S&P rates Avondale Mills notes B+

Standard & Poor's assigned a B+ rating to Avondale Mills Inc.'s proposed $150 million senior subordinated notes due 2013 and confirmed its BB corporate credit rating. The outlook is stable.

S&P said Avondale Mills' ratings reflect very competitive and cyclical global industry conditions, the company's significant debt burden, heavy capital expenditures and customer concentration risk. Furthermore, there is some fashion risk in the apparel fabric segment. These factors are partially offset by the company's fairly diverse product line.

For the past several years, the company's revenues and operating income have declined due to lower volumes, a change in the product mix, an increase in low-priced Asian imports, global oversupply, and the weak U.S. economy, S&P said. Although this can partly be attributed to Avondale Mills exiting low-margin, commodity textile products, the poor retail environment and highly competitive selling prices are still the key drivers of the declines.

To somewhat mitigate the current industry conditions, Avondale has focused on cost savings initiatives and has spent about $120 million since 2001 in capital expenditures to improve its low-cost domestic manufacturing operations. This has resulted in the improvement of margins and profitability measures.

Tighter cost controls, better working capital management, and lower raw material costs have resulted in some improvement in operating profit and credit protection measures despite the current market conditions, S&P said. EBITDA margins improved to 12.1% from 7.9% for the trailing 12 months ended Feb. 28, 2003. Correspondingly, EBITDA to interest coverage (including accounts receivable securitization) improved to 4.2x from 2.2x and total debt (including accounts receivable securitization) to EBITDA was about 3.0x. S&P added that it expects financial measures to remain in this area in the near term given current market conditions.

Moody's lowers Ube Industries outlook

Moody's Investors Service lowered its outlook on Ube Industries, Ltd. to negative from stable including its senior unsecured long-term debt at Ba3.

Moody's said the outlook change reflects its concerns that it may take longer than originally expected for Ube to materially improve its highly leveraged balance sheet through reforms of its business portfolio and aggressive restructuring efforts under the current market environment.

Ube has been focusing on strengthening its core operations of caprolactam and its derivative products, functional chemicals, fine chemicals and aluminum wheels.

The company has, especially in the caprolactam and nylon-6 resin businesses, achieved a global leading position due to its worldwide supply system, based on its major production facilities in Japan, Thailand and Spain.

At the same time, Ube has been aggressively reforming its non-core businesses by divesting them. Furthermore, it is aggressively making efforts to reduce debt by using free cash flow and selling unused assets.

But Moody's said it is concerned that increasing pricing pressures may partially offset the positive results of these strategic actions.

© 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.