Moody's Investors Service downgraded the debt ratings of Tower Records' credit facility to B3 from B2 due to a weak domestic market for entertainment products. The company has a $125 million senior secured credit facility due this year. The ratings reflect limited financial flexibility to withstand volatility in the market for entertainment products as a result of both competition and timing of new product releases. There is also uncertainty regarding the refinancing of Tower's revolving credit facilities which expire in 2001. The company has received a commitment letter for a new facility from lenders, but that final terms have not yet been approved.
The ratings are supported by the adoption of a restructuring plan intended to improve cash flow and contain further losses from unproductive operations.
* Moody's lowered the senior debt rating of Cummins, Inc. to Baa3 from Baa1 expecting continued earnings and cash flow pressures due to cyclical and structural weaknesses in certain lines of business. The company has $1.2 billion in debt outstanding. According to the rating, Cummins' truck engine business is facing significant cyclical and structural challenges that are adversely affecting its operating results. The demand for heavy duty trucks in North America is falling sharply, according to the rating.
However, Moody's notes that the initiatives pursued by Cummins over the past decade to diversify its business into the filtration and power generation areas have been beneficial.
* Allied Holdings senior secured revolving credit facility was downgraded to B2 from Ba2 due to Moody's concerns about the ability to generate adequate cash flows. There is considerable market sentiment that 2001 North American Original Equipment Manufacturer production could fall below the 15.5 million vehicles level, should consumer confidence measures and other general economic factors fail to improve. The company has a $230 million guaranteed senior secured bank facility maturing next year.
Also, according to the rating, there is high probability that Allied will violate the leverage covenant under its revolving credit agreement for the first quarter ending March 31, which will potentially threaten the company's liquidity position.
The rating action is supported by Allied's ability to quickly reign in capital investment levels related to growth of its fleet during cyclical downturns. Allied Holdings is headquartered in Decatur, Ga., and is the parent company of several subsidiaries engaged in providing logistics, distribution and transportation services to the automotive industry.
* Moody's downgraded PSS World Medical's senior secured credit facility to Ba3 from Ba1, reflecting the deterioration in the company's operating performance and credit profile. Vendor problems at two of the company's business segments impacted operations. Product recalls and manufacturing issues at two suppliers materially impacted revenues and expenses at the end of the last fiscal year. PSS, headquartered in Jacksonville, Fla., is a leading specialty marketer and distributor of medical products to physicians. The company has a $120 million senior secured credit facility due to mature in 2004.
Supporting the rating are improvements in performance. The company generated $21 million in cash flow from operations, a figure quite significant relative to historic levels.