Moody's puts Cogentrix on upgrade review

Moody's Investors Service put Cogentrix Energy, Inc. on review for possible upgrade including its senior unsecured bonds at B1.

Moody's said the action follows the announcement that Goldman Sachs Group, Inc. has agreed to acquire Cogentrix.

S&P keeps Cogentrix on watch

Standard & Poor's said Cogentrix Energy Inc. remains on CreditWatch negative including its senior unsecured debt at BB.

S&P's comments come after the announcement that The Goldman Sachs Group Inc. reached an agreement to acquire 100% of the stock of Cogentrix for $115 million in equity and $2.3 billion in nonrecourse debt.

The CreditWatch listing is based on uncertainty about the company's resulting credit profile after the transaction is completed and its weak credit measures, S&P said.

The downturn in the power markets and credit deterioration of Cogentrix's offtakers have significantly weakened the company's credit profile over the past year, S&P noted. Furthermore, adverse developments for a number of its projects have led to a material reduction in cash flow to Cogentrix. Cash flow to parent interest fell to below 2.5x in the 12 months ended June 30, 2003 from above 3.0x in previous years.

Moody's rates Nalco notes B2, Caa1, loan B1

Moody's Investors Service assigned a B2 rating to Nalco Co.'s planned $900 million guaranteed senior unsecured notes due 2011 in dollar and euro tranches, a Caa1 to its planned guaranteed senior subordinated notes due 2013 in dollar an euro tranches and a B1 to its planned $250 million guaranteed senior secured revolver due 2009, $300 million guaranteed senior secured term loan A due 2009 and $1.1 billion guaranteed senior secured term loan B due 2010. The outlook is stable.

Moody's said the ratings take into account Nalco's high leverage with pro forma debt to EBITDA, adjusted for the debt offering and certain expenses, of 6.0 times for the 12 months ended June 30, 2003, negative tangible net worth, significant working capital requirements, an indenture that allows significant borrowings at subsidiary companies, a lack of multi-year historical audited financials for the combined entity, and potential exposure to exchange rates.

The ratings are supported by Nalco's entrenched competitive position as a global supplier of water treatment and process chemicals for industrial and institutional applications that generates unusually strong EBITDA margins (roughly 20% excluding extraordinary items on an last 12 months basis), the diversity of its end-markets, raw materials and customer base, modest capital expenditure requirements, and the improvement in its operating performance over the past two years despite a weak economic environment.

The ratings incorporate the strength of the new management team and the level of support, including the $1.1 billion equity investment, from the equity sponsors. The ratings also recognize significant barriers to entry, including high customer switching costs, patents, significant R&D spending, and long-term customer relationships.

The stable outlook reflects Moody's expectation that Nalco will encounter minimal problems as it transitions to a stand-alone company, be able to maintain its market share in key end-markets and successfully avoid aggressive price competition with its major competitors, Moody's said.

Adjusted for the transaction, the company would have total debt of $3.25 billion, which would have represented 1.2 times last 12 months revenues of $2.7 billion. Last 12 months debt to EBITDA of 6.0 times (pro forma last 12 months EBITDA of $546 million excludes $30 million of unrealized cost savings). Pro forma free cash flow (cash from operations less capital expenditures) to debt is approximately 2.8%. Additionally, at June 30, 2003, the company had goodwill and intangibles of $4.25 billion (69% of assets) and tangible net worth of a negative $3.2 billion.

S&P upgrades Louisiana-Pacific

Standard & Poor's upgraded Louisiana-Pacific Corp. including raising its senior unsecured debt to BB+ from BB- and subordinated debt to BB- from B+. The outlook is stable.

S&P said the action follows the substantial completion of a major asset sale program, the proceeds of which are expected to primarily be used to permanently reduce debt.

The senior unsecured debt rating is now the same as the corporate credit rating, because cash balances at the parent company - earmarked ultimately to reduce parent company debt - have alleviated S&P's structural subordination concerns.

