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17 Mar 2006
MOODY'S ASSIGNS B1 RATINGS TO AMSTED INDUSTRIES INCORPORATED'S PROPOSED NEW SENIOR SECURED CREDIT FACILITIES; OUTLOOK CHANGED TO POSITIVE
Approximately $950 million of debt securities rated
New York, March 17, 2006 -- Moody's Investors Service assigned B1 ratings to Amsted Industries
Incorporated's ("Amsted") proposed $700 Million
of Senior Secured Credit Facilities ("Credit Facilities").
Moody's also affirmed the Corporate Family Rating of B2 and the
senior unsecured notes ("Notes") at B3 and changed the outlook
to positive from stable.
The ratings consider Amsted's lead position in most of its product
segments, and the current cyclically-high demand for the
company's products which supports the expectation of strong free
cash flow over the near term. Amsted's record of reducing
debt, and the trend of improving debt to EBITDA and EBIT to interest
also support the rating.
Key ratings drivers include the high demand expected for Amsted's
products, which are key components of railroad cars and Class 8
trucks, Amsted's very high market share in its core segments,
the positive trend in Amsted's operating margin and key credit metrics,
and the continuing favorable relationships with customers. The
somewhat high level of debt, the cyclical nature of Amsted's
core markets and the degree to which payments for redemptions of ESOP
shares limit Amsted's financial flexibility, balance the rating.
The change in outlook to positive reflects Moody's expectation that
the demand for Amsted's products will remain robust over the intermediate
term, resulting in continuing favorable trends in Amsted's
EBIT margin (8.0% in fiscal 2005, up from 5.9%
in fiscal 2004) and free cash flow to debt (23% in fiscal 2005,
up from 5% in fiscal 2004) and further reduction in debt to EBITDA.
The company is also expected to improve its liquidity through a $50
million increase in the revolver, along with a higher level of cash
on hand from the strong operating environment and stable capital expenditures.
In Moody's view, the ongoing call on cash from Amsted's
redemptions of employee holdings under the ESOP diversification program
reduces Amsted's financial flexibility and offsets the improving
credit metrics. While Amsted's business prospects and credit
metrics (debt to EBITDA of 2.4x, EBIT to interest of 4.0x,
each LTM December 2005) could indicate higher debt ratings, when
adjusting the free cash flow for the expected call on cash from employees
tendering their shares, the net cash available to the company is
relatively modest. In the case of Amsted, the employee shareholders
determine the level and timing of share repurchases by exercising diversification
rights under the ESOP plan rather than the flow of cash to shareholders
being controlled by the board of directors. This construct reduces
Amsted's financial flexibility in periods when share values are
high or when employee diversification elections exceed Amsted's
actuarial assumptions, resulting in inordinately large calls on
Moody's notes that meaningful further debt reduction could be constrained
by higher than expected redemptions of ESOP shares. Further,
Moody's observes that the Notes indenture establishes a limitation
for these share repurchases through the Restricted Payments Basket,
and there is the potential for the obligatory stock redemptions to exceed
the limitations established. However, the new financing is
among the steps Amsted is taking to address this issue. The new
delayed-draw Term Loan B is a key component of Amsted's plan,
whereby Amsted could tender for the outstanding Notes should the amount
of the shares that must be repurchased exceed the limitation of the Restricted
Payments Basket. If unused, the delayed-draw Term
Loan B expires on October 15, 2007, which is the first call
date of the Notes. The delayed-draw Term Loan B may be used
only to repurchase the Notes pursuant to a tender offer or optional redemption.
The ratings could be downgraded if the end markets for Amsted's
products suffer a prolonged decline resulting in sustained negative free
cash flow, or if debt to EBITDA increases above 4.0x,
or EBIT to interest falls below 2.0x (each based on Moody's
standard adjustments). Ratings or the outlook could be raised if
Amsted sustains free cash flow to debt above 15% or if debt to
EBITDA is sustained below 2.0x and EBIT to interest is sustained
above 6.0x, along with successful resolution of the contingency
regarding the limitation of share repurchases set by the Restricted Payments
The Credit Facilities are expected to close in early April 2006.
Upon closing, Moody's will withdraw the ratings on Amsted's
existing senior secured credit facilities.
Amsted Industries Incorporated: guaranteed senior secured revolving
credit facility, guaranteed senior secured term loan, and
guaranteed senior secured delayed draw term loan at B1
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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