Moody's Investors Service has downgraded Solutia's secured credit facility from Ba1 to B1 and its senior unsecured notes and debentures from Ba3 to B3. The rating agency made the move because Solutia and its bank group have yet to hammer out an agreement to refinance the credit facility, which matures on August 13. The company, however, contests the premise for the downgrade. "We are still confident that we will get the amendment and extension approved," said Kevin Wilson, treasurer.
The risks associated with the failure to refinance the agreement include a possible interruption in Solutia's operating performance and the loss of funds from a $223 million senior note offering. The funds from the note offering have been placed in an escrow account that can only be tapped if a two-year bank agreement is intact, Wilson explained. If it is able to successfully refinance its credit, Moody's believes that Solutia's financial performance should improve in the near-term because of increased demand for products from the company's integrated nylon business.
* Orbital Sciences has been cited by Fitch Ratings for liquidity issues surrounding $100 million in convertible notes coming due in October. The company's senior secured bank debt remains at B+, but it has been placed on watch with a negative outlook. Fitch also is concerned with the company's weak near-term cash flow from operations.
While Orbital Sciences has sufficient funds to cover its operational and capital expenditure needs, the company's ability to refinance its convertible notes could be jeopardized if it is not able to meet its operating targets. The company has projected operating cash flow of negative $70 million for the year derived from the payment of $50 million owed to one of its vendors and a $20 million reduction in deferred revenue.
In the longer-term, Fitch thinks the outlook for Orbital Sciences is better and notes that credit quality could improve if the company is able to overcome its near-term problems. "They've done a good job turning the business around," said Craig Fraser, analyst. "They're not there yet, but they've made a lot of progress."
According to the report, the company has potentially valuable assets and technology and it has been improving satellite performance. In addition, Orbital Sciences has reduced debt by $134 million and has improved its interest coverage from 0.9 times to 1.8 times. Calls to Garrett Pierce were referred to a spokesman, who could not be reached by press time.
* Moody's also has changed its outlook for Owens-Illinois from negative to stable in anticipation of solid operating performance, healthy liquidity and a management focused on reducing debt and improving credit measures. The move affects the $100 million term loan and $3 billion revolver, both rated B1, held by the company's Owens-Brockway Glass Container subsidiary and other subsidiaries.
Owens-Illinois has a solid position in the glass sector--with operating margins that are among the highest in the sector--and should be able to maintain increased pricing for 2002, according to the report. The company, however, still remains highly leveraged and suffers from weak cash flow relative to its debt. A company official declined to comment.