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Rating Action:

MOODY'S DOWNGRADES FAIRCHILD CORPORATION'S SUB. DEBT RATING TO Caa FROM B3 AND FAIRCHILD INDUSTRIES' SR. SEC. NOTES TO B3 FROM B2

31 Jul 1995
MOODY'S DOWNGRADES FAIRCHILD CORPORATION'S SUB. DEBT RATING TO Caa FROM B3 AND FAIRCHILD INDUSTRIES' SR. SEC. NOTES TO B3 FROM B2 New York, 07-31-95 -- Moody's Investors Service downgraded Fairchild Corporation's subordinated debt issues to Caa from B3 and its senior secured notes to B3 from B2. Fairchild Corporation's $24 million issue of 12-1/4% senior subordinated notes due 1996, its $114 million issue of 12% intermediate subordinated debentures due 2001, its $35 million issue of 13-1/8% subordinated debentures due 2006, its $25 million issue of 13% junior subordinated debentures due 2007, and Fairchild Industries' $3 million outstanding issue of 9-3/4% subordinated debentures due 1998 are downgraded to Caa. Fairchild Industries' $125 million issue of 12-1/4% senior secured notes due 1999 are downgraded to B3.
The downgrade in Fairchild group's long-term debt ratings reflect its high leverage; weak cash flow generation for debt service; the subordination of the rated issues to $162 million in total permitted bank credit indebtedness; and Moody's expectation that, barring sizable asset sales, Fairchild's financial condition will continue to be fragile through fiscal 1996. The ratings also incorporate the long-term risk of the group's uneven business segment performance, its complex organizational and ownership structure, and lack of a clear unifying strategy or core competency. The rating also takes into account Moody's view that the generally poor operating efficiency of the fasteners division has not been fully-remedied. The Fairchild Aerospace Fasteners Division (U.S. and Europe) provides about 40% of total corporate sales, but continues to post operating losses. Without a sizable infusion of cash, or a dramatic turnaround in its fasteners and Camloc divisions, Fairchild's long-term solvency is increasingly at risk.
However, the rating also recognizes the strong sales growth and profitability of Fairchild's D-M-E and Communications Services subsidiaries and the potential for meaningful contributions from its Data and Convac units in fiscal 1996. Also, the worst of the cyclical downturn in commercial aircraft is behind the industry, and conditions for suppliers of aircraft parts and components should gradually improve.
Fairchild's balance sheet remains very highly leveraged, with a debt to capitalization ratio of 92% at the holding company level. The company's growing net deficit and weak returns on equity continue to offset the modest reductions in total indebtedness. Consolidated tangible net worth is likely to remain negative for some time, barring a marked improvement in profits, a revaluation of its goodwill, or a gain from asset sales.
Cash flow continues to be uneven in the group, with about half of its business (Communications, D-M-E, and Data) producing all its earnings. On a consolidated basis, Fairchild's EBITDA is unlikely to provide more than a 1.3 times interest coverage in fiscal 1996. Net profitability is not on the horizon for fiscal 1996.
The Fairchild Corporation, headquartered in Chantilly, VA, is a holding company whose business units, primarily Fairchild Industries, manufacture and supply fasteners used in the aerospace industry, processing tools and systems used for semiconductor chip and compact disc production, and components for injection molding machines. Its Fairchild Communications Services subsidiary provides distribution, installation, equipment rental, and maintenance of telephone systems for business customers. The company is also a reseller of long-distance telephone service.

No Related Data.
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