Moody's puts Precision Castparts on review

Moody's Investors Service put Precision Castparts Corp. on review for downgrade including its long-term debt at Baa3.

Moody's said the review follows the company's announcement that it has entered into a definitive agreement to acquire SPS Technologies, Inc. in a transaction valued at approximately $729 million.

The company will purchase all SPS shares with 50% equity and 50% cash. Precision Castparts will also assume and/or refinance the remaining SPS debt.

Moody's said its review for will focus on: Precision Castparts' the company's ability to achieve its expected operating synergies over the near- to intermediate-term; the combined entity's future operating and cash flow performance, especially in light of the weak aerospace and industrial gas turbine markets; the impact of the transaction on the company's capital structure; and the company's ability to significantly reduce the acquisition debt and improve its credit metrics over the intermediate term.

Moody's noted that the transaction should strengthen Precision Castparts' leading position as a multi-product supplier of complex metal products for the aerospace industry and add other complimentary products to its already diversified portfolio, such as engineered fasteners, specialty materials, and magnetic products.

Moody's noted, however, that the company's pro forma debt and its ratio of debt to capital (as of closing) would rise to about $1.2 billion and 45%, respectively, and that this is occurring at a time when a significant portion of the company's end markets are under pressure. Furthermore, the transaction is sizable, and would bring with it a degree of assimilation risk to the company.

S&P raises AMI outlook

Standard & Poor's raised its outlook on AMI Semiconductor Inc. to stable from negative and confirmed its ratings including its senior secured debt at BB and subordinated debt at B.

S&P said the revision reflects improved profitability levels. In addition, AMI Holdings Inc., AMI's parent, filed a proposed $450 million initial public offering of common stock, which will primarily repay preferred stock that S&P largely viewed as equity.

AMI also expects to issue a $125 million senior secured term loan under terms similar to its existing bank facility, raising the total bank facility, including the company's $75 million revolving credit facility, to $200 million from $115 million.

As a result of the increased loan size, S&P said it expects to assign a BB- rating to the facility once terms are final, the same as the corporate credit rating, rather than one notch above as the existing loan is rated.

Proceeds from the IPO and term loan, totaling $575 million, are expected to refinance about $425 million in preferred shares, which have been largely treated as equity by S&P. In addition, proceeds would repay AMI's existing $40 million term loan, redeem $70 million in subordinated notes, and pay about $40 million in fees and redemption premiums. As a result, these transactions have little impact on AMI's financial profile.

AMI Semiconductor's ratings continue to reflect increasing competition in its markets and an acquisitive financial policy, S&P added. These are only partially offset by AMI's sole-source long-term agreements to provide semiconductor chips and its diversified customer and end-market base.

Pro forma debt-to-EBITDA is expected to be less than 3x as of June 2003 and EBITDA interest coverage is expected to be greater than 6x, S&P said.

S&P says Northwest unchanged

Standard & Poor's said the ratings on Northwest Airlines Inc. and parent Northwest Airlines Corp. are unchanged including the corporate credit at B+ with a negative outlook after it received permission from the Department of Labor to contribute stock of its majority-owned affiliate, Pinnacle Airlines Corp. to its pension plans in lieu of cash.

At June 30, Northwest's pension plans were underfunded by approximately $3.1 billion. In early 2003, the company contributed 1.9 million shares of Pinnacle valued at $44 million toward its $223 million funding requirement for 2002, and expects to contribute the balance by Sept. 15.

Because Pinnacle, Northwest's regional partner at Memphis, is currently privately held, its stock is considered to be nonqualifying and an exemption was necessary for the contribution of its stock to proceed.

However, Northwest has indicated it intends to sell the remaining shares in an IPO when market conditions warrant. In addition, Northwest has already received a waiver from the IRS to postpone its 2003 pension contribution of $454 million over a five-year period beginning in April 2004.

Like other large U.S. airlines, Northwest continues to face weak revenues, substantial debt and pension obligations, despite the partial funding through the contribution of Pinnacle stock, and a need to reduce its labor costs, S&P said.

Moody's lowers Jarden outlook, rates loan Ba3

Moody's Investors Service assigned a Ba3 rating to Jarden Corp.'s proposed $350 million amended and restated senior secured credit facilities and confirmed its existing ratings including its $180 million 9.75% senior subordinated notes due 2012 at B2. The outlook was revised to negative.

Moody's said the action follows the announcement of Jarden's agreement to purchase Lehigh Consumer Products Corp. for $155 million (or around 6x last 12 months EBITDA).

The acquisition of the home center products marketer is expected to further Jarden's business diversification efforts but also represents an increase in its acquisition pace and leverage tolerance beyond previous expectations.

The ratings confirmation recognizes the diversification benefits of the Lehigh acquisition, through the addition of Lehigh's relatively stable and non-seasonal businesses (cordage, workshop & security products) to a portfolio of products that is still somewhat concentrated in the potentially volatile and highly seasonal FoodSaver home vacuum packaging product line (around 35% of pre-acquisition sales).

Lehigh's $130 million of sales will combine with Jarden's pro forma existing businesses to total approximately $650 million of sales and $125 million of EBITDA.

The acquisition is generally consistent with Jarden's stated strategy to acquire high margin businesses with leading niche market positions (management estimates Lehigh's cordage and workshop market shares in the mid-40% range). Further, Lehigh's customer base, primarily home improvement retailers, provides a new distribution channel for Jarden and the potential to cross-sell its products.

Nonetheless, the outlook revision to negative from stable reflects a meaningful increase in financial leverage associated with the debt-financed acquisition, moving trailing 12 months debt-to-EBITDA to 3.2x from 2.5x on a pro forma basis, Moody's said.

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