Broadwing Flirts With Covenant Breach; Chemical Co. Faces Refi Risk

Moody's Investors Service has placed all of Broadwing's ratings on review for a possible downgrade, reflecting concerns that the company's funding needs and covenant compliance demands will continue to fall under pressure in the near term. Ratings under review include the Cincinnati-based communications service provider's senior secured debt--comprising three term loans and a revolver totaling $2.3 billion--rated Ba3, as well as $46 million in senior subordinated debt rated B3.

Broadwing's tight liquidity position, amortization requirements and covenant pressures leave little room for error in its financials. John Page, senior analyst at Moody's, said there are questions of availability under the company's existing facility, especially given covenant tightness that would be further compromised if Broadwing draws down additional funds from its line. In addition, the company needs to consider refinancing and account liability as the facility's 2004 expiration date approaches, he noted.

Moody's will consider whether incremental funding or cash conservation measures can improve Broadwing's weak financial position. The company recorded $221 million in liquidity as of this past June, with leverage standing at 2.78 times EBITDA. The maximum leverage covenant on Broadwing's credit facility was reduced to three times at the beginning of this month, giving the company a very slim margin for further financial loss. Calls to Broadwing were not returned.

* Fitch Ratings has downgraded Mississippi Chemical's $200 million senior secured credit facility from B+ to CCC+, reflecting refinancing risk in anticipation of the facility's November 2002 expiration date. Fitch noted that there is $110 million outstanding on the revolver as of this past June, and the Yazoo City, Miss., fertilizer maker is still subject to weak financial performance during the sector's present downturn.

"There's a weak fertilizer market, with no bounce back until next spring," said Randall Biang, senior director at Fitch. He explained that there is a crunch on the market due to high material costs and no opportunity to raise prices. In particular, Mississippi Chemical has been hurt by high costs for nitrogen, which accounts for 60% of sales, causing the company to report losses for the past three years, he noted.

The rating remains on negative watch with a potential for further downgrades if the company's refinancing is further hindered or is unsuccessful. Biang said he is confident that Mississippi Chemical will be able to refinance the facility. In fact, the last time Fitch spoke with the company, it reported that the refinancing plans were coming along well, he noted. Calls to Mississippi Chemical were not returned.