Moody's Investors Service is placing the ratings for Corrections Corporation of America under review for possible upgrade, due to a proposed refinancing and the improving financial profile of the company. If the Lehman Brothers led-refinancing is successful and the loan covenants remain the same, Moody's anticipates a one-notch upgrade of all its ratings, including the B2 rated senior secured deal. The loan is $695 million and is being accompanied by a $150 million note offering. The loan currently has $789.7 million outstanding and matures on December 31, 2002.
There are still concerns, such as the inherent volatility of operating in a specialty sub-sector where demand for space is derived from local, state and federal contracts, and the correction facilities offer no realistic alternative uses. Other concerns include its reliance on secured debt, which is the company's primary source of funding. But, CCA's current ratings reflect the successful re-organizational effects from its conversion to a C-Corporation from a REIT, along with new management's progress in addressing the firm's liquidity needs, operational challenges, and the skipping of its preferred stock Series A dividends. Calls to Karin Demler, investor relations coordinator, were not returned by press time.
* The ratings on Home Interiors & Gifts have been upgraded from Caa1 to B3 affecting $162 million of secured term loans and a $30 million revolver. A substantially improved financial profile is a result of a debt reduction engineered by Hicks, Muse, Tate & Furst last year and a demonstrated upturn in the operating results. Moody's believes that HI&G needs to continue to improve the efficiency of its operations and working capital usage further in order to significantly reduce leverage. This is still high and there is insufficient asset coverage of debt, Moody's notes. Furthermore, there are also opportunities and risks associated with new business areas, including the recent acquisition of bankrupt House of Lloyd. Spokesman Joey Carter did not return calls.
The company is currently pursuing various new initiatives including expansion to the Canadian market, further development of the Mexican market, the implementation of a new Enterprise Resource Planning system (ERP), and integrating the House of Lloyd. Risks include possible business interruption and increased cost caused by delays or problems associated with the implementation of the new ERP system, the need to further build inventories for new product launches, and the spreading of management resources, Moody's comments.
* Orius a telecommunications infrastructure company, has been placed on credit watch with negative implications by Standard & Poor's, as it teeters on the edge with an SD rating. Orius is trying to negotiate an amendment and waiver to its existing bank facility and if it cannot obtain the amendment and waiver, the bank loan rating will be changed to D. If the amended terms include a delay in interest or principal repayment, it would be viewed as tantamount to a default and both the corporate credit and bank loan ratings would be changed to D, according to S&P. The senior secured bank lenders stopped payment of interest on the company's notes earlier this year. Robert Agres, cfo of Orius did not return calls.