S&P raises Lennar to investment grade

Standard & Poor's upgraded Lennar Corp. to investment grade including raising its corporate credit rating and $2.185 billion of senior debt to BBB- from BB+ and $254.19 million of subordinated debt to BB+ from BB-. The outlook is stable.

S&P said the ratings and outlook acknowledge Lennar's solid market position, highly profitable operations, successful track record of integrating acquisitions, and sound financial risk profile.

These credit strengths, coupled with management's discipline with regard to debt leverage, should enable Lennar to perform solidly even if housing demand does soften, S&P said. The company, which maintains operations in 16 states, has been in business for more than 48 years and has a long track record of operating successfully through a number of housing cycles.

Lennar's market position has been bolstered in recent years by its aggressive expansion efforts, which included the acquisition of nine builders in 2002 for an aggregate $600 million. Lennar continues to successfully integrate these franchises without leveraging its balance sheet, S&P noted.

The company's financial position is appropriate for the raised rating. Leverage at fiscal year ended November 2002 was 42% debt-to-book capitalization or 28%, net of a sizable level ($731 million) of cash and equivalents, S&P said. The company does have off-balance sheet land financing joint ventures, with an estimated $1.2 billion in total capitalization, which is just less than half the size of Lennar's current on-balance sheet inventory position. However, because the leverage for these ventures is comparable to that of Lennar, even full consolidation results in only a modest increase in leverage to a still acceptable 49% debt-to-book capitalization or 38% net of cash.

Moody's cuts JLG

Moody's Investors Service downgraded JLG Industries, Inc. including cutting its $250 million senior secured revolving credit facility due 2004 to Ba2 from Baa3 and $175 million senior subordinated notes due 2012 to B2 from Ba2. The outlook is stable. The downgrade concludes a review begun on Dec. 20.

Moody's said the downgrade reflects a substantial deterioration in JLG's financial performance and credit profile as a result of continuing weak demand for aerial work platforms.

The downgrades also reflect concerns over the company's large credit exposure to the troubled equipment rental sector through its vendor financing and guarantee activities, as well as concerns over the changing competitive landscape following the recent acquisition by Terex of Genie Holdings, Inc., JLG's main competitor, Moody's added.

Despite the downgrades, however, the ratings continue to recognize JLG's leading market position in the global aerial work platform market, strong brand recognition and premier product quality, Moody's noted.

The stable rating outlook balances the ongoing challenges JLG faces over the near to medium term with its continuing franchise strength and leading market position over the long run.

S&P cuts Potlatch to junk

Standard & Poor's downgraded Potlatch Corp. to junk although it kept its secured bank debt at BBB-. Ratings lowered include Potlatch's $100 million 6.95% debentures due 2015, $100 million 9.125% debentures due 2009 and $100 million 9.625% debentures due 2016, cut to BB+ from BBB-, and $250 million 10% subordinated notes due 2011, cut to BB- from BB+. The outlook is stable.

S&P said the downgrade was prompted by several quarters of poor financial performance and prospects that difficult market conditions and other factors will prevent Potlatch from strengthening credit measures to levels appropriate for the former ratings.

The bank loan rating was affirmed and is now one notch higher than the corporate credit rating because the collateral (which consists of inventory and receivables) and the borrowing base restrictions should assure lenders of full recovery in a default scenario given the recent decline in the committed amount of the revolving credit facility to $150 million, S&P said.

Potlatch, which had 2002 sales from continuing operations of $1.3 billion, is undergoing a strategic realignment through which it plans to focus mainly on its timber resource, wood products, and tissue businesses, S&P noted. It also manufactures bleached paperboard.

The company has reported operating losses before corporate expenses for the past several quarters in all but the timber resource segment, which provides wood fiber for the company's other operations.

Despite cost reduction initiatives, Potlatch's relatively small scale in each business results in a less favorable cost position than most of its peers, S&P said. Even though wood products demand has been relatively healthy, these markets are suffering from oversupply and poor pricing.