S&P said the ratings reflect Louisiana-Pacific's below-average business profile stemming from limited product diversity and the extreme price volatility of its primary product, oriented strandboard.

Ratings also reflect an improving cost position, more conservative financial policies and significant liquidity afforded by substantial asset sale proceeds and currently robust operating cash flow.

A gradual increase in oriented strandboard demand, together with some industry consolidation and production discipline, has improved the supply/demand balance following a few years of capacity additions that led to oversupply, S&P noted. Although demand for oriented strandboard will continue to expand as it replaces plywood in some applications, the threat of overcapacity remains, particularly at current lofty prices, which have tripled since the beginning of 2003.

Louisiana-Pacific substantially has completed about $750 million of asset sales consisting primarily of several hundred thousand acres of timberlands. In addition, the company has sold industrial panel and plywood plants, distribution facilities and other assets. The divestitures are the result of management's decision to exit certain businesses and focus investment on a narrower range of businesses.

Although the timberland sales will essentially eliminate a source of financial flexibility, company-owned timberlands provided only a small portion of the wood needs of its manufacturing facilities, S&P said. Also, because oriented strandboard requires lower-grade wood fiber than lumber or plywood, fiber that is generally readily available (although prices fluctuate), timberland ownership provides less of a benefit to oriented strandboard producers.

Moody's rates Metaldyne notes B3

Moody's Investors Service assigned a B3 rating to Metaldyne Corp.'s new senior unsecured notes due 2013 and confirmed its existing ratings including its senior implied at B2. The outlook remains stable.

Moody's said Metaldyne's performance continues to track near expectations.

The proposed notes will slightly increase Metaldyne's annual interest expense, but will relieve pressure on liquidity, Moody's added. The company had received permission within the July 15, 2003 first amendment to the senior secured credit agreement to refinance the maturing convertible subordinated notes through a drawdown under its revolving credit facility, in the event that alternative financing proved unavailable.

After taking into account the impact of the revised financial covenant ratio requirements also put in place under the first amendment, effective aggregate unused availability under Metaldyne's revolving credit facility and accounts receivable securitization would have been improved to $204 million at June 30, 2003. Upon completion of the proposed transaction, the revolving credit commitment will be reduced to $200 million from $250 million. However, since the $98.5 million usage blockage that had been in effect to assure availability for repayment of the convertible subordinated notes upon maturity will be eliminated, the net positive impact of the proposed transaction will be $48.5 million of additional effective availability.

Moody's said Metaldyne continues to face several challenges, including lower Big 3 domestic OEM production levels, rising steel prices, high up-front expenses and capital expenditures in advance of heavy launch activity during 2004 and 2005, significant customer concentrations and persistent customer pricing pressures within Metaldyne's highly competitive markets.

Moody's has ongoing concerns regarding the fact that Metaldyne remains acquisitive and will be challenged to finance and integrate some potentially sizable acquisitions.

Moody's cuts Cole National

Moody's Investors Service downgraded Cole National Group including cutting its $60 million secured bank credit facility at Ba3 and $125 million 8.625% senior subordinated notes due 2007 and $150 million 8.875% senior subordinated notes due 2012 at B3. The outlook is developing.

Moody's said the action follows Cole's recent announcement that it is exploring strategic alternatives and that it has received an unsolicited proposal to be acquired for $19.65 per share in cash.

The downgrade reflects the company's weaker than expected operating performance during the first half of 2003 and the expectation that it will be difficult for the company to substantially improve results over the near term, Moody's said.

Cole has made capital investments in its Target operations and Pearle Vision stores but poor returns on these investments have resulted in lower than expected debt protection measures.

The developing outlook reflects the uncertain impact of the company's review of strategic alternatives on its financial profile and business strategy.

Moody's cuts Norske Skog Canada outlook

Moody's Investors Service lowered its outlook on Norske Skog Canada Ltd. to negative from stable and confirmed its ratings including its senior unsecured notes at Ba2, Norske Skog Canada Finance Ltd.'s senior secured bank credit facility at Ba1 and Pacifica Papers' senior unsecured notes at Ba2.

