C&A Suffers Snags; Denny's Eats Profits

Operational snags at some plants and an inability to generate earnings from revenue for automotive-interior producer Collins & Aikman Products Co. (C&A) has led to a downgrade by Moody's Investors Service. Difficulties absorbing launch costs and high raw materials prices as well as market share losses by key customers are central factors in C&A's downgrade to B1 from Ba3. The decision affects approximately $540 million in bank debt that includes a $175 million revolver, a $73.9 million term loan "A" and a $292.4 million "B" loan.

While Moody's decision takes into account a series of recent changes in senior management--David Stockman, appointed on Aug. 11, is C&A's third CEO in a year--the dedication of the company's private equity investor to improving all of the company's inefficiencies mitigated the effect of the shake-ups. "Their equity sponsor still appears to be very supportive of the company," notes John Puchalla, a Moody's analyst, regarding Heartland Industrial Partners, founded by Stockman. Proof that management is effectively working to implement operational improvements, increase liquidity and reduce debt will potentially drive up ratings, according to Moody's. Robert Krause, v.p. and treasurer of C&A, did not return calls.

* Standard & Poor's has lowered the corporate credit rating of Denny's Corp. from B- to CCC+ as the company deals with declining operating performance, weak cash flow and a heavy debt burden. Denny's has only $25.5 million available on the company's $125 million revolver with J.P. Morgan. The S&P outlook on Denny's is negative as the company is expected to seek additional sources of funds to meet capital expenditures associated with remodeling and maintenance totaling $35 million for 2003. Denny's same-store sales fell 0.5% in the first half of 2003, following a 1% decline in all of 2002, as operating margins were hurt by declines in sales leverage and increased food, labor and utility costs. Kenneth Jones, v.p. and treasurer of Denny's, did not return calls.