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14 Apr 2003
MOODY'S IMPROVES EAGLE-PICHER'S RATING OUTLOOK TO STABLE, FROM NEGATIVE; CONFIRMS EXISTING RATINGS
Approximately $595 Million Of Debt Obligations Affected
New York, April 14, 2003 -- Moody's Investors Service improved the rating outlook for Eagle-Picher
Holdings, Inc. ("Eagle-Picher Holdings") and Eagle-Picher
Industries, Inc. ("Eagle-Picher") to stable,
from negative. Moody's additionally confirmed all existing ratings
for these issuers.
The favorable change to Eagle-Picher's rating outlook reflects
the new management team's implementation of a series of restructuring
actions during the past year. Significant productivity cost savings
are anticipated during 2003, and future cash restructuring costs
should be much less material. While Eagle-Picher's
last-twelve-month credit protection measures have not materially
improved since the point when the ratings were downgraded in April 2001
and the company remains vulnerable to weak economic conditions,
margin improvement during the most recent quarters has already been evident.
The company is now better positioned going forward to generate value-added
new business, enhance operating efficiencies, and increase
capacity utilization. Eagle-Picher has additionally concluded
several legacy litigation issues and divested certain non-core
assets. Eagle-Picher's operating cash flow improvement is
therefore expected to offset the potential conversion from PIK to cash
payment of the company's semiannual preferred stock dividends that
may occur as early as September 2003.
The details of the specific ratings that were confirmed by Moody's are
- B2 Rating of Eagle-Picher's approximately $233
million of aggregate
remaining guaranteed senior secured bank credit facilities, consisting
- $220 million revolving credit facility maturing February
- $12.7 million remaining term loan A facility maturing
- Caa1 Rating of Eagle-Picher's $220 million of 9.375%
subordinated unsecured notes due March 2008;
- Ca Rating of Eagle-Picher Holdings' $141.9
million of 11 3/4% cumulative
redeemable exchangeable preferred stock mandatorily redeemable in
- Caa2 Eagle-Picher Holdings issuer rating; and
- B2 Eagle-Picher Holdings senior implied rating
During January 2002, the company put in place a $75 million
off-balance sheet accounts receivable securitization facility that
is not rated by Moody's.
The improvement of Eagle-Picher's rating outlook to stable,
from negative, more specifically factors in expectations that the
company's comprehensive 2002 restructuring program will result in
more efficient and effective operating procedures, together with
growing retained cash generation. Margin improvement has already
been evident during the last couple of reported quarters. While
2003 revenues are likely to decline slightly year-over-year
due to a combination of divestitures, weak automotive market conditions,
and the phase-out of the Hillsdale transmission pump contract,
operating returns are expected to materially improve. The company
is identifying and developing new value-added business opportunities
and technologies within most of its operating segments in an effort to
reduce the impact of price compression and also steadily expand the customer
base and the end markets served. Eagle-Picher's defense-related
battery business also stands to benefit from the war on terrorism.
Management is focused on controlling capital expenditures at amounts well
below 2001 levels, and additionally on identifying opportunities
to increase utilization rates for existing capacity. The company
had $88 million of net operating loss carryforwards available at
fiscal year end November 30, 2002, and is therefore not expected
to be a federal US taxpayer for several more years. Eagle-Picher's
pension plan is notably fully funded. The company's goodwill
was determined to be unimpaired during fiscal 2002. Eagle-Picher
is in compliance with all bank financial covenants and is expected to
remain so throughout 2003.
Factors which continue to constrain Eagle-Picher's ratings
most significantly include the company's still-weak historical
LTM credit protection measures, which remain consistent with existing
ratings; the more than $26 million in special charges and
litigation reserves recorded during 2002 (which will have an almost $14
million aggregate negative cash impact); dependence of the company
upon more favorable general economic conditions and particularly on the
volume of automotive builds; susceptibility to OEM price compression
within Hillsdale, the company's largest division; refinancing
risk attributable to the fact that the $220 million senior secured
revolving credit facility matures in February 2004; and the potential
for the company to start paying more than $16 million of dividends
annually on its preferred stock in cash.
Under the terms of Eagle-Picher Holdings' cumulative redeemable
exchangeable preferred stock, mandatory dividend accretion was required
until March 1, 2003, at which point cash payment of preference
dividends was scheduled to commence. The first semiannual dividend
payment of $8.3 million is due September 1, 2003.
However, since Eagle-Picher's equity sponsor Granaria
Holdings B.V. controls more a majority of the preferred
shares, a decision by the company's board of directors to
defer these payments would not have any material negative consequences
to Eagle-Picher. Granaria already has voting control of
the board, and there is no ability of the preferred stockholders
(who are both effectively and structurally subordinated) to trigger defaults
under any of the company's debt agreements.
Eagle-Picher's ratings could potentially be upgraded once
the company's credit facilities are refinanced, there is evidence
of significantly improved credit protection measures after assuming cash
payment of preferred dividends, additional debt reduction is achieved,
and/or the company continues to generate profitable new business awards
which incorporate increased diversification of Eagle-Picher's
customer base and product lines.
For the fiscal year ended November 30, 2002, Eagle-Picher's
EBIT coverage of cash interest was insufficient at about 0.6x,
and its EBIT return on assets was only 4.0%. Leverage
as measured by total debt/EBITDA was 5.4x, after including
off balance sheet accounts receivable facility usage, the present
value of operating leases and preferred stock as debt. EBIT and
EBITDA were adjusted for about $19 million of special charges incurred
Eagle-Picher, now headquartered in Phoenix, Arizona,
is a diversified manufacturer of products for automotive, defense
and aerospace applications, in addition to other industrial arenas.
The company is organized into three strategic business units, or
our reportable business segments. These are the Automotive Segment,
the Technologies Segment, and the Filtration and Minerals Segment.
Annual revenues approximate $700 million.
Andris G. Kalnins
VP - Senior Credit Officer
Moody's Investors Service
Lisa B. Matalon
Vice President - Senior Analyst
Moody's Investors Service
No Related Data.
© 2020 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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