdings Inc. for $118 million in cash.

For the year ended Dec. 31, 2002, Gentek reported sales of $260.1 million, net income of $9.2 million, and EBITDA of $19.3 million.

Moody's rates Associated Materials loan Ba3

Moody's Investors Service assigned a Ba3 rating to the add-on senior secured bank credit facility of Associated Materials Inc., which will be used to finance the acquisition of Gentek Holdings Inc. Moody's confirmed Associated Materials' existing senior secured credit facility at Ba3 and senior subordinated notes at B3. The outlook remains stable.

Moody's said the stable outlook reflects its expectation that Associated Materials will use its excess cash flow to pay down its bank debt and bring debt leverage closer to historical levels.

The ratings acknowledge the company's significant increase in debt leverage that occurred as a result of its buyout and leveraged recapitalization in 2002 together with the sizable goodwill and negative tangible net worth that was created and the possibility that future acquisitions would be financed with additional debt (as is the case in this transaction).

In addition, the ratings incorporate the company's integration risk associated with this transaction, its continuing vulnerability to raw material price fluctuations, the significant competition that it faces, and the cyclicality of the homebuilding and remodeling industries, Moody's said.

At the same time, however, the ratings consider Associated Materials' steady growth in sales and solid, albeit uneven, growth in earnings over the last four years, strong returns, and ability to delever fairly quickly. The ratings are further supported by the company's national distribution capabilities through captive supply centers, which will be augmented in the U.S. and expanded into Canada through the Gentek acquisition, and the increasing acceptance of vinyl siding and windows in both the new construction and the residential remodeling markets.

At the time of the company's buyout by management and Harvest Partners and the associated leveraged recapitalization in 2002, pro forma debt levels rose to $290 million from a modest pre-transaction amount of $75 million, Moody's said. This brought total debt/capitalization to 62.8%, from 42.2%, and total debt/adjusted EBITDA to 4.5x, from 1.2x. As of the six months ended June 28, 2003, the company had pared debt back to $241.5 million and reduced debt leverage to 57.5% and to 3.75x, respectively. Pro forma for the acquisition of Gentek Holdings Inc., debt leverage for the combined companies increases to 67.3% and 4.2x, respectively.

S&P cuts A&P

Standard & Poor's downgraded The Great Atlantic & Pacific Tea Co. Inc. including cutting its $425 million senior secured revolving credit facility due 2003 to B+ from BB- and $200 million 7.7% senior notes due 2004, $200 million 9.375% senior unsecured notes due 2039, $275 million 9.125% senior notes due 2011 and $300 million 7.75% notes due 2007 to B from B+. The outlook is negative.

S&P said the downgrade is based on continued weak cash flow and a very cautious outlook for improvement, mitigated by a marginally adequate liquidity position.

The rating reflects poor profitability and high debt leverage, which are somewhat offset by important market positions in Canada and the metro New York area, S&P said. Although Canada is performing well, difficulties in U.S. markets have caused overall profitability to fall. Soft consumer spending and increasing competition from both conventional and non-traditional food retailers are pressuring the gross margin. These industry trends combined with rising costs are resulting in significant drops in operating profit.

For the first quarter of fiscal 2003 (ended June 14, 2003), same-store sales were flat and EBITDA fell more than 30% over the prior year, S&P noted. This follows a fourth quarter drop in EBITDA of 45%. A&P's operating margin measured 4.8% for fiscal 2002 and 4.3% in the first quarter, well below the 7.6% average for rated supermarkets.

Management has taken several steps in recent years to improve the business, including reducing overhead, streamlining the management structure, enhancing the supply chain and business processes, and closing about 160 stores. However, these actions have been insufficient to offset competitive and cost pressures.

Fitch to raise Frontier Oil

Fitch Ratings said it will upgraded Frontier Oil Corp.'s senior unsecured debt to BB- from B+ and secured credit facility to BB from BB- on the closing of its merger with Holly Corp.

The upgrade will reflect the conservative acquisition financing for the transaction, the low debt at Holly, the niche markets served by both Frontier and Holly and the continued benefits of being a small refiner with regards to the low sulfur regulations, Fitch said. The larger asset base will also reduce the magnitude that major turnarounds have had on the company's earnings.

With the addition of Holly, Frontier will add three refineries and increase capacity from 156,000 barrels per day (bpd) to more than 260,000 bpd.

Of continued concern is the potential start-up of the Longhorn Pipeline, a refined product pipeline from Texas Gulf Coast refiners to El Paso, Texas which would compete directly with Holly's Artesia refinery, Fitch said. Start-up has been delayed several times in recent years, but could add up to 72,000 bpd of initial capacity with ultimate capacity of up to 225,000 bpd.

Fitch believes that Holly's established market presence, low cost crude sourcing and moderate cost of operations would help mitigate the near to medium term impact of any entrance of product via Longhorn into Holly's markets.

S&P says USEC unchanged

Standard & Poor's said USEC Inc.'s ratings are unchanged including its corporate credit rating at BB with a stable outlook in response to its announcement of improved second quarter operating income.

Benefits from increasing price realizations and lower cost SWU (separative work unit) purchased under the modified Russian agreement have already been factored into the ratings, S&P said. Furthermore, the company's announced accelerated deployment timetable for the American Centrifuge program will have no effect on ratings.

© 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.