Moody's Investors Service has downgraded Arrow Electronics' senior unsecured debt rating and its $625 million credit facility from Baa1 to Baa3. The downgrade reflects Moody's expectation that operating performance and debt protection measures will remain under pressure over the intermediate term. Moody's noted that Arrow has had weak earnings in its current six-quarter downturn, and the prospect for revenue growth is limited over the next year because of uncertain global economies and cautious information technology and consumer spending.
Paul Reilly, cfo of Arrow, blamed the Melville, N.Y., company's recent performance on the weak economy. "It's totally because of the fact that there's a limited visibility as to when the economy's going to turn around," he said of Moody's assessment. He noted that there is no accurate way to tell when the companies that Arrow distributes for, which include Intel and Motorola, will improve. But Reilly was upbeat about Arrow's outlook, mentioning the more than $600 million of cash on its balance sheet and its strong liquidity. "We just prepaid some notes due in the fourth quarter of next year," he added.
Moody's does credit Arrow with a stable outlook, considering its leading market position and acceptable liquidity status to meet debt maturities next year. In addition, Arrow's cash flow from operations after capital expenditures since the beginning of its downturn in 2000 has stopped the company from tapping into its bank facility or using any funds from its $750 million accounts receivable securitization program. "They're minimizing cost in a demand-starved environment," saidRichard Lane, senior v.p. of corporate finance at Moody's. "[Therefore] I don't foresee a move into non-investment grade."
* Standard & Poor's has lowered all of Georgia-Pacific's ratings to speculative grade as the company continues to face debt piles too heavy to ease in accordance with its targeted reduction schedule. The company's long-term corporate credit rating was downgraded from BBB- to BB+ and its short-term credit rating plunged from A3 to B. The rating agency issued the downgrade following a negative watch announced on Sept. 12.
The Atlanta paper and building products giant holds about $12 billion in debt, despite paying down nearly $4 billion since instituting a debt reduction schedule in 2000. S&P doubts Georgia-Pacific will have any further reductions in the near-term due to weak market conditions, as well as problems concerning the company's plans to split into two separate entities. Georgia-Pacific announced plans to spin off the company's consumer products business from its building supply business, but the plan is under scrutiny. The company also shelved a stock offering expected to raise $1 billion to pay down debt, compounding its already dire financial outlook during its building product division's seasonal dip in demand. Calls to Georgia-Pacific were not returned.
*Fitch Ratings has downgraded Fleming Companies' senior unsecured debt from BB to BB- and its $975 million secured bank facility from BB+ to BB. The downgrade comes in the wake of the company's Sept. 24 announcement that it will divest its retail business in order to reduce part of its $2.2 billion debt burden.
Michelle Barishaw, analyst at Fitch, said the divestiture causes concern because of the $2.3 billion in lost revenue, although acquisitions made by Fleming earlier in the year could somewhat offset those losses. Fitch is further concerned about the delay in Fleming's anticipated credit protection measures, as well as the high number of transactions involved in completing the divestiture.