Moody's said the outlook change is due to the company's high financial leverage, the current challenging pricing environment for its products and the impact of the stronger Canadian dollar on profitability.

Norske Skog Canada's ratings reflect its narrow product focus in a commodity industry with volatile pricing, its relatively high level of debt, its moderate size in relation to its principal competitors and a lack of geographic diversification.

The ratings also reflect the company's good financial liquidity, its solid position in newsprint and directory papers, its increasing production of higher margin specialty groundwood papers and its relationship with Norske Skog ASA (30.6% ownership).

Moody's cuts Mastec

Moody's Investors Service downgraded MasTec, Inc. including cutting its $200 million 7.75% senior subordinated notes due 2008 to B2 from Ba3. The outlook remains negative.

Moody's said the lower rating better reflects MasTec's financial profile, which has deteriorated over the past two years as spending by core customers contracted and gross profit and operating income margins subsequently experienced dramatic declines.

The current ratings recognize that MasTec's financial performance has now likely stabilized and that 2004 will likely show improved results as an increase in the broadband segment (principally from Comcast) should offset the lingering drop-off in the telecom segment.

Nonetheless, the continuing negative rating outlook reflects Moody's concerns that MasTec may have difficulty replacing lost revenues as the Comcast upgrade cycle (of the former AT&T cable systems) is completed, particularly if telecommunications spending remains at still depressed levels.

For the 12 months to June 30, 2003, MasTec's revenues were $810 million, almost 17% lower than for the comparable prior year period. The company's gross profit margin rebounded in the second quarter to 15.8% from 14.1% in the second quarter of 2002, but is still well below historical levels which exceeded 20%.

Fitch rates LNR notes BB-

Fitch Ratings assigned a BB- rating to LNR Property Corp's new $300 million 10-year 7.25% senior subordinated notes. The outlook is stable.

Fitch said it views the issuance constructively as it will provide a modest increase to LNR's unsecured capital base, lengthen the company's debt maturity schedule to approximately 6.6 years and lower funding costs. The new transaction is priced 325 basis points lower than the securities being refinanced.

As a result of LNR's three unsecured debt offerings in 2003, Fitch estimates that the unsecured debt to total debt ratio will improve to 60.16% based on Aug. 31, 2003 financials from 36.10% at Nov. 30, 2002.

However, it is not clear if the quality of LNR's unencumbered asset pool will improve as a result of the issuance. Additional proceeds may be used in LNR's and Lennar Corp.'s joint acquisition of Newhall Land and Farming Co., Fitch said.

LNR's ratings reflect its good asset performance and consistent profitability. Fitch said it believes that the fundamental driver of LNR's success has been its risk management, due diligence and commercial mortgage-backed securities special servicing operations. The rating also takes into account the risks inherent in LNR's repositioning property, partnership equity, land, and unrated CMBS investments.

Moody's puts Payless on review

Moody's Investors Service put Payless ShoeSource, Inc. on review for possible downgrade including its senior subordinated notes at Ba3 and bank facilities at Ba2.

Moody's said the review is in response to the company's negative comparable store sales during the important back-to-school season and the potential margin impact from aggressive markdowns to clear inventory, as well as Moody's concern that revenues and profitability will not rebound as quickly as had previously been anticipated.

Comparable store sales were negative in both August (-2.5%) and September (-1.1%) - the important back-to-school season - despite a significant increase in promotional activity.

A rebound in operating performance and financial metrics seems unlikely in the near term, contrary to Moody's prior expectations.

Payless has warned that the lower sales levels and aggressive markdowns to clear merchandise are likely to significantly depress the current quarter's earnings. Excess inventory has been an issue for the company since the first quarter of the current fiscal year, as cool spring and summer weather hurt sales of seasonally appropriate merchandise in certain parts of the country at a time when Payless was deliberating building inventory to improve its competitive position.

Competition, especially from discounters, also continues to challenge the company's efforts to sustain market share, Moody's added.

© 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.