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Moody's downgrades Greenbrier
Moody's Investors Service said it downgraded the Greenbrier Cos., Inc.'s corporate family and probability-of-default ratings to B1 from Ba3, speculative grade liquidity rating to SGL-3 from SGL-2 and senior unsecured regular and convertible bonds to B2 (LGD5, 72%) from B1 (LGD4, 64%).
This concludes the review for downgrade prompted by Greenbrier's acquisition of Meridian Rail Holdings Corp. in late 2006, and the outlook is stable.
The agency said the ratings were downgraded because of a significant weakening of key credit metrics following increased debt for two acquisitions combined with an unexpectedly sharp decline in the manufacturing operating margin to 4.2% from 13.3%.
Moody's predicted that manufacturing margins are likely to remain weaker than historic levels because the poor results stem from a range of operating issues including mix, production inefficiencies and lower deliveries not likely to be overcome in the near term. Consequently, while the agency anticipates some improvement over time as Greenbrier recognizes earnings from the newly acquired operations and better manufacturing profits, measures of retained cash flow to debt, debt to EBITDA and EBIT to interest are likely to be consistent with other issuers at the new B1 corporate family rating level.
Greenbrier benefits as the nation's leading producer of railroad flat cars and there is considerable cash flow and profit potential yet to be realized in Greenbrier's nearly $1 billion railcar backlog, the agency said, although demand appears to be slowing and the company may miss recognizing peak manufacturing profits during this cycle unless the operations are improved.
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