Farmland Industries' $350 million, five-year revolver and $150 million, two-year term loan have been downgraded from B1 to B3 by Moody's Investors Service because of the company's strained financial flexibility. Weaker fertilizer market conditions, disappointing proceeds from non-core asset sales and imminent maturities from a continuous debt program may cause the company to be in covenant violation on this recently syndicated credit. The company is dependent on this revolver for its liquidity.
High leverage and the volatile cyclical nature of Farmland's core businesses also weigh down the company's credit rating. Helen Calvelli, Moody's analyst, said that the cushion to handle those issues is weak, but noted that the company is going into a seasonally stronger quarter. Farmland's ratings are supported by its cooperative equity base and large, diverse product group. It has also been directing its business towards products with higher margins and less volatility. Calls to John Berardi, executive v.p. and cfo, were not returned by press time.
* Standard & Poor's has downgraded Ethyl from BB- to B+ with concerns associated with its short-term debt refinancing needs. Ethyl has recently received an extension from its banks on a $146 million revolver and a $205.6 million term loan until March 2003 and will receive an additional one-year extension if it meets certain criteria. The company must reduce its aggregate debt to $323.5 million, have at least $15 million available under the revolver, and pay an extension fee of 50 basis points to bank lenders, explained Franco DiMartino, S&P analyst. The management has stated that it does not expect to meet these goals through its operational cash flow. In this case a new agreement will have to be reached. The company was also granted an additional $44.6 million term loan along with the extension.
Ethyl's operating results have been negatively impacted by factors in its petroleum additives industry, including over capacity in its crankcase market and a weak pricing environment. Total debt to EBITDA is expected to remain near four to five times. Calls to David Fiorenza, company v.p. and treasurer, were not returned by press time.
* Moody's has also downgraded office furniture supplier Steelcase's revolving credit facilities from Baa1 to Baa3 as sluggish corporate capital spending burdened the company's debt protection measures. The downgrade affects a $200 million revolver due this year and a $200 million revolver due in 2004. Capital spending and white collar unemployment associated with the weakening domestic economy has led to a 24% decline revenues, a contraction in operating margins, and a decrease in interest coverage ratio from 10 times in fiscal 2001 to 2.3 times for fiscal 2002 based on EBIT. Calls to James Keane, senior v.p. and cfo, were not returned by press time.