Standard & Poor's has lowered the corporate credit rating on AMERCO, parent of U-Haul International, to D from SD (selective default) and the ratings agency says if the company is not able to access financing over the near term it could be forced to file for bankruptcy. The downgrade follows the company's failure to meet a $175 million debt maturity on May 15. "AMERCO's failure to meet the debt maturity due May 15 continues a pattern of defaults on certain debt payments that began in October 2002," said S&P credit analyst Betsy Snyder. An AMERCO spokeswoman did not return calls by press time.
In March, AMERCO announced it had accepted a proposal for a new four-year $865.8 million secured credit facility, from Foothill Capital and Ableco Finance. The proceeds would be used to refinance certain of AMERCO's debt and for working capital purposes. AMERCO indicated it hoped to close and fund the new credit facility in May 2003. However, the end of May is fast approaching and there have been no recent announcements as to the status of this credit agreement, S&P noted. The company has reached standstill agreements with several of creditors, such as Citigroup. S&P states these are scheduled to expire soon and it is questionable whether and for how long the agreemants will be extended. If the company is not able to access financing over the near term it could be forced to file for Chapter 11, S&P concludes.
* Moody's Investors Service has placed the ratings for Collins & Aikman Products Co. on review for possible downgrade following the disappointing first quarter 2003 conversion of increased revenue into profits, together with sharply reduced operating margin expectations for the balance of this year. The rating for C&A's $547 million of guaranteed senior secured bank credit facilities is Ba3.
Reasons for the shortfall in margins and cash flow generation were cited to have spanned a gamut of operating failures, including excessive scrap; premium freight and labor inefficiencies; failure to achieve targeted materials savings and commercial recoveries; launch inefficiencies; and higher-than-expected start-up costs, according to Moody's. These newly identified issues are masking improvements currently being generated from the restructuring actions taken during 2002.
Management maintains that C&A's profit problems are temporary. The company has continued to win new business and to expand the breadth of its customer base that now includes several transplants and foreign OEM's. Additionally, C&A closed a very critical bank credit agreement amendment that relaxed requirements for interest coverage and leverage. Without this amendment, the company would have had a high probability of incurring a near-term financial covenant default, according to Moody's.