S&P puts WKI on negative watch

Standard & Poor's said Monday that it placed its ratings on housewares manufacturer and marketer WKI Holding Co. Inc. on CreditWatch with negative implications.

The action affects the company's B corporate credit and senior secured bank loan ratings as well as the company's CCC+ subordinated debt rating.

"The CreditWatch placement reflects Standard & Poor's heightened concerns about challenging industry conditions," said credit analyst David Kang. "Also, WKI's fourth-quarter results might fall below the level necessary for the company to maintain compliance with its minimum EBITDA bank covenant, even though this covenant was lowered in the second quarter through a bank amendment."

According to the company's recent 10-Q filing, net sales for the nine months ended Sept. 28 were 12% lower than last year. The decline is primarily due to volume shortfalls related to the rationalization of the company's retail stores and market share losses in certain categories, the agency said.

In addition, key retailers have had to work off excess inventory from the disappointing 2002 holiday season, and the company is also facing continued softness in the economy. There is some seasonality in WKI's business, and S&P said it is concerned that the company's financial performance will continue to be pressured by challenging industry conditions, particularly in the key fourth fiscal quarter.

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