Potlatch used most of the $480 million in proceeds from the sale of its coated paper business to reduce debt in 2002, S&P added. Nevertheless, net debt increased by nearly $50 million in the fourth quarter as conditions in most markets remained depressed; the company built pulp, paperboard, and tissue inventories in advance of a potential strike at the Lewiston mill (since averted); and wood products inventories climbed seasonally.

In order to maintain the BB+ corporate credit rating, S&P said it expects Potlatch to achieve and average over the course of an industry cycle: funds from operations to debt of about 20%, EBITDA interest coverage of about 4x, and total debt to EBITDA of about 3x.

S&P confirms AES

Standard & Poor's confirmed AES Corp. including its $1.62 billion senior secured bank facility and $350 million senior secured exchange notes at BB, senior unsecured debt and subordinated debt at B- and trust preferred stock at CCC+. The outlook is negative.

S&P said the confirmation follows AES' announcement that it will recognize charges of $2.7 billion during the fourth quarter of 2002 associated with asset and goodwill impairments related to investments in the U.K., Brazil, and projects under construction that will be sold or terminated.

While the magnitude of the charges are large, S&P said it had projected no cash flows from these assets in coming years, and attributed no value to these assets as collateral for the senior secured exchange notes and bank facility.

In determining AES' rating and outlook, S&P said it estimated FFO/interest coverage in 2003 of between 1.5x and 1.7x and FFO/debt of 14%-15% given a range of projected distributions from subsidiaries from $900 million to $1.0 billion. Assuming capital expenditures of $200 million, S&P estimates free cash flow, excluding any proceeds from asset sales, of $50 million to $150 million.

Also, S&P is assuming AES will continue to make progress on its asset sales program. The proceeds will provide the majority of funds necessary to pay down 50%, or approximately $810 million, of the senior secured bank facility and 40%, or approximately $103 million, of the senior secured exchange notes by Nov. 25, 2004, as mandated in those financing documents.

Any significant negative deviation from S&P's projected cash flows (without exceeding debt paydown goals) or delay in executing asset sales and paying down debt (without exceeding cash flow projections) will likely lead to a downgrade.

The negative outlook reflects the need for AES to execute its asset sales plan and stabilize its parent operating cash flow in order to meet maturities in 2004 and regain access to the capital markets, S&P added. It also reflects the uncertainty surrounding the outcome of negotiations with BNDES regarding approximately $900 million of debt maturities at AES Elpa and AES Transgas, the holding companies of Eletropaulo, in 2003.

S&P says Smurfit-Stone unchanged

Standard & Poor's said Smurfit-Stone Container Corp.'s ratings are unchanged including its B+ corporate credit rating with a stable outlook after the company reported fourth-quarter earnings in line with expectations and said it will acquire the 50% of Canadian packaging manufacturer Smurfit-MBI that it does not already own.

Operating results were relatively favorable given continued weak economic conditions and pricing, S&P observed. The positive effect of lower recycled fiber costs, slightly higher product prices and market share gains more than offset the high cost of production downtime and higher energy costs, and Smurfit-Stone was able to reduce debt by $160 million during the quarter. In addition, the recently acquired Stevenson, Ala., corrugating medium mill is performing somewhat better than expected.

While the company is well-positioned to benefit from any pick-up in demand, near-term results could weaken somewhat due to rising energy, raw material, and employee benefit costs, S&P said.

In exchange for its European packaging operations, Smurfit-Stone will receive Jefferson Smurfit Group plc's 50% ownership interest in Smurfit-MBI and a payment from JSG of $190 million, which it plans to use to reduce debt. This transaction, the net financial effect of which should be fairly neutral, solidifies Smurfit-Stone's leading North American market position, S&P said.

S&P says Ball unchanged

Standard & Poor's said Ball Corp.'s ratings remain unchanged including its BB+ corporate credit rating with a negative outlook in response to the company's report of better than expected results for the year 2002 and its expectation of further strengthening in 2003.

