Panavision, Dayton Superior Downgraded On Liquidity Concerns

Moody's Investors Service has downgraded Panavision's $290 million in secured credit facilities from B3 to Caa1 in the wake of a failed recapitalization effort. With high leverage levels, cash flow constraints and performance below management projections, Moody's expects the Woodland Hills, Calif., company's liquidity to come under pressure by the end of this year. Panavision would need a substantial equity injection or a broader-based balance sheet restructuring in order to remain stable.

"We think they may blow their covenants [without an amendment]," said Christina Padgett, senior credit officer at Moody's. She added that the rating agency is unaware of any discussions by Panavision with its lenders about an amendment. Furthermore, the collateral package of the bank facilities has limitations given the uncertain asset value of the motion picture and television camera and lighting manufacturer's specialized equipment.

Moody's does credit Panavision with a dominant position in the North American film, television and commercial markets and little competition to jeopardize its market share. In addition, the company has offset the surge in digital filmmaking by entering into the market through ventures with Sony and EFILM. Calls to Panavision were not returned.

* Moody's also reduced its rating on Dayton Superior's $202 million senior secured bank facility from Ba3 to B2. The downgrade reflects the slowdown in the commercial construction market, margin pressures, weakened debt protection measures and increasing levels of secured debt that are disproportionate to the company's asset coverage.

The Dayton, Ohio, concrete and masonry construction company has generated negative free cash flow, excluding rental equipment sale proceeds, in each of the past two years as well as the first six months of 2002. Considering the downturn in the commercial construction sector, Moody's expects negative numbers to continue into next year.

Moody's acknowledged that Dayton Superior is in compliance with its bank covenants and has been proactive about requesting covenant relief. But the ratings agency noted that reduced covenant requirements still could be tough to meet given continued market erosion. In addition, the company's program to cut $30 million in operating costs by next year could be compromised by rising raw material costs. Calls to Dayton Superior were not returned.