Moody's Investors Service downgraded the ratings of MAGNATRAX's $268 million senior secured credit facility from Ba3 to B3 after its subsidiary, Vicwest, was forced to miss a Sept. 10 interest payment on its subordinated notes. There are cross default clauses, noted Joseph Snider, Moody's analyst. Vicwest's banks, which include CIBC World Markets as lead lender, would not permit the interest payment as the company is in negotiations to amend covenants that it had breached. The precise covenants involved could not be determined.
The company was in violation of its covenants after an agreement, whereby its sponsor Onex Corp. would inject more than $10 million into the company, expired on Aug. 31. Onex was looking for the banks to give the company further covenant relief, Snider explained. Vicwest has 30 days to amend the covenants, but even if it is successful, Moody's will keep the company on review for a further downgrade due to the challenging conditions facing the metal construction industry.
Charles Blackmon Jr., cfo, declined to comment on questions regarding Moody's report. He pointed to the company's press release, which stated, "Vicwest continues to be in discussions with its senior lenders to rectify an event of default under its senior credit facility due to non-compliance with financial covenants."
* Moody's also downgraded Magellan Health Services' bank debt from B2 to B3 due to concerns over the company's ability to refinance its bank debt and avoid violating one of its covenants before a Sept. 30 deadline. The company is currently in discussions with its lending group, but a failure to complete the deal could lead to an acceleration of debt repayments.
In addition to the risks that surround Magellan's refinancing, Moody's is also concerned with the company's high leverage and its limited liquidity position, as well as the uncertainties that surround the renewal of a contract with Magellan's largest customer, Aetna. Calls to Mark Demilio, cfo, were referred to a spokeswoman who did not return calls by press time.
* Acterna's senior secured bank loan rating was lowered from B- to CCC+ after Standard & Poor's completed a review of the company's credit quality and obligations. This follows the completion of a tender offer for $109 million of subordinated notes at the current market price of approximately 22 cents on the dollar. The company is suffering from the deteriorating telecommunications end markets, EBITDA losses, and has $869 million in total debt.
The rating agency also revised the company's corporate credit rating to CCC+ from SD, or selected default. S&P had previously switched the company to SD because it believed that tendering notes at a severe discount was a violation of the debt agreement, explained Andrew Watt, S&P analyst.
Acterna's management has been reducing debt, including a $128 million pay down on the company's term loan with proceeds from an asset sale in August. Still, the company will face a stricter minimum EBITDA covenant over the next two quarters, noted Watt. Calls toJohn Ratliff, cfo, were not returned by press time.