S&P cuts Interface

Standard & Poor's downgraded Interface Inc. including cutting its $125 million 9.5% senior subordinated notes series B due 2005 to CCC+ from B- and $150 million 7.3% senior notes due 2008 and $175 million 10.375% notes due 2010 to B from B+. The outlook is negative.

S&P said the downgrade follows continued weakness in the commercial sector and weaker than expected results for the first quarter ended March 2003, resulting in further volume declines and operating losses in several of Interface's business segments.

Weaker than expected revenue and margin pressures across all business segments, particularly the commercial interiors and office furniture markets, have hurt operating results and further weakened credit measures, S&P said. Interface continues to be highly dependent on the corporate sector, deriving about 65% of total revenues from this segment.

For the 12 months ended March 30, 2003, the company's operating margin (before D&A) was about 7.7%, down from the 9%-11% range it sustained in recent years. Debt levels were high and credit measures were weak, with EBITDA to interest coverage at about 1.4x and total debt to EBITDA at about 7.6x, S&P said.

The rating agency added that it expects that credit measures will continue to be weak absent any meaningful recovery in the economy that would strengthen revenue growth.

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