S&P said it expected the company to focus on reducing debt and improving its credit measures following its December 2002 debt-financed acquisition of Schmalbach-Lubeca AG for approximately $899 million.

Moreover, S&P said it is concerned that there are still integration and other challenges that could prevent the company from realizing its plans.

Should the company appear to be tracking its free cash flow estimate of $250 million to $300 million and apply most of it toward debt reduction through this year and management remain committed to a more moderate financial policy, Ball's outlook could be revised to stable during this period, S&P added.

Moody's rates Eye Care Centers loan B2, raises outlook

Moody's Investors Service assigned a B2 rating to Eye Care Centers of America, Inc.'s new $25 million secured revolving credit facility due 2006, $55 million secured term A loan due 2005 and $62 million secured term B loan due 2007, raised its outlook to positive from stable and confirmed its existing ratings including its total $129.7 million senior subordinated notes due 2008 at Caa1.

Moody's said the higher outlook follows the easing of liquidity pressures from the extension of the maturing term debt and revolving credit facility as well as the company's improved financial performance.

Moody's said the ratings reflect Eye Care Centers' high effective leverage; its historically modest cash flow generation; and the market advantages held by its two larger competitors, Pearle (owned by Cole National) and LensCrafters (owned by Luxottica).

The ratings also reflect the competitive pressure from discount stores, which are continuing to add prescriptive eye care services which have a particular impact on specialty optical chains such as Eye Care Centers with high local geographic concentration and value pricing strategies, Moody's said.

Continued development of surgical procedures and alternative products present an ongoing constraint to the growth potential of the entire eye care sector.

Positives are Eye Care Centers' relatively strong fixed charge coverage; its good presence in individual markets; and its potential to benefit from an aging population and from the increased role of managed care programs, Moody's added.

While managed care optical plans pressure pricing, they are also likely to increase traffic to larger chains that provide a broader scope of locations, market position, and information systems.

Moody's also sees benefit from the active involvement of Thomas H. Lee Partners, which invested $100 million in Eye Care Centers in 1998 and purchased $10.5 million of Eye Care Centers' senior subordinated notes in April 2002.

S&P rates Penn National loan B+

Standard & Poor's assigned a B+ rating to Penn National Gaming Inc.'s new $100 million revolving credit facility due 2008, $100 million term A loan due 2008, $600 million term B loan due 2009, $100 million second draw term B loan due 2009 and $100 million second priority facility due 2010, lowered its existing senior secured rating to B+ from BB- and removed it from CreditWatch with negative implications and confirmed its existing subordinated debt at B-. The BB- rating on the company's existing $75 million bank facility remains on CreditWatch with negative implications and will be withdrawn once the new facility is in place. The outlook on Penn National is stable.

S&P said the downgrade reflects the significant amount of senior secured bank debt in the company's pro forma capital structure.

Hollywood Casino Corp.'s senior secured debt at B remains on CreditWatch with positive implications.

Proceeds from Penn National's proposed bank facility, in addition to excess cash balances, will be used to fund the pending purchase of Hollywood Casino and its Hollywood Casino Shreveport subsidiary, refinance Hollywood Casino debt, and for transaction-related expenses.

S&P said Penn National's ratings reflect its good market positions, continued steady operating results, expected free cash flow generation, improved geographic diversity as a result of the Hollywood Casino acquisition, and a good pro forma financial profile for the rating. These factors are offset by competitive conditions in its markets served, the company's relatively aggressive growth strategy, and potential challenges in managing a much larger entity.

The purchase of the Hollywood Casino assets provides Penn National with entry into three of the largest riverboat gaming markets in the U S. and significantly increases the company's cash flow base, S&P noted.

The majority of Hollywood Casino's cash flow comes from its Aurora, Ill. facility. This asset has been a steady cash flow generator and has benefited from solid market growth, readjusted marketing programs, and, most recently, the opening of the barge facility in mid-2002. The solid performance has come despite a significant gaming tax increase in Illinois and the commencement of dockside gaming in neighboring Indiana, increasing the competitive environment, S&P said.

