Washington Group's bank debt fell from par to distressed almost overnight last week after the company announced it was at risk of violating covenants on a deal it signed in July. A pro rata piece traded around 60, and by late last week levels were quoted in the 52-56 range. One dealer reported $60 million had traded in that range on Thursday with Deutsche Bank reportedly handling the trades. Once a par name, Washington's precipitous plunge stunned some traders. "People assumed it was a par credit, the deal got done, and then it was like, crash," a dealer said. "Now people are quoting it in the 60s." A Washington Group spokeswoman declined to comment on bank debt levels.
Washington Group, formerly known as Morrison-Knudsen, paid Raytheon Company approximately $53 million and assumed liabilities then estimated to be $450 million for Raytheon Engineers & Constructors (RE&C) . The company said in a statement a little more than a week ago said it was at risk of violating its covenants. Washington Group blames near-term liquidity problems due to negative cash flow and cost overruns associated with Raytheon projects. Washington Group claims Raytheon withheld information about the condition of contracts in progress when RE&C was bought out. The spokeswoman said Washington Group has filed a fraud lawsuit against Raytheon.
Dealers weren't so quick to absolve Washington Group of any responsibility for its financial troubles. "It's very circumstantial; the buyer beware saying certainly applies. They'll have to prove [Raytheon] withheld stuff," a market player said. Dealers added that Washington Group has had financial troubles separate from Raytheon. In 1996, it filed for Chapter 11 bankruptcy protection. Some just attributed it to an industry with its share of blind corners. "Contracting is notoriously risky. You have to know your salt to make money. You'll always run into an unknown factor," the dealer said. "It's like redoing your room: and you rip open a wall and find termites."
The company has a $1 billion credit facility that breaks down into two tranches. It is priced at LIBOR plus 2%. Bank of Montreal, Bank of America, Credit Suisse First Boston are the lead arrangers, according to Capital DATA Loanware. A spokesman at Bank of Montreal declined to comment. Spokesmen at the other two banks did not return calls.