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04 Feb 1998
MOODY'S DOWNGRADES ALL STAR GAS SR. NOTES FROM Caa1 TO Caa3 AND SUB. NOTES FROM Ca TO C
New York, 02-04-98 -- Moody's Investors Service downgraded from Caa1 to Caa3 the 12.875% $127million face value of senior secured notes, due 2004, of All Star Gas Corporation. Moody's also downgraded All Star's 9% subordinated notes due 2007, from Ca to C. The downgrades follow Moody's discussions with management and assessment of debt coverage after the issuer's failure to pay its January 13, 1997 $4.5million senior note interest payment and its use of the 30-day grace period in order to accumulate sufficient liquidity to make that payment by February 13. All Star believes that seasonal cash flows (though lower than normal), an increased bank borrowing base, completion of delayed asset sales, and, in need, cash infusions, will enable it to meet the February deadline.
The warm winter of 1997/98 hurt cash flows and places increased pressure on All Star to accelerate remedial asset disposition and recapitalization actions during the course of 1998 in order to meet subsequent debt service. Though secured by the bulk of All Star's fixed assets, senior noteholders potentially could be exposed to a small degree of loss if the firm was sold/liquidated. All Star believes that EBITDA value multiples indicate full coverage of the senior notes but that depends on normalized EBITDA and a 7x to 9x EBITDA multiple. In the event of liquidation, the subordinated noteholders would be significantly exposed to loss.
The company became highly leveraged after a management-led leveraged buyout in 1994. The original rationale for the buyout included the modernization and rationalization of the business, requiring significant capex, part of which was to be funded by divestiture of non-core assets. Some of those divestitures have been delayed, though All Star believes it will complete those asset dispositions in 1998. Poor operating performance over the last few years resulted in high dependency on external sources to finance debt service obligations and working capital needs.
Since the bulk of the propane sold by the company is used for heating, the unusually warm weather during the current fiscal year further negatively affected revenues, margins, and cash flows. Moreover, the recent cash acquisition of Red Top Gas and delayed asset sales further depleted liquidity, causing a shortfall in cash flow relative to scheduled debt service. As a result, on January 13, 1997 All Star announced that it would use the 30-day grace period to pay full interest payment on its 12.875% senior secured notes.
All Star Gas, located in Lebanon, Missouri, is engaged in the retail marketing of propane and propane-related appliances to residential, agricultural, and commercial customers in 21 states.
No Related Data.
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