The Tunica property has performed well in a mature and intensely competitive market environment, S&P added.

Pro forma consolidated EBITDA (including Hollywood Casino Shreveport) for the 12 months ended Dec. 31, 2002, is expected to exceed $250 million, driven by continued strong performance at the Charlestown facility and steady performance at the company's other facilities, including the Hollywood Casino assets, S&P said. Pro forma for the transaction (including Hollywood Casino Shreveport), consolidated total debt to EBITDA is about 5x, and EBITDA coverage of interest expense is over 2x. Excluding Hollywood Casino Shreveport, consolidated total debt to EBITDA is about 4.5x, and EBITDA coverage of interest expense close to 3x.

S&P rates Nexstar B+

Standard & Poor's assigned a B+ rating to Nexstar Broadcasting Group's new credit facility including Nexstar Finance LLC's proposed $170 million senior credit facilities and Mission Broadcasting Inc.'s $85 million senior credit facilities and confirmed its existing ratings including Nexstar Finance Holdings LLC's senior unsecured debt at B- and Nexstar Finance LLC's senior secured debt at B+ and subordinated debt at B-. The outlook is negative.

S&P said Nexstar's ratings reflect the company's cash flow diversity from major network-affiliated television stations in small and midsize markets, the stations' decent positions in most markets, good discretionary cash flow potential of the business, and cash flow improvement achieved at acquired stations.

Offsetting factors include high financial risk from aggressive financial policies, the potential for future station purchases, and the mature revenue growth prospects in the competitive television advertising environment, S&P added.

The absence of political and Olympic ad dollars are also expected to constrain cash flow growth in 2003, S&P noted. Although favorable trends in TV advertising are expected to continue, demand could be vulnerable to economic cycles and escalating political tensions overseas.

The company's covenant cushion is modest, and generating positive operating momentum will be important for maintaining compliance with financial covenants this year, S&P said.

Pro forma for the planned acquisition, Nexstar will own and operate 16 television stations and will provide management and sales services to an additional eight stations in small and midsize markets reaching about 3.5% of U.S. television households, S&P said.

Nexstar's EBITDA margin is expected to be around 40%, about average, but lower than some of its peers due to its underperforming station acquisitions and benefits from duopoly markets that have not been realized, S&P said. The company is not heavily dependent on more volatile national advertising. Pro forma EBITDA coverage of interest expense plus preferred dividends is expected to be about 1.5x in 2002. Pro forma total debt plus debt-like preferred stock divided by EBITDA is expected to be over 7x at Dec. 31, 2002. This leverage ratio is expected to increase to more than 8x in 2003 due to the absence of political and Olympic ad dollars.

Moody's rates Therma-Tru's loan Ba3

Moody's Investors Service rated Therma-Tru Holdings Inc.'s $330 million senior secured credit facility at Ba3. The ratings outlook is stable.

The loan consists of a $75 million five-year revolver, of which $4 to $5 million will be funded at closing, and a $255 million term loan B. Proceeds will be used to refinance existing debt. Security is all available assets of the company and its domestic subsidiaries and a pledge of 100% of the capital stock of the company and its domestic subsidiaries and 65% of the voting capital stock of all foreign subsidiaries.

Ratings reflect the company's heavy debt load, negative net worth, sales concentration to two customers, narrow product line and exposure to the cyclical nature of the new construction and remodeling markets, Moody's said.

On the plus side, the company has a leading market position in both fiberglass residential entry doors and in the overall residential entry door market. Furthermore, the company is increasing its market share, has significantly expanded capacity over the past few years and generates outstanding returns on a consistent basis, Moody's added.

S&P rates National Bedding loan B+

Standard & Poor's rated National Bedding Co.'s $235 million credit facility at B+. The outlook is positive.

The loan consists of a $60 million revolver due 2008, a $75 million term loan A due 2008 and a $100 million term loan B due 2008. Security is substantially all company assets.

