Moody's rates Aviall notes B1

Moody's Investors Service assigned a B1 rating to Aviall Inc.'s proposed $200 million senior unsecured notes due 2011. The outlook is stable.

Moody's said the ratings reflect moderate and manageable post-transaction debt levels, low risk that asset protection will weaken materially if additional debt is incurred to fund expansion, the company's demonstrated ability to maintain revenue and margin levels through a difficult market environment and the support of a strong equity sponsor, The Carlyle Group.

Ratings also consider a relatively concentrated product base in the military segment, which represents about one-half of Aviall's revenues, risk of pricing pressures on components sold by Aviall should the company's product base concentrate further and the general weak condition of the commercial aviation market.

The outlook is stable, as Moody's expects no significant changes in operating market conditions, stable gross margins and continued improvement in working capital management. The outlook incorporates the likely increase in senior debt for further inventory build-up, but anticipates that any such increase will be undertaken in a way that does not jeopardize financial flexibility and sustains current margins in Aviall's business.

Post-transaction, debt will represent about 3x pro forma estimated 2003 EBITDA, while pro forma EBIT/interest coverage is estimated to be 3.4x. Moody's also noted the company's improved liquidity position. With a pro forma $4 million cash balance (1Q 2003), Aviall will have total liquidity (cash plus undrawn revolver) of $175 million. Considering the company's minimal capital expenditures requirements, the absence of required debt repayment until 2006 (term of revolving credit facility), the company's liquidity position should be more than adequate to cover Aviall's working capital requirements, while allowing for moderate future acquisition activity.

Moody's cuts Avondale

Moody's Investors Service downgraded Avondale Mills, Inc. and its parent Avondale Inc. including Avondale Mills' $125 million issue of 10.25% senior subordinated notes due 2006 to B3 from B2. The outlook is stable.

Moody's said the downgrade reflects the decrease in cash from operations, significant leverage on a free cash flow basis (defined as total debt, plus the off-balance sheet accounts receivable securitization program, to cash from operations less capital spending and dividends) for the trailing 12 months ending Feb. 28, 2003, weak though improving return on assets and a steady dividend program (currently at 8% of EBIT).

Moody's notes that lower selling prices and intensified foreign competition resulted in sizable declines in Avondale's revenues over the last four years. Extraordinary declines in inventory in fiscal 2001, together with lower cost absorption from volume declines in the current period, contributed to a decline in the level of cash flow from operations in the trailing 12 month period.

However, the ratings are supported by the company's market position as a leading domestic, integrated supplier of apparel textiles, its improved product mix, and recent increase in profitability margins as a result of on-going cost control measures, internalization of yarn production and plant rationalization program initiated in fiscal 2002 which is contributing to improved EBIT return on average assets. Further, the ratings reflect strong financial and operational management, Moody's said.

The stable rating outlook reflects Moody's opinion that Avondale's cost and operational rationalization programs should provide sufficient profit margins and cash levels for the near term.

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