Concern over the adequacy of near-to-intermediate-term operating cash flow and limited external liquidity sources has led Moody's Investors Service to downgrade the ratings of J.L. French Automotive Castings. The company's $105.3 million second-lien term loan was downgraded to Caa2 from B3 while its first-lien facilities were downgraded one notch to B3. The first-lien debt includes a $90 million revolver, $132.7 million "B" loan and $95 million "C" loan. J.L. French officials could not be reached by press time.
The company's debt is increasing along with disappointing revenue performance in the face of substantial ongoing capital expenditure needs, Moody's notes. The accumulation of pay-in-kind interest on the second-lien term loan has increased the principal amount of debt and leverage, Moody's adds.
Although the company refinanced its debt in December 2002, it has continued to generate negative free cash flow. While amortization requirements were temporarily alleviated by the refinancing, revenues have fallen far below expectations. Liquidity is weak with cash plus revolver availability at about $20 million. Covenant requirements will also get tighter in September.
* Moody's has placed Journal Register Co.'s ratings under review for downgrade following the announcement to acquire 21st Century Newspapers for $415 million. The purchase price is about 11.5 times EBITDA. Jean Clifton, Journal Register's cfo, disagrees that the company should be on credit watch, but has to get together with Moody's to discuss the acquisition. "We have to meet with them and just tell them the story. I think the rating agencies feel compelled to respond and put credits on watch until they know more details of the transaction. We feel very confident of where we are and how rapidly we'll delever," Clifton said. "I respect that people have systems they need to comply with. I'm very confident that when we have the opportunity to tell them more about the acquisition that they will be happy with our current rating."
The acquisition will be financed with a new $1.05 billion credit facility led by J.P. Morgan. The new facility will refinance Journal Register's existing debt which is made up of a $280 million revolver, $89 million "A" loan and $195 million "B" loan. All of the debt is due in 2006 and is rated Ba1 by Moody's. The company has been at the Ba1 rating since 1998 when it acquired Goodson Newspaper Group, Clifton said. With the new facility, leverage will increase from 3.8 times to 5.4 times.