S&P cuts American Plumbing

Standard & Poor's downgraded American Plumbing & Mechanical Inc. including cutting its $125 million 11.625% senior subordinated notes due 2008 to CCC- from CCC and $84 million revolving credit facility due 2004 to CCC+ from B. The outlook is negative.

S&P said the rating actions incorporate Ampam's nominal liquidity, with just $4.5 million in revolving bank credit facility availability, $5.6 million of cash (both at March 31, 2003) and very tight covenants under its bank credit facility.

S&P said it is concerned that should the company break its bank covenants the senior secured lenders may not allow the company to make its October 2003 scheduled interest payment of approximately $5.5 million on its outstanding subordinated notes.

Furthermore, Ampam faces significant refinancing risk with the bank facility maturing in March 2004.

Ampam's operating performance has declined precipitously over the past couple of years because of poor project management within its commercial construction operation and operating issues within some of its startup units, S&P said. As a result, total debt to EBITDA increased to more than 7x at March 31, 2003, from 3.4x at Dec. 31, 2001.

The company has hired Conway Del Genio & Greis & Co. LLC to review all operational and financial alternatives to alleviate its constrained liquidity profile.

S&P said it believes that while it is plausible that the company could get a temporary extension on the current bank credit facility, it is unlikely to get a longer-term facility with needed flexibility without either new equity capital or restructuring the subordinated notes.

S&P takes Hexcel off watch

Standard & Poor's confirmed Hexcel Corp.'s ratings including its $100 million 9.75% senior subordinated notes due 2009 and $240 million 9.75% senior subordinated notes due 2009 at CCC+ and $125 million 9.875% notes due 2008 at B and removed it from CreditWatch negative. The outlook is stable.

S&P said the confirmation reflects Hexcel's stabilized financial profile due to an improved liquidity position and the benefits from restructuring efforts.

Hexcel's ratings reflect a very weak financial profile stemming from high debt levels and unprofitable operations, which outweigh the company's substantial positions in competitive industries and generally favorable long-term business fundamentals, S&P said.

In the commercial aircraft market, (around 45% of revenues), weaker air traffic, losses at airlines, grounded aircraft, passenger security concerns in the aftermath of the Sept. 11, 2001 events and a slow global economy will constrain demand for new planes and, thus, for the company's products, S&P said. Production rates for commercial jetliners appear to have stabilized at low levels, but significant increases are not expected until 2006.

This downturn and continued weakness in the electronic materials business will overshadow positive trends in some of the firm's smaller markets, such as military aircraft, wind energy, and soft body armor. In the first six months of 2003, revenues have benefited from the weak U.S. dollar.

In response to a difficult operating environment, Hexcel has expanded its restructuring program, which has led to a $66 million reduction in cash fixed costs. The company has reduced inventory to levels more consistent with expected commercial aircraft production rates. As a result, operating margins have returned to the low-teens percent area from low single digits in 2001.

The issuance of $125 million in secured notes and $125 million of preferred stock in March 2003, with the proceeds used to reduce debt by a net $90 million, eliminated near-term liquidity concerns and improved the company's capital structure, which remains weak, S&P said. Further debt reduction is expected in 2003 and debt to EBITDA is likely to decline below 5x in 2003 from over 6x in 2002.

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