Moody's cuts King Pharmaceuticals outlook

Moody's Investors Service confirmed the ratings of King Pharmaceuticals Inc., including the 2.75% convertible due 2021 at Ba1, but revised the outlook to stable from positive following the acquisition of Elan Corp. plc's primary care business in the U.S. and Puerto Rico for $850 million.

The revised outlook reflects reduced financial liquidity following recent acquisitions, Moody's said.

In December, King announced the acquisition of three branded prescription products of Aventis for $200 million. And in January, completed the acquisition of Meridian Technologies Inc. for $248 million.

Including the Elan transaction, the company will spend some $1.3 billion - a substantial portion of its liquidity and an amount in excess of its last 12 months revenues.

The outlook also reflects potential integration risks.

Moody's believes these factors will extend the timeframe for a possible upgrade beyond 12-18 months.

S&P expects to confirm Sierra Pacific on convertible deal

Standard & Poor's said that following Sierra Pacific Resources' successful completion of the $250 million convertible debt issue, it expects to confirm its ratings and remove them from negative watch, although the outlook will be negative.

S&P said it also would confirm the ratings of subsidiaries Nevada Power Co. and Sierra Pacific Power Co., also with negative outlooks.

The convertible staves off a potential liquidity crisis given Sierra Pacific's inability to otherwise meet debt service obligations. Proceeds will be used to redeem its $191 million floater notes due April 2003.

The Public Utility Commission of Nevada is scheduled to rule on Nevada Power's deferred cost recovery case, filed in November, later this year. A favorable ruling is essential to set the stage for Sierra Pacific's financial recovery over the next few years.

S&P has not separated the corporate credit rating of Sierra Pacific from its utility subsidiaries despite the fact that free flow of cash is not possible owing to the dividend restrictions on Nevada Power.

Given that the stock of the two utilities is the only asset at Sierra Pacific, the fate of the utilities is intimately tied to that of the parent when there is a real risk of default.

Moody's cuts El Paso

Moody's Investors Service downgraded the ratings of El Paso Corp. (senior unsecured to Caa1 from Ba2) and subsidiaries, reflecting lower near-term cash flow expectations, high debt relative to cash flows and the strain on liquidity from the increase in debt payments this year.

Uncertainty as to whether asset sales will provide sufficient and timely proceeds to help cover a larger-than-expected cash deficit and execution risks to efforts to scale back merchant energy activities also were factors, Moody's said.

The rating outlook is negative, reflecting challenges to improving operating cash flows while reducing capital expenditures and meeting large debt payments.

S&P rates Lennox shelf B+/B

Standard & Poor's assigned a preliminary B+ senior unsecured debt rating and preliminary B subordinated debt rating to Lennox International Inc.'s $250 million shelf registration. All other ratings were affirmed,

The ratings reflect a leading position in air conditioning and heating equipment markets for residential and light commercial applications, offset by a challenging residential retail business and an aggressive financial profile, S&P said.

Adequate liquidity is provided by bank credit lines totaling $323 million, with $225 million of current availability during the seasonal working capital trough, a $190 million accounts receivable securitization facility and cash on hand of $76 million at Dec. 30.

The outlook remains stable, reflecting in part a focus on debt reduction in the near term.

Relatively low operating margins stemming from a weak retail business and possible debt-financed acquisition activity over the intermediate term limit upside ratings potential.

Moody's puts Standard Motors on review for downgrade

Moody's Investors Service placed the ratings of Standard Motor Products Inc. on review for possible downgrade, including the 6.75% convertible due 2009 at B2, following its plans to acquire a significant portion of Dana Corp.'s engine management division for $120 million.

Moody's considers this to be a very sizable acquisition for Standard Motor, which stands to enlarge its annual revenue base from approximately $600 million today, to about $850 million pro forma for the acquisition.

The acquisition of appears to represent a good fit with Standard Motor's existing engine management business line, but the company is an already highly leveraged and the Dana lines are not positive EBITDA generating.

There also are significant integration risks over the next 12-18 months, and Moody's has some concern that unused liquidity during the integration period will be considerably lower than levels at which the company has been operating, Moody's said.

S&P raises Amazon outlook

Standard & Poor's raised its outlook on Amazon.com to stable from negative and confirmed its ratings including its senior unsecured debt at B and subordinated debt at CCC+.

S&P said the outlook revision is based on Amazon's increased rate of sales growth and improved operating performance during a difficult economic period.

Amazon's rate of sales growth increased to 26% in 2002 from 13% in 2001 due to its free shipping program, increased product offerings, and continued growth of on-line sales. Moreover, the company's operating margin increased to 9.9% in 2002 from 4.5% in 2001 as a result of sales leverage and the company's focus on cost improvement.

The ratings on Amazon.com reflect the risks of rapid growth in an evolving marketplace, weak levels of profitability, and a heavy debt burden, S&P added. The ratings also incorporate the potential for margin pressure from intense retail competition and the fragile U.S. economy. These risks are tempered by Amazon.com's solid market position in on-line books, music, and videos retailing.

Amazon.com has been successful at creating a strong brand, which is critical to the long-term success of any retailer selling goods through the internet, S&P noted. Its active customer list has grown to 31 million in 2002 and the company has been reporting positive profits since the fourth quarter of 2001 on a pro forma basis. S&P said it believes the company needs to continue to increase its customer base in a very difficult retail environment in order to continue to significantly increase operating income.

Amazon's debt burden is significant with total debt to EBITDA at 8.8x, S&P said. Although lease-adjusted EBITDA coverage of interest improved to 1.6x in 2002 from 0.4x in 2001; any operating difficulties could quickly diminish credit protection measures given its high leverage. Amazon.com had $2.3 billion of funded debt outstanding as of Dec. 31, 2002.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.