S&P puts National Waterworks on watch

Standard & Poor's put National Waterworks Inc. on CreditWatch negative including its $200 million 10.5% senior subordinated notes due 2012 at B and $250 million term loan due 2009 and $75 million revolving credit facility due 2008 at BB-.

S&P said the action reflects the company's planned dividend payout of $110 million to equity sponsors.

Pending bondholder approval, National Waterworks' senior secured term loan B will increase to $325 million from $245 million. Proceeds, along with cash on hand, will be used to fund the special dividend.

If the transaction is completed as proposed, the corporate credit rating and bank loan rating on National Waterworks will be lowered to B+ and the subordinated debt ratings lowered to B-, reflecting the increased leverage, S&P said. The outlook at that time would likely be stable.

Although the ratings are supported by National Waterworks' average business position, the special dividend would result in a significant increase in National Waterworks' debt load, further exacerbating an aggressive financial profile.

While cash flow generation has remained relatively stable, the company has not met S&P's expectations for debt reduction, as the special dividend will likely curtail balance-sheet improvement for several quarters beyond S&P's original expectations. National Waterworks will be aggressively leveraged, with pro forma total debt to EBITDA of about 5.2x and EBITDA to interest coverage of about 2.6x.

Moody's lowers National Waterworks outlook, rates loan B1

Moody's Investors Service lowered its outlook on National Waterworks to negative from stable, assigned a B1 rating to its $80 million add-on senior secured term loan B and confirmed the existing ratings including its $245 million senior secured term loan B due 2009 and $75 million senior secured revolving credit facility due 2008 at B1 and $200 million senior subordinated notes due 2012 at B3.

Moody's said the original B1 rating and stable outlook reflected its expectation that the company would de-leverage. The change to a negative outlook reflects management's decision to re-leverage 11 months after its spin-off from US Filter in order to pay a special dividend.

The term loan add-on and payment of the dividend increases leverage back up to levels similar to its initial capitalization at the time of the spin-off. Moody's said it had expected leverage to decrease and be sustained at lower levels following the spin-off.

Furthermore, the increased leverage makes it appear that covenants could be tight around the end of 2004 when the company's covenants tighten under the credit agreement, Moody's said.

The ratings reflect the company's high leverage, the re-leveraging planned to pay a dividend with proceeds from the term loan add-on and its short stand-alone operating history, Moody's said. The ratings also consider the company's strong competitive position, as well as ongoing expected stable demand for its products, and plans to de-leverage.

The company's leverage is high and balance sheet weak, Moody's commented. Pro forma for the transaction 2003 debt to EBITDA would be approximately 5.2x. The company has few tangible assets. Property, Plant, and Equipment at June 30, 2003, was $21 million versus total assets of $845 million, while goodwill and intangibles of $456 million represented 54% of assets. Pro forma EBIT coverage of interest would be 2.44x and proforma EBITDA less capital expenditures coverage of interest would be about 2.6x.

S&P puts SOLA on developing watch

Standard & Poor's put SOLA International Inc. on CreditWatch with developing implications including its €234.3 million 11% senior notes due 2008 and $100 million 6.875% senior unsecured notes due 2008 at BB-.

S&P said the action follows SOLA's announcement that it is exploring options for retiring its 11% euro-denominated notes.

S&P said it will provide interim ratings guidance once SOLA clarifies its plans.

S&P keeps CSG on watch

Standard & Poor's said CSG Systems Inc. remains on CreditWatch negative including its corporate credit at BB- after an arbitrator's award to Comcast Corp. of $120 million and lowering of pricing under the contract between the two companies.

CSG announced that it will not be able to meet certain financial ratios and covenants under its credit agreement as a result of the $120 million payment to Comcast and has initiated discussions with its bank group to obtain the necessary waiver and/or amendments. CSG has already paid $65 million of the $120 million, and as of Oct. 24 it had approximately $90 million in cash on its balance sheet.

This cash, combined with cash flow expected to be generated from operations, should be sufficient to meet cash requirements (including the balance of the damages) through at least 2004, S&P noted.

S&P says Ball unchanged

Standard & Poor's said Ball Corp.'s ratings are unchanged including its corporate credit at BB+ with a negative outlook on the announcement that it recorded solid earnings growth in the third quarter of 2003 over the previous year.

Earnings growth was supported by contribution from the Ball Europe acquisition, partially offset by lower demand (because of unseasonable weather conditions) affecting North American beverage can and plastic container volumes, and continued challenges related to the deposit framework in the German beverage can market.

Still, the earnings trend is positive, and with reduced capital expenditures the company is expected to generate strong free cash flows of about $275 million in 2003, predominantly to be used to fund debt reduction, S&P said. Credit measures are expected to maintain an improving trend, and the potential for a negative rating action clearly will be reduced as the company makes progress towards restoring its financial profile.

© 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.