Atrium Companies' bank debt slid in secondary trading to 92-94 last Wednesday after Moody's Investors Service downgraded the $375 million bank deal to B2 and the company was hit with a subpoena. The window-manufacturer was subpoenaed by the U.S. attorney in Dallas concerning various accounting and financial records stretching back to 1999. The company also has lower than expected earnings, has not filed its annual 10-K for 2004, the CEO has been placed on a leave of absence and the company's CFO resigned last month. Philip Ragona, general counsel of Atrium, did not return calls.
"We had anticipated Atrium's cash flow to improve in 2005 at a faster rate," noted Paul Aran, v.p. and senior analyst at Moody's. "Although the weather is partially to blame, there are other issues."
The principal focus of the U.S. attorney's investigation is prior to the $700 million acquisition of Atrium in December 2003 by Kenner & Co., UBS Capital Americas,Merrill Lynch Global Private Equity and Jeff Hull, the ceo. Amid the problems over accounting, the company has also announced new EBITDA guidance for 2005 of $90-95 million compared to Moody's expectation it would be above $100 million. Last week the company sold its aluminum screen and steel products business for $12.75 million increasing cash on hand to approximately $19 million, but Aran was unable to comment on this sale.
In the rating, Moody's is also taking into account the investigation and the management changes. "Often, when you have major changes in senior management over a short period of time it's a major warning flag. This combined with their tardy 10-K filing suggests that there is smoke but it is still unclear if this is a large fire," said Aran.
UBS leads the $375 million bank deal after refinancing the debt incurred during the LBO last year (LMW, 12/3). Merrill Lynch Capital is the admin and collateral agent and Antares Capital, Citigroup and General Electric Capital Corp. are co-documentation agents. The facility is split into a $50 million revolver and a $325 million term loan. The term debt is priced at LIBOR plus 2 1/2%. The company also has $174 million of senior discount notes.