Moody's changes outlook on Levi to negative

Moody's Investors Service changed the rating outlook to negative from stable on Levi Strauss & Co and affirmed the company's debt ratings including $750 million senior secured bank facilities at B1 and approximately $1.6 billion of senior unsecured notes maturing through 2012 at B3.

The changed outlook reflects concerns stemming from the company's disappointing second quarter results which indicate negative trends in both pricing and volume of the company's core business. Revised expectations for sales and inventory numbers for the near term have raised new concerns about the company's cash flow, debt balances and leverage measures, and the return which the company is likely to earn on its increased working capital investment, Moody's said.

The ratings continue to reflect a weak level of free cash flow in relation to total debt; intense competitive pressures the company's core business, and the operational and market risks related to the new mass merchant initiative.

The ratings are supported by the company's well-known brand names and reflect the belief that the company has sufficient liquidity under its revolver to finance operating needs and working capital build through the near term.

S&P lowers Buffets' to B+

Standard & Poor's downgraded its corporate credit rating on Buffets Inc. to B+ from BB-. In addition, the ratings were removed from CreditWatch, where they were placed Feb. 5, 2003. The outlook is negative.

"The rating action is based on declining operating performance and cash flow protection measures that are substantially weaker than Standard & Poor's had anticipated," said credit analyst Robert Lichtenstein.

Same-store sales fell 4.4% and operating margins dropped to 9.5% from about 11.5% for the 40 weeks ended April 9, 2003. As a result, for the 40 weeks ended April 9, 2003, EBITDA fell 24% to $71.8 million from $94.2 million, weakening credit measures with EBITDA coverage of interest of 1.8x compared with 2.3x.

Liquidity is adequate with $9.2 million in cash and a $30 million revolver, of which $21 million was available as of April 9, 2003. Maturities are light as the company's $245 million term loan matures in 2009 and amortizes at only 1% per year, and its $230 million subordinated notes mature in 2010.

Moody's downgrades GEO Specialty Chemical's senior implied rating to B3 from B1

Moody's Investors Service lowered GEO Specialty Chemicals, Inc.'s senior implied rating to B3 from B1. The downgrade reflects GEO Specialty's substantial leverage with debt to LTM EBITDA over 9 times, limited liquidity, inadequate coverage of interest expense, thin operating margins, the potential for raw material pricing pressure, and uncertainty over the timing of a recovery in the company's industrial and telecommunications end-markets. The rating outlook is negative.

In addition, GEO's issuer rating was downgraded to Caa1 from B2; its $120 million senior subordinated notes due 2008, to Caa3 from B3; its $20 million due 2005 senior secured revolving credit facility, to B3 from B1; and its $96 million due 2007 senior secured term loan B, to B3 from B1.

The downgrade also reflects Moody's concern over a significant deterioration in GEO Specialty's operating performance stemming from weakness in the company's primary end-markets, especially telecommunications, which has negatively affected demand for the company's gallium products. Moody's said it is also concerned that the prospects for a protracted end-market recovery implies that the company will have extremely weak credit metrics for the intermediate-term. GEO Specialty is highly leveraged with debt to LTM EBITDA of 9.4 times as of March 31, 2003, and debt to capitalization, adjusted for tangible net worth, of 150%. EBITDA coverage of interest expense was 1.2 times over the same period. The ratings are supported by the fact that the company was free cash flow neutral over the LTM period and by modest improvements in the company's non-gallium businesses.

The negative outlook reflects Moody's concerns over the company's ability to improve credit metrics and remain in compliance with the amended covenants governing its senior secured credit facilities. The ratings could be lowered if operating performance further deteriorates, or if the company fails to maintain compliance with amended covenants. The ratings could be raised if the company substantially improves its operating performance and financial liquidity.

Moody's said it also remains concerned over the company's liquidity. In April, the lenders approved an amendment to the credit facility that eased financial covenants through the first quarter of 2004. The amendment also restricted use of the revolver, requiring major shareholder Charter Oak Capital to post letters of credit if borrowings exceed $5 million. Moody's believes that the company will have sufficient liquidity to make the $6.1 million subordinated note interest payment due Aug. 1. However, Moody's is concerned about the prospects for increased term loan amortization ($5 million semi-annually starting June 2004) as well as a return to more stringent covenants in 2004.

The notching of the senior subordinated notes reflects Moody's belief that recovery in a distressed situation could be substantially less than par due to the currently depressed levels of cash flow and relatively few tangible assets (approximately $150 million of book value as of March 31, 2003).

Moody's rates Smithfield Foods' SGL-2

Moody's Investors Service assigned an SGL-2 speculative grade liquidity rating to Smithfield Foods, reflecting the company's good liquidity position over the coming 12 months.

The company's liquidity is supported by positive cash flow from operations, ample availability on its $900 million revolver and wide covenant cushions. Internal cash flow is expected to cover capex requirements during the next year, while revolver availability is expected to be more than sufficient to fund seasonal working capital peaks, backstop maturing debt that is not refinanced and provide a cushion for cash flow shortfalls if the cyclical recovery in hog markets is restrained.

Moody's changes Zale's outlook to stable

Moody's Investors Service changed the rating outlook on Zale Corp. to stable from positive and affirmed the company's debt ratings, including $87 million senior unsecured notes due 2007 rated Ba1 and $225 million revolver expiring 2005 rated Ba1.

The rating action follows the company's announcement that it has commenced a modified Dutch Auction tender offer to purchase up 20% of its outstanding common shares (valued at approximately $307 million) and that it intends to call the remaining $87 million of its senior unsecured notes. The transactions will be funded from cash balances and borrowings under a new $500 million secured revolver, which will replace the existing $225 million unsecured facility.

The outlook revision reflects the expectation that higher leverage will cause debt protection measures to remain weak for the rating category over the near to medium term, but also reflects expectations that Zale will continue to generate positive cash flow that will be used to reduce borrowings.

© 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.