Bleak Environment Prompts Texas Industries Downgrade

Texas Industries, a Dallas-based construction-materials company, is undergoing weak operating performance in a bleak business environment that has resulted in a downgrade and a review for further possible action by Moody's Investors Service. The agency will look at the company's ability to refinance or complete amendments, which, beyond its bank waivers until May, would allow it to more permanently meet its financial covenants. "We're in negotiations with our banks," said Ken Allen, v.p. and treasurer. Moody's anticipates that the rising costs of energy and raw materials will limit the improvement of Texas' near-term performance, creating a shortfall in cash flow that could make it difficult for the company to comply with financial covenants. The company's guaranteed senior unsecured revolver rating fell to Ba3 from Ba2.

Moody's recognizes that Texas Industries strongest cash flow period is at hand, and that operating issues suffered at its cement, aggregate and concrete products segment are unlikely to recur. "In the market for the last several months, we've had just terrible, terrible weather, so we haven't been able to ship as much as we [normally] could," Allen explained. "At some point we'd expect the weather to average out and return to normal," he added. Due to weak business conditions, however Moody's does not believe near-term operating performance will be robust. "It's very uncertain out there," responded Allen. "If Alan Greenspan is hesitant to forecast and predict, I think we are too."

* Merrill Corp.'s successful recapitalization has notched up the company's senior secured credit ratings by Moody's to B3 from Caa1, affecting its $43 million term loan "A" and $120 million "B" term loan. The restructuring included the relaxation of certain financial covenants, $18.5 million in additional investments by major shareholders in exchange for new senior discount notes and an exchange of new senior sub notes. Merrill defaulted on its bank covenants in the third quarter last year. Those defaults have been completely waived or modified. Furthermore, the ratings reflect that the capital structure is supported by a substantial amount of subordinated debt. Moody's further notes that the communication and document services company's ratings outlook is stable, thanks to its improved cost structure and reduced dependence on Wall Street in a time of financial slowdown.