Moody's raises Scotts outlook, liquidity, rates notes Ba3, loan Ba1

Moody's Investors Service assigned a Ba1 rating to The Scotts Co.'s proposed $1.2 billion senior secured credit facilities and a Ba3 rating to its proposed $200 million senior subordinated notes, revised its outlook to positive from stable, raised its speculative-grade liquidity rating to SGL-2 from SGL-3 and confirmed its other ratings including its senior implied rating at Ba2.

Moody's said the action reflects the expectation that Scotts will continue to focus on operational efficiency, brand support and disciplined business investments, and therefore can further improve profit levels and retain sufficient cash flow for meaningful debt reduction.

The improved SGL rating indicates a good liquidity position and incorporates the company's improved borrowing access under reset covenant levels and loosened borrowing restrictions in the new bank credit agreement.

Despite very challenging weather and economic conditions and the implementation of its restructuring plans in Europe, Scotts' has reaffirmed its expectation for significant earnings growth for fiscal 2003, Moody's noted. Combined with Scotts' investments in brand support, operations, and business development, a return to a more normal selling environment should continue to support gains in market share, customer service and profits going forward.

Moody's expects Scotts to sustain its acquisitions of lawn service companies at an annual rate of around $30 million, but to also maintain discipline in its ROIC management objectives and to limit its capital investments and risk exposures with respect to entering new product categories. Moody's noted Scotts' recent decision not to engage in a bidding war for an Australia-based lawn and garden business.

Moody's projects funds from operations less capex at around 20% of funded net debt and believes that Scotts will maintain average net debt below 3.0x and cash interest coverage well over 4.0x.

S&P says Levi Strauss unchanged

Standard & Poor's said Levi Strauss & Co.'s ratings are unchanged including its corporate credit at B with a stable outlook in response to the company's announcement that it will close its remaining manufacturing and finishing plants in North America.

These plant closures will result in further restructuring charges, however, when combined with other organizational changes that were announced by Levi Strauss earlier this month, should result in significant cost savings, S&P said. The plant closures and restructuring charges were factored into the downgrade of the company on Sept. 10.

Moody's upgrades Buhrmann

Moody's Investors Service upgraded Buhrmann NV including raising its $350 million 12.25% senior subordinated notes due 2009 to B2 from B3 and senior credit facilities to Ba3 from B1. The upgrade concludes a review begun on July 19. The outlook is stable.

Moody's said the reflects its opinion of a step change in Buhrmann's credit profile following its agreed disposal of its Paper Merchanting Division (PMD) to Australian PaperLinx and Moody's expectation that the disposal will materialize during the fourth quarter given the signing of the definitive sale agreement and absence of likely regulatory constraints.

The company is to receive €706 million for PMD and has announced its intention to use net proceeds to repay debt.

As a result, Moody's anticipates the expected reduction of about €600 million in total debt to pro forma fiscal 2003 total debt of €1 billion to lower expected fiscal 2003 net debt/EBITDA to approximately 3x.

Further, the upgrade incorporates the fact that although Buhrmann's revenues have been severely impacted, its business has nevertheless shown a considerable degree of resilience in the face of continued weak market conditions and Moody's expects the company to remain free cash flow positive, on an annualized basis.

Fitch confirms Park Place

Fitch Ratings confirmed Park Place Entertainment's senior unsecured debt at BB+ and senior subordinated debt at BB-. The outlook is stable.

Fitch said the r Ratings reflect the company's large and diverse asset base, well-known brands, strong free cash flow generation (despite sluggish revenue growth post 9/11) and commitment to debt reduction. Recent allocation of free cash flow is evidence of that commitment, as is Park Place's decision to not declare a dividend.

These factors are offset by several risks to the credit, including major competitive threats in key markets, limited visibility regarding returns on recent and current capital investment initiatives and the potential for free cash flow to be diverted from debt repayment towards other investment opportunities.

Park Place's commitment to debt reduction is expected to mitigate the credit impact of any weakness in operating results over the near term. In the event that operating results continue to trend down and/or capital spending is dramatically accelerated, Fitch would review the outlook.

At June 30, 2003, Park Place's last 12 months leverage and coverage ratios stood at 4.4 times and 3.1x, respectively, relatively flat with fiscal year end 2002 levels, but much improved from fiscal year end 2001 levels when leverage and coverage stood at 4.9x and 2.7x, respectively. This reflects debt repayment of $570 million over the last 18 months.

Looking forward, Fitch expects leverage to peak at 4.5x in 2003 and decline slightly to 4.3x by 2005, due primarily to continued debt reduction. Over this period, heavy capital spending is likely to preclude upside to debt reduction, while challenging operating conditions in key markets are likely to keep operating results relatively flat.

