Interstate Seeks Amendments; Arch Coal Gets Negative View

Interstate Bakeries Co. is asking its bank group for amendments to its credit facility as sharp declines in operating results pressure leverage levels and limit liquidity. Proposed bank facility amendments will give Interstate a more comfortable EBITDA cushion, but the company will have to substantially deliver on a restructuring plan to remain within the new proposed covenant levels, according to Moody's Investors Service. Calls to Frank Coffey, senior v.p. and cfo of Interstate, were not returned by press time.

Interstate's $300 million revolver, $375 million "A" loan and the $125 million "B" loan have all been downgraded by Moody's from Ba1 to Ba2 with a negative outlook. J.P. Morgan leads the credit. Looking forward, Interstate is forecast to spend heavily on its systems and technology capital improvement program, $50 million over the next three to four years. The company's significant investment program, in combination with its required term loan amortization payments--$99 million over the next 18 months--is likely to result in increased reliance on the revolving credit facility and higher debt levels in the near term.

The single serve snack line performance has been poor, Moody's notes, attributing this to economic conditions, increased competition from larger consumer product companies and pressure on Interstate's traditional supermarket, convenience store and vending channels from larger retail operations.

* Meanwhile, Standard & Poor's has revised its outlook on Arch Coal to negative from stable. S&P has affirmed its BB+ corporate credit rating. But "the outlook revision reflects S&P's concern over the company's rising unit production costs, coal demand, and upcoming contract negotiations for uncommitted 2004 production," said S&P credit analyst Dominick D'Ascoli. "If coal prices do not improve and costs remain at existing levels, operating performance and credit protection measures will likely be adversely affected, which would result in a downgrade," he noted. Arch Coal is the second-largest coal producer in North America, accounting for approximately 10% of U.S. production. Calls to officials at Arch Coal were not returned.