S&P rates Stratus notes B

Standard & Poor's assigned a B rating to Stratus Technologies Inc.'s proposed $170 million five-year senior unsecured notes due 2008.

S&P said the ratings reflect Stratus' niche market position in the highly competitive global server market, which is dominated by competitors with significantly greater financial resources. These factors are partially offset by a significant base of more stable and recurring service revenues, and improved financial flexibility.

Despite ongoing declines in proprietary product sales, over the past 18 months Stratus stabilized revenues and improved profitability through new product introductions and cost reduction actions, S&P noted. In addition, a stable base of service revenues, which represent approximately half of total revenues, supports profitability. EBITDA margins for the fiscal year ended February 2003 were 17.5%.

Stratus is expected to maintain EBITDA margins in the high teens as a percent of revenue, and EBITDA coverage of interest in excess of 2.5x.

With improved profitability, Stratus generated modest free operating cash flow in the fiscal year ended February 2003, S&P said. With an outsourced manufacturing model, moderate capital expenditures, and expectations of sustained profitability levels, growth in free operating cash flow will be dependent upon revenue growth. Although pro forma total debt (including capitalized operating leases) to EBITDA of about 3.7x is good for the rating level, the company's ability to generate cash and reduce leverage over the intermediate term will be dependent upon successful strategic execution.

Moody's rates Banco Rural notes B2

Moody's Investors Service assigned a B2 rating to Banco Rural SA's $50 million notes, maturing November 2004.

The rating incorporates Banco Rural's fundamental credit quality, which is reflected by its Ba3 global local currency rating and which includes all relevant country risks, Moody's said. The B2 rating reflects the probability of a sovereign default implied by the Brazilian government's sub-investment grade B2 foreign currency bond rating, and the likelihood that the Brazilian government could impose a debt moratorium in the event of default on its own foreign currency obligations.

S&P confirms Mikohn

Standard & Poor's confirmed Mikohn Gaming Corp. including its $105 million 11.875% senior notes due 2008 at B- and removed it from CreditWatch negative. The outlook is stable.

S&P said the action follows the company's announcement that it has successfully completed the private placement of approximately $45 million of common stock and $12 million of warrants to acquire additional shares of common stock, with proceeds expected to be used to reduce $40 million of the company's 11.875% senior secured notes due August 2008.

The transaction was completed in an effort to improve cash flow by reducing interest expense and deleverage the balance sheet such that Mikohn can focus on strategic and growth opportunities. As a result, the company's annual cash interest payments are expected to decrease by approximately $4.8 million per year.

Mikohn's ratings reflect its weak business position with only about 5% of the base of participation or leased machines in North America, limited number of game themes and small cash flow base constraining the company's ability to invest heavily in research and development. These factors are mitigated by Mikohn's niche position in certain segments and a lower interest burden.

Pro forma for the completion of the sale of equity and adjusted for operating leases and various non-recurring charges, total debt to EBITDA at June 30, 2003, was under 4.0x and EBITDA coverage of interest expense was above 1.5x.

Moody's upgrades Telex, rates notes B3

Moody's Investors Service assigned a B3 rating to Telex Communications, Inc.'s planned $125 million of senior secured notes due 2008 and upgraded its existing ratings including its senior implied rating to B3 from Caa1. The outlook is stable.

Moody's said the upgrade reflects the improved financial profile of the company after it completes the contemplated refinancing that will extend debt maturities.

The rating also reflects the competitive nature of the company's markets as well as their sensitivity to economic cycles, Moody's added.

The B3 rating on the pending senior secured notes offering recognizes the benefits these noteholders will receive from their second lien position on the company's domestic assets behind the first lien in favor of a new $15 million senior secured revolving credit facility. However, Moody's notes that approximately 44% of the company's sales are generated by Telex's foreign subsidiaries and these subsidiaries account for 61% of the company's consolidated total assets, which assets will not be pledged to the new noteholders.

The stable rating outlook reflects Moody's expectation that the company's top-line has stabilized after suffering sizable declines in 2001 and 2002. Some of this stabilization comes from exiting certain business lines, but going forward should be aided management's focus on cross-selling its multiple products to its customers. The stable rating outlook also assumes that further manufacturing and working capital efficiencies can be gained as Telex's new management implement lean manufacturing practices.

Pro forma for this refinancing, debt to adjusted EBITDA for the 12 months to September 2003 is 5.5 times. Further, cash interest expense will increase with this refinancing as PIK debt is refinanced with these cash pay notes. Free cash flow (defined as cash provided by operations less capital expenditures) was $14.1 million in 2002, and $10.2 million for the 12 months to June 2003, which represents just 5.4% of total debt pro forma for this refinancing.

© 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.