S&P: Unifi on negative watch

Standard & Poor's said it placed its ratings on textile manufacturer Unifi Inc. on CreditWatch with negative implications, including the company's B+ long-term corporate credit and senior unsecured debt ratings.

The CreditWatch placement follows Unifi's recent announcement that it intends to create a wholly owned subsidiary to produce yarns in China and that it is looking for locations to establish this start-up business.

S&P said it is concerned about the additional capital investment for this venture as well as business risks associated with setting up business in a new country.

Another factor contributing to the CreditWatch listing is the company's weakening financial measures. Unit volume and pricing have declined in both the polyester and nylon yarn businesses, and this, along with the company's unabsorbed fixed costs, has put pressure on Unifi's margins. Furthermore, it is uncertain how the upcoming elimination of international quotas on apparel and textile goods will affect Unifi's business profile.

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