Moody's Investors Services downgraded Cambridge, Mass.-based Polaroid Corp.'s bank loan rating to B2 from Ba2 citing the decline of the company's traditional core business and the inability of new product contributions to offset the weakness in the old. Furthermore, the necessity of refinancing $500 million of bank loans by January in a weakening market has contributed to the action. The rating reflects the increased competition the company is facing in the digital photography sphere, its challenge to generate free cash flow this year and vulnerability to contractions of the U.S. economy. The current rating level is supported by the company's large installed base of instant film users, the continued growth of its new product offerings and an expectation that capital expenditure reduction will occur in 2001. Polaroid is attempting to sell assets to pay off debt, including a 56-acre property in Waltham, Mass., and has announced plans to cut expenses of $60 million a year.
Moody's also downgraded Bethel, Maine-based American Skiing Company Inc.'s $100 million revolving credit facility and $65 million term loan "B" to B2 from B1 following the cancellation of the proposed merger with Washington, D.C.-based Meristar Hotels & Resorts, Inc. last month. Moody's is returning the rating to its pre-Feb. 15 level, when an upgrade from B2 to B1 was announced on the assumption that the merger with Meristar-- creating a new entity called Doral International--æ would result in a more diversified, less seasonally affected business and reduced leveraged company. Liquidity would have been improved by the conversion of $179 million of preferred stock and loans to common equity, and by extending the maturity of $50 million 10.5% preferred stock from November 2002 to August 2006.
The B2 rating of the bank debt recognizes the value of collateral, which consists of virtually all of American Skiing's resort assets. Future ratings will depend on the ongoing operating results, as well as the ability to improve financial flexibility and the need to maintain appropriate liquidity to manage seasonal and long-term needs. The debt rating assigned to the proposed revolving credit facilities of Doral has been withdrawn.
Louisiana Pacific Corp., a building products company headquartered in Portland, Ore., has also been rated down from Baa1 to Baa3 by Moody's, for its senior unsecured debt. This reflects a weak outlook for the company's core products of lumber and panelboard, a decline in operating cash flow and a higher level of debt. Weaker levels of demand for building products in general have resulted in depressed prices for the past six months and financial performance has been significantly worse than anticipated. In addition, the outlook for prices remains relatively weak and Moody's believes that the company could experience a net loss for the year of between $100-150 million.