Moody's cuts Desc, on review

Moody's Investors Service lowered Desc SA de CV including cuttings its $73 million guaranteed senior unsecured notes due 2007 to Caa1 from B2 and put it on review for possible downgrade.

Moody's said the actions reflect continued deterioration in Dine's operating performance, weak liquidity, near-term refinancing risk and correspondingly heightened default risk over the intermediate term.

The downgrades reflect fundamental weakness in the company's operations, the perceived inability to comply with financial maintenance covenants under syndicated loans even if the latest technical defaults are cured, near-term debt maturities with no obvious source of repayment and resultant growth in Moody's expectations of potential default and losses to be realized by creditors in the event of a default.

Weak sales and margin pressure stemming from continued high raw material and operating costs and an adverse economic environment once again weighed down operating income in the first quarter of 2003, resulting in a second violation of the covenanted leverage ratio for Desc's syndicated loans, Moody's said.

In addition, Desc has short-term debt obligations of $250 million due this year, with another $125 million of maturities in 2004.

Moreover, Moody's expects the company to operate at breakeven or slightly negative free cash flow levels through at least 2004. With an estimated $100 million in cash and $200 million in undrawn credit lines including a committed portion of $100 million, the ability to draw under which may be increasingly suspect given the ongoing technical defaults under the existing syndicated facilities, refinancing risk remains quite high.

Moody's cuts American Plumbing

Moody's Investors Service downgraded American Plumbing & Mechanical, Inc. including cutting its $95 million 11.625% senior subordinated notes due 2008 to Caa3 from Caa1. The outlook is negative.

Moody's said the downgrade reflects continuing problems in American Plumbing's commercial construction business, the deterioration in its credit profile, the tightening of liquidity, and the turnover in executive ranks.

The ratings are supported by the continuing strength in the company's residential construction business, its geographic diversity, and its industry position as one of the largest plumbing and mechanical contracting firms in the U.S.

The negative outlook reflects Moody's expectations that commercial construction markets will remain weak throughout 2003, that residential construction markets are not likely to provide significant lift to the company's continuing operations, and that the company will have to find a replacement bank group for its bank credit facility that expires on March 31, 2004.

Begun in 1999 as a combination of 10 individual founding companies with four additional companies subsequently acquired, American Plumbing has been experiencing ongoing integration problems, particularly in its commercial construction business, Moody's said.

The company's credit profile continues to deteriorate, with year-end 2002 debt/EBITDA ballooning to 12.3x (vs. 3.4x in 2001), EBIT coverage of interest falling to 0.4x (vs. 1.8x), free cash flow/total debt dropping to 1.4% (vs. 7.1%), operating margins declining to 1.3% (vs. 5.6%), and ROA (EBIT/Assets) decreasing to 10.5% (vs. 2.7%), Moody's said.

While the absence of the problem-plagued commercial operations should benefit comparisons going forward, the debt load is now being supported by a smaller revenue and earnings base, which will delay any return to the 2001 financial ratio performance for the near-term.

S&P lowers Madison River outlook

Standard & Poor's lowered its outlook on Madison River Telephone Co. LLC to negative from stable including the senior unsecured debt of Madison River Capital LLC and Madison River Finance Corp. at CCC+.

S&P said the revision is because of the continued loss in access lines related to the economy, and the uncertainty related to the full impact of Ft. Stewart, Ga.'s troop deployment on that local community's access lines.

In the first quarter of 2003, the company's incumbent local exchange carrier (ILEC) business lost 1,950 voice access lines, or about 1% of total lines since year-end 2002, S&P said. In 2002, the ILEC lost 4,560 voice access lines or 2.3% of total voice lines. As of March 31, 2003, ILEC voice access lines totaled 188,300.

To somewhat offset the decline in access lines, Madison River has been successfully increasing digital subscriber line (DSL) penetration and promoting bundled service offerings. About 1,520 and 5,280 DSL lines were added in the first quarter of 2003 and fiscal year 2002, respectively.

In the first quarter of 2003, total debt to EBITDA annualized improved to the 7.0x area, S&P said. Net debt to EBITDA annualized was about 6.3x. EBITDA interest coverage was in the 1.5x area. As a result of its network upgrade being completed, capital expenditures declined significantly in 2002 to $12.3 million from $39.9 million in 2001, and are anticipated to total about $12 to $13 million in 2003 primarily for maintaining existing facilities.

S&P cuts Texas Petrochemicals

Standard & Poor's downgraded Texas Petrochemicals LP including cutting its $225 million 11.125% senior subordinated notes due 2006 to CCC- from CCC+. The outlook is negative.

S&P said the downgrade reflects deterioration in Texas Petrochemicals' operating performance and credit profile, as well as heightened concerns about the company's liquidity position.

Profitability and cash flow have been negatively affected by a significant decline in demand for MTBE and higher raw material and energy costs, S&P noted. The shortfall in earnings will make it difficult for the company to strengthen credit protection measures in the near term and to satisfy the financial covenants under its bank credit agreement.

The increase in pressure on liquidity could constrain the company's ability to upstream funds to allow interest payments on the discount notes at the holding company level, thereby raising the likelihood of a payment default.

The financial profile remains very aggressive as the ratio of total debt (including holding company discount notes and the capitalization of operating leases) to EBITDA is more than 7x, S&P said. Looking ahead, the company faces significant costs required to reduce the emissions of nitrogen oxide at its manufacturing facility as mandated by clean air legislation and substantial capital expenditures that will be needed to convert production assets currently used for MTBE to other products.

S&P cuts CRM

Standard & Poor's downgraded Compania de Radiocomunicaciones Moviles SA including cutting its $150 million 9.25% medium-term notes series 1 due 2008 to D from CC.

S&P said the action follows CRM's failure to make $6.9 million of interest payments on May 8.

The mismatch between CRM's dollar-denominated debt and peso-denominated revenues, its weakened cash generation ability, and limited financial flexibility in the current economic environment are the main drivers for the company's current default, S&P said.

In January 2003, CRM announced its decision to suspend principal and interest payments on its financial obligations, in order to preserve liquidity to continue funding its operations, and to restructure the terms of the debt to adapt them to the company's expected cash generation.

© 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.