Moody's Investors Service has downgraded Federal-Mogul's $1.75 billion in senior secured facilities to B3 from B2 due to cash flow concerns. The rating notes escalating concerns that the company will continue to produce negative cash flow through 2002 and that existing availability under the U.S. and foreign bank credit facilities may prove insufficient to get Federal-Mogul through the economic downturn. Federal-Mogul, headquartered in Southfield, Mich., is a global manufacturer and distributor of a broad range of vehicular components for automobiles.
Moody's is also concerned that there is potential for new senior secured bank covenant violations. According to the rating, bank group members may take a tougher negotiating stance the next time around, since the senior bank obligations are now protected by fully perfected collateral interests. The rating also considers that the company has closed on the sale of its Aviation Products for $160 million in gross cash proceeds. This provides the company with a much-needed liquidity boost.
* Moody's downgraded CSK Auto's $410 million in senior secured term loan facilities to B1 from Ba3 due to revised expectations of near-term performance. This follows the company's reports of lower gross margin, which could continue through the remainder of 2001. Based in Phoenix, Ariz., the company is the second largest auto parts retailer in the country.
The rating could fall further if CSK's operating profitability and market share deteriorate significantly from existing levels. The company is facing heavy debt maturities in the near term. Its ability to refinance these obligations, extend maturities and maintain liquidity will be a key factor in maintaining current rating levels. Supporting the rating is the fact that management has reduced the number of planned new stores to conserve cash. There is a potential for sales to increase over the next few years as the increase in auto production in 1994 and beyond translates into a larger number of cars on the road, entering into a so-called sweet spot for repairs.
* Arch Coal Inc.'s $600 million senior secured revolving credit and $88 million term loan were raised to Ba1 from Ba2. The Moody's rating reflects the positive impact that sharply higher spot prices should have on the company's profile in 2002. Since last fall, spot coal prices have steadily increased in all coal-producing regions of the U.S.
Additionally, the upgrade reflects Arch Coal's lower leverage after applying $306 million in net proceeds from its recent common stock offering, plus $93 million raised from its Feb 2001 stock offering, which went toward its debt reduction.
The rating also factors in the possibility that Arch Coal will become more active in coal or energy-related acquisitions or investments, which could interfere with its plans to reduce leverage. Arch Coal is headquartered in St. Louis, Mo.