Steady margin deterioration, financing costs, and the company's highly leveraged position have led Fitch Ratings to downgrade Owens-Illinois' bank debt and senior secured notes to BB- from BB. The margins for the company's glass business have been impacted by cold weather, a national strike in Venezuela, higher energy costs and declining non-cash pension income, according to Fitch. Margins have been further impacted by intense pricing pressure on the company's plastic operations.
The ratings downgrade also reflects the significant claims that Owens-Illinois' asbestos liabilities hold against its cash flow. Fitch notes the company spent 10% less, or $221.1 million, on asbestos-related payments in 2002 compared to 2001. In addition, Owens-Illinois' management anticipates these outflows will continue to decline. But the absence of meaningful insurance proceeds indicates that near-term net cash outflows will continue to be high. Due to the combined effects of margin erosion and outflows, debt reduction is expected to be minimal. Total debt for Owens-Illinois was $5.76 billion at the end of June and its secured debt-to-EBITDA multiple rose from 2.78 times at the end of December to 3.12 times at the end of June. An investor relations spokesman did not return calls.
* Standard & Poor's has lowered the corporate credit rating on MGM Mirage to BB+ from BBB-, anticipating that credit measures will remain weak over an extended time frame. This latest move follows the company's announcement that it has continued to repurchase shares of its common stock in the third quarter. While S&P notes that the company has paired debt reduction with stock repurchases, reducing debt by $106 million during the first half of 2003, the timing for reducing debt extends beyond previous expectations. Going forward, S&P states that economic conditions appear to be improving and the operating environment in the gaming industry is expected to be better in 2004. In addition, as one of the leading companies in the industry, MGM Mirage is also likely to participate in industry consolidation or expansion opportunities. Supporting the ratings are the company's high-quality assets, experienced management team, and leadership position. An MGM Mirage spokesman did not return calls.
| Other Ratings Actions* | |||
| Borrower | Rating | Action | Agency |
| Key Components | B+ | Positive to Stable | S&P |
| B/E Aerospace | SGL-4 | Lowered from SGL-3 | Moody's |
| *Thurs, Sept. 4 through Wed, Sept 10 |