MOODY'S CONFIRMS B1 RATING ON FIELDCREST CANNON SUBORDINATED ISSUES AND ASSIGNS Ba1 TO SECURED LOAN FACILITY
New York, 05-15-96 -- Moody's Investors Service confirmed its B1 rating on Fieldcrest Cannon, Inc.'s senior subordinated debentures, due 2004, and on its convertible subordinated debentures, due 2012. In addition, Moody's assigned a Ba1 rating to the company's US$ 195 million secured revolving term debt agreement, due January 6, 1998. The outlook is stable.
The ratings are predicated on the company's high leverage, cash paying preferred stock representing one third of equity, a history of weak returns on assets aggravated by the currently high cotton prices, and flat sales over the past five years. The ratings also incorporate the company's cost reduction measures, including declines in staff, plant closures, outsourcing of yarn production and the introduction of more efficient plants in both towels and bedding.
The Ba1 rating on the bank loan reflects the added protection afforded to the lenders by the lien on the company's accounts receivable and inventory, as well as on the fixed assets of the towel business. The financial covenants were amended in December 1995 to reflect the company's current operating environment.
Lower sales volume, primarily from bedding, Sure Fit, and outlet stores, higher raw material costs, operation disruption due to the relocation of staff to North Carolina and change in management for bedding all contributed to a reduction in operating margins from 6.4% in 1994 to 1.9% for 1995 and .97% for the first quarter 1996. The company has responded to lower mill activity by closing two yarn plants and outsourcing the yarn under multi-year contracts, by announcing the closure of a towel weaving and yarn manufacturing facility, and by reorganizing its New York operations and reducing staff. Restructuring charges were US$ 20 million for 1995 and US$ 3.6 million for the first quarter of 1996, with US$ 3 million in additional charges relating to equipment relocation and related expenses expected in the next two quarters. The company should reap the benefits of its cost cutting as well as its investment in new technology as a state-of-the-art towel weaving and sewing operation comes on-line in the third quarter. However, any further drop in sales or increases in cotton costs could offset these improvements.
EBITDA to interest expense plus preferred dividends was a weak .98 times in 1995, but the company projects a return to three times coverage in 1996.
Fieldcrest Cannon, Inc. located in Kannapolis, North Carolina, manufactures and markets home furnishing products, primarily towels and sheeting, under the Fieldcrest, Cannon, Royal Velvet, Charisma, Touch of Class, St. Mary's, Cannon Royal Family, Caldwell, Sure Fit, and private label brands.
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