Ratings reflect the company's aggressive debt leverage, integration risk of the Sleepmaster acquisition and narrow business focus. Mitigating these concerns are the strong Serta brand franchise, wide domestic distribution and management's solid performance record, S&P said.

Pro forma for the acquisition, EBITDA to total debt should be about 3.4 times, with coverage of about 5.4 times.

Fitch cuts Asarco

Fitch Ratings downgraded Asarco Inc.'s bonds due 2003, 2013 and 2025 to C from CCC-.

Fitch said the downgrade signals its view that the company will likely not make a $100 million principal payment on Feb. 3 for its 2003 notes. The ratings of these bonds remain on Rating Watch Negative.

Fitch said its ratings of Asarco's bonds reflect the company's high debt leverage, relatively high cost position in the mining industry and the restructuring of debt with creditor banks, which is currently in default.

Asarco is currently in negotiation with a series of parties about the potential sale of its 54% stake in Southern Peru Copper Co. to Americas Mining Co., a subsidiary of Grupo Mexico SA de CV. A successful sale would likely lead to the repayment of the $100 million due in 2003. At this time, it looks like the negotiations will not be finalized by the date the payment on those notes is due, Fitch said.

S&P says King unchanged

Standard & Poor's said King Pharmaceuticals Inc.'s ratings are unchanged including its corporate credit rating at BB+ with a stable outlook in response to the company's plan to acquire U.S. and Puerto Rican rights to sleep drug Sonata and muscle relaxant Skelaxin from Elan Corp. plc.

The total of the transaction, expected to close in the first quarter of 2003, is $850 million. King Pharmaceuticals will fund the purchase with on-hand cash and use of an undrawn $400 million senior secured credit facility.

The company continues to maintain a significant amount of financial flexibility, S&P noted. It had $900 million of cash on hand as of Sept. 30, 2002. It also has $600 million still available under a universal shelf filed in 2001 and free operating cash flows that amounted to $276 million for the nine months ended Sept. 30, 2002. King faces no significant near-term debt maturities.

The acquisition will further diversify the company's drug portfolio (Sonata and Skelaxin collectively generated $238 million in sales in 2002), and it significantly increases King's self-marketing capability, S&P said.

S&P cuts XM Satellite

Standard & Poor's downgraded XM Satellite Radio Holdings Inc. including cutting its corporate credit rating to SD from CCC- and its $325 million 14% senior secured notes due 2010 to D from CCC-. The ratings were removed from CreditWatch with negative implications.

S&P said the downgrade follows XM's completion of its exchange offer on the senior secured notes at par for new 14% senior secured notes due 2009.

S&P said it viewed the exchange as tantamount to a default since the new notes are structured with interest payments deferred for three years, which is viewed as a significant concession from the original terms.

The completion of the exchange offer and the new financing transactions have significantly improved XM's near-term liquidity and capital structure, S&P said.

The rating agency will meet with XM's management in the near term to reevaluate the company and will assign new corporate credit and debt ratings based on the new capital structure and the company's progress in executing its business plan.

Fitch puts Flowers Foods on positive watch

Fitch Ratings put Flowers Foods, Inc. on Rating Watch Positive including its senior secured credit facility at BB+.

Fitch said the watch placement follows Flowers' announcement that it has agreed to sell Mrs. Smith's frozen dessert business to The Schwan Food Co. for $240 million pre-tax in cash. Proceeds from this sale will be used primarily to pay down debt. Total debt at Dec. 28, 2002, was approximately $250 million, including $180 million of bank debt. Flowers' cash balance was $70 million.

The sale is highly beneficial to the company's credit profile, Fitch said.

Mrs. Smith's frozen dessert business is seasonal, has high working capital requirements and has experienced financial and operating difficulties. In addition to anticipated debt reduction, the divestiture should lead to greater cash flow stability, Fitch noted. While risk of significant debt financed acquisitions, share repurchases or large dividend payments will increase with the lifting of financial covenants associated with the bank facilities, a major leveraging event is unlikely in the near term.

© 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.