S&P: American Seafoods on watch

Standard & Poor's said that it revised its CreditWatch listing on the ratings of American Seafoods Group LLC and its wholly owned subsidiary American Seafoods Inc., changing the implications to negative from positive.

S&P rates American Seafoods Group LLC's corporate credit BB-, senior secured debt BB, and subordinated debt B. American Seafoods Inc.'s subordinated debt is rated B.

The CreditWatch revision comes amid S&P's ongoing review of American Seafoods' financing plans, specifically the plan of the parent company's sole general partner, American Seafoods Corp., to issue $650 million in income deposit securities. Each of these securities consists of one share of common stock and $5.80 of principal of the company's subordinated notes.

"Based on additional information about the securities product and further review, Standard & Poor's believes that the IDS structure, in general, exhibits an extremely aggressive financial policy," said S&P credit analyst David Kang. "Though the amount of the consolidated company's debt outstanding would change little after the IDS offering, American Seafoods will have significantly reduced its financial flexibility given the anticipated high dividend payout rate."

As a result, the structure limits the company's ability to weather potential operating challenges and also reduces the likelihood for future deleveraging.

S&P said a further risk is that the debt portion of the IDS may not be treated as debt for U.S. federal income tax purposes by the IRS. If all or a portion of the subordinated notes are treated as equity rather than debt, then the interest on the subordinated notes will not be deductible by American Seafoods Corp. This could make the IDS securities uneconomic and expose American Seafoods to refinancing risk and a claw-back of prior years' liability (there is generally a three-year limit on such a claw-back).

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