S&P: National Waterworks remains on negative watch

Standard & Poor's said Friday the ratings on National Waterworks Inc. (BB-/Watch negative/--), including the BB- senior secured bank loan and B subordinated debt, remain on CreditWatch with negative implications, where they were placed on Oct. 29.

On Nov. 19, the company withdrew its consent solicitation to amend a covenant in its subordinated bond indenture to allow for the payment of a $110 million dividend. Notwithstanding the termination of the consent solicitation, the company plans to continue to consider payment of a special dividend to the extent permitted by the indenture governing the subordinated notes.

S&P said the ratings on the company reflect its average business position as a distributor of waterworks products and aggressive financial profile.

With sales of about $957 million for the nine months ended Sept. 30, National Waterworks is the largest distributor of water products used to build and repair water systems in North America. The company has a well-established network of more than 140 branches in 35 states, consisting of a diverse customer base of contractors and municipalities.

While cash flow generation has remained relatively stable, the company has not met S&P's expectations for debt reduction. S&P said it believes the company may pursue niche acquisitions to broaden its geographic reach and expand the customer base, which will likely be funded from a moderate free cash flow base and external financing.

S&P said it will reassess the company's revised financial profile and plans for future dividend payments before resolving the CreditWatch placement. Accordingly, the company's corporate credit rating could be cut to as low as a B+ as previously indicated or remain at the current BB- rating, the agency said.

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