S&P lowers Eldorado outlook

Standard & Poor's lowered its outlook on Eldorado Resorts LLC to negative and confirmed its ratings including its bank loan at BB- and subordinated debt at B-.

S&P said the revision is due to unfavorable market trends affecting the Reno market and the expectation that this trend will not reverse meaningfully over the intermediate term.

Operating results have been negatively affected by the weak economy and the intensely competitive market environment in Reno, resulting in lower customer traffic and overall gaming volumes, S&P noted.

Performance at the Eldorado Hotel & Casino as measured by EBITDA, and excluding the equity in net income in the Silver Legacy, has declined from $42 million for the fiscal year ended Dec. 31, 1999, to $26 million for the fiscal year ended Dec. 31, 2002. In addition, although EBITDA was slightly up during the first six months of fiscal 2003, for the 12 months ended June 30, 2003, EBITDA declined 16% over the same prior year period to $27 million.

S&P said it expects the expansion and proliferation of Native American gaming in northern California, most recently the June 2003 opening of the Thunder Valley Casino, to significantly pressure the Reno market over the intermediate term and expects further dilution at the Eldorado Hotel & Casino, given its high reliance on drive-in visitors.

Still, the affirmed ratings on Eldorado reflect its established and relatively successful operating history, its niche position in the Reno market, modest capital spending requirements, and adequate liquidity, S&P noted. Despite unfavorable market conditions, EBITDA coverage of interest expense was 2.8x, and total debt to EBITDA was 3.0x at June 30, 2003. Credit measures, including the Silver Legacy, at June 30, 2003 were as follows: EBITDA coverage of interest expense at 2.4x and total debt to EBITDA at 3.4x.

Moody's raises outlook on Petrozuata, Cerro Negro, Sincor, Hamaca

Moody's Investors Service raised its outlook to stable from negative on Petrozuata Finance Inc., Cerro Negro Finance, Ltd., Sincrudos de Oriente Sincor CA and Hamaca Holding LLC and confirmed the ratings including Petrozuata's $973 million senior secured bonds at B1, Cerro Negro's $575 million senior secured bonds at B1, Sincor's $1.1 billion of senior secured loans at B1 and Hamaca's $470 million senior secured loans at B3.

Moody's said the revision reflects five months of strong production recovery at the projects after the national strikes in Venezuela; the stable outlook of PDVSA, the national oil company of Venezuela and a participant in all the oil projects; and the moderation of disruption of the oil sector in Venezuela.

The three physically complete projects, Petrozuata, Cerro Negro and Sincor , ramped up production rapidly after gas supplies required for production began flowing again following the conclusion of the national strike, Moody's noted. The Sincor project has completed its 90-day First Stage completion test, which will lower significantly the amounts guaranteed by the sponsors for debt repayment if the project had not been completed. The Hamaca project is currently producing approximately 85,000bpd of early oil, limiting the need for sponsor contributions to the capital needs of the project.

Owing to the magnitude of the PDVSA obligations under the Hamaca project, while the other three projects are completed and are generating substantial free cash flow, the Hamaca project continues to have a lower rating than the operating projects.

S&P cuts Quintiles

Standard & Poor's downgraded Quintiles Transnational Corp. including cutting its corporate credit to BB- from BBB-. The $450 million 10% senior subordinated notes due 2013 remain at B and the $310 million term loan B due 2009 and $75 million revolving credit facility due 2008 at BB-. All ratings were removed from CreditWatch negative. The outlook is stable.

S&P said the action follows completion of a management-led buyout.

Quintiles' ratings reflect the large financial burden the company has assumed to fund its management-led leveraged buyout, as well as customers' inconstant appetite for Quintiles' services, S&P said. The ratings also reflect, however, the company's leading position as a service provider to wealthy pharmaceutical firms.

The company's bank loans are rated the same as the expected corporate credit rating, reflecting only a marginal likelihood of full recovery of principal in event of default or bankruptcy.

Recognizing a preferred stock held by equity investors as a potentially significant call on financial resources, the largely debt-financed buyout weakens lease-adjusted credit measures dramatically, S&P noted. With this preferred stock included as debt, total debt to EBITDA will rise to more than 7.0x from 1.0x, and funds from operations to total debt will fall to about 10% from 85%. Accordingly, the credit profile is dominated by financial concerns.

Quintiles' role as the leading provider of contract research and sales services to mainly pharmaceutical customers remains undiminished, S&P noted. A slowdown in research productivity, however, has led to slackening new product launches, reducing demand for contract sales services sharply, and slowed the growth of contract research services. Contract renewal risk, inherent in Quintiles' business model, is heightened given the company's strategic relationship with Aventis SA (A+/positive), which constitutes 11% of net service revenues. Still, longer-term prospects are promising.

© 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.