Domino's improved operating performance has triggered an upgrade from Moody's Investors Service, which raised the B1 rating on the company's $474 million bank debt to Ba3. Moody's also gives the company a stable outlook as the ratings agency anticipates continued improvement in operations and the reduction of debt.
Investors should look for improvements in free cash flow and leverage to boost the ratings. Cash flow from operations is expected to cover both capital expenditure and service the company's debt. Conversely, if performance was to decline, if the company keeps a large amount outstanding on its revolver or if several of the company's franchises were to experience financial difficulties, a downgrade would be in order.
The loan is backed by a priority lien on virtually all of the company's assets, and Moody's believes that the asset value is greater than the bank debt. But it concludes that a distressed scenario would harm intangible assets such as the Domino's trade name. The credit comprises a $226 million pro rata, a $124 million term "B" loan and a $124 million term "C" loan. The company is required to make a term loan prepayment with 50% of excess cash flow, according to Moody's. Calls toHarry Silverman, Domino's executive v.p. and cfo, were not returned by press time.
* Viasystems has received a 90-day forbearance from the lenders of its senior secured credit facility after a missed interest payment due for its senior subordinated notes caused a cross default. Fitch Ratings has changed the bank debt's status from Rating Watch Negative to Rating Watch Evolving pending the outcome of the company's recapitalization plan but has lowered the rating on its senior subordinated notes from CC to D. When questioned whether the new structure of the company's debt would most likely constitute a bond-to-equity swap and reinstatement of the bank debt at par, John Hastings, company spokesman, replied, "That would be the most likely scenario."
The deterioration in Viasystems' operating performance is caused largely by the downturn of the telecommunications industry as the company provides electronics manufacturing services in the telecommunications and networking industries. "The debt level that the company had was one that it would have a hard time supporting in the current environment," said Hastings. Viasystems has hired Rothschild to assist the company with its recapitalization.
* Moody's has downgraded aluminum producer Ormet from B3 to Caa1 after soft demand for aluminum and low prices hurt the company's cash flow. The company's debt has remained at a stable level over the last couple of years, but the cash flow problem has pushed the debt-to-EBITDA level up to 14 times. Although the ratings agency expects cash flow to remain weak over the near term, it anticipates improved financials from the company in the second half of 2002. Aluminum prices also are likely to rise as the economy recovers. Calls to Richard Caruso, v.p. of finance and cfo, were not returned.