Airplane-interior producer B/E Aerospace needs to increase cash flow or convince its banks to relax credit covenants, or it is likely to default on its $135 million revolver within a year, according to Moody's Investors Service. "We think they will likely have to get an amendment or a waiver," said David Berge, v.p. and senior analyst at Moody's.
Max Kuniansky, director of investor relations for Fla.-based B/E, declined to comment on whether B/E is working to renegotiate covenants or what such negotiations would entail. "We feel like we have good relations with the bank," Kuniansky said. "In the past, we have always gotten out in front of the issue with our bank group and talked to them before any covenant violation occurred," he noted. "What we stated as of June 30 was that we felt we had adequate liquidity to operate the business," said Kuniansky. "With no maturities on our publicly traded notes until 2008 and 2011, we do have some financial flexibility," he added. As of June 30, B/E's liquidity totaled $120 million, with $50 million remaining on its revolver and $70 million in cash.
Moody's lowered B/E's speculative grade liquidity (SGL) rating to SGL-4 from SGL-3 due to the company's weak liquidity profile and the increased likelihood that it will violate bank covenants. The credit facility, led by J.P. Morgan, is not rated by Moody's. B/E generated negative cash flow through the first half of 2003--on six month revenues of $307 million, the company generated EBITDA of $25 million--and while there are no scheduled debt repayments through 2004, the company faces net interest payments of $64 million on its current outstanding debt of $787 million for 2003, according to Moody's. A J.P. Morgan spokesman did not return calls.
Berge doubts that the company would have the ability to borrow any more. "There's really not much in the way of assets available not already encumbered, and they've already gone to the capital markets in a big way. We don't think that there's that much room for them to go out and do that again," said Berge. B/E has $700 million in senior subordinated notes maturing in 2008 and 2011. "The entire market sector is in a drastic and rather prolonged downturn that's affecting all suppliers to the industry," he added.