S&P cuts Great Lakes Dredge

Standard & Poor's said it lowered its corporate credit and senior secured debt ratings on Great Lakes Dredge & Dock Corp. to B from B+. S&P also lowered its subordinated debt rating on Great Lakes to CCC+ from B-.

At the same time, S&P affirmed its 3 recovery rating on Great Lakes' senior credit facility, indicating the expectation of a meaningful recovery (50% to 80%) of principal in the event of a default.

The outlook is stable.

S&P said the ratings downgrade reflects declining earnings, high financial leverage and increasing price competition and margin erosion as a result of reductions in federal funding of dredging projects. Great Lakes' dredging backlog has fallen by almost one-third, to $189 million from $281 million a year ago, because of the reduced bid market.

While S&P considers backlog of $200 million or greater as sufficient for short-term profitability and cash flow generation for Great Lakes, likely project delays resulting from the growing uncertainty over funding for U.S. Army Corps of Engineers projects and intensified pricing pressures will lead to financial performance in 2004 and probably in 2005 that will be weaker than previously expected.

S&P said the ratings on Great Lakes Dredge & Dock reflect its leading positions in moderate-size markets, offset by an aggressive financial profile and modest liquidity.

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