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16 Dec 2004
MOODY'S CHANGES OUTLOOK FOR WISE METALS GROUP TO NEGATIVE FROM STABLE
Approximately $150 Million of Debt Securities Affected By This Action
New York, December 16, 2004 -- Moody's Investors Service changed its rating outlook for Wise Metals
Group LLC (Wise) to negative from stable. The negative outlook
reflects the company's reduced liquidity, its inability to
capitalize on stronger demand and higher prices for aluminum beverage
can stock in terms of operating income and cash flow, and a marked
increase in debt since the ratings were assigned in April 2004.
Wise's financial results in 2004 have not captured the benefits
that should accompany improved demand, shipments, and selling
prices, and which were supportive factors in Moody's ratings.
While its shipment volumes and selling price are significantly higher
in 2004, Wise's conversion margins (revenues less aluminum
costs less conversion costs) declined to $6.6 million in
3Q04, compared to $8.4 million in 3Q03. In
3Q04, adjusted EBIT and adjusted EBITDA were $3.5
million and $6.9 million, respectively, whereas
interest and capex were $5.0 million and $2.5
million, respectively. These results are lower than Moody's
In addition, Wise's working capital investment has increased
considerably in the second and third quarters of 2004. Adjusted
for receivables sales it made in the third quarter but which are now being
replaced by on-balance-sheet receivables, working
capital increases have totaled $53 million over the last two quarters.
On November 10, 2004, Wise increased its revolving credit
facility commitment to $125 million from $75 million.
Its $17 million receivables sales facility expires January 1,
2005. At September 30, 2004, gross availability under
the amended revolver was $115 million, but this increased
to $125 million with the release of 3Q04 financials. Moody's
estimates that actual revolver usage by the end of 2004 could be about
$103 million, which would leave only about $22 million
available. Our estimate of total year-end revolver usage
starts from the $64.4 million drawn at 9/30/04 and adds
$17 million of receivables sales, $7.7 million
of bond interest paid in November, $3 million for letters
of credit, and an estimated $11 million for working capital
increases in the fourth quarter (can stock selling prices stepped up significantly
on October 1).
This would leave Wise with fairly limited liquidity and considerably more
debt than the company was expected to have, an estimated $253
million versus pro forma $176 million. Year-end leverage
could therefore be around 7.5 times in terms of debt to EBITDA.
Wise could be downgraded should it become apparent that the company will
not generate free cash flow (cash from operating activities less maintenance
capex) in the first two quarters of 2005, excluding unusual charges
or circumstances, or if its liquidity becomes more constrained than
outlined above. Factors that could restore Wise's stable
outlook include steady improvements to conversion margins and cash flow,
increased liquidity, and reduced debt, although it may prove
difficult to reduce debt given the thin margins aluminum can stock producers
earn in even the best of times.
The following ratings were affirmed:
B2 for the 10.25% senior secured notes due 2012,
B2 senior implied rating,
Caa1 issuer rating, and
SGL-4 speculative grade liquidity rating.
Wise Metals Group LLC produces aluminum can stock and packaging products
from a casting and rolling facility in Muscle Shoals, Alabama.
The company has its headquarters in Baltimore, Maryland.
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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