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28 Jun 2002
MOODY'S LOWERS RATING TO Ca ON VIASYSTEMS' SENIOR SUBORDINATED NOTES; RATINGS ON GTD SENIOR SECURED BANK CREDIT FACILITIES CONFIRMED AT B3
Approximately $1.1 Billion of Debt Securities Affected.
New York, June 28, 2002 -- Moody's Investors Service lowered Viasystems Group, Inc.'s
senior subordinated note rating and confirmed the ratings on its guaranteed
senior secured bank credit facilities. The company's ratings outlook
was revised to stable from negative. A summary of the ratings activity
(i) Lowered to Ca from Caa3 Viasystems' $500 million 9-3/4%
senior subordinated notes, due 2007;
(ii) Confirmed the B3 rating on Viasystems' $148 million guaranteed
senior secured tranche B term loan, due 2007;
(iii) Confirmed the B3 rating on Viasystems' $289 million guaranteed
senior secured Chips term loans, due 2005;
(iv) Confirmed the B3 rating on Viasystems' $150 million guaranteed
senior secured revolving credit facility, due 2005, of which
$71 million had been drawn as of March 31, 2002;
(v) Senior implied rating lowered to Caa2 from B3; and
(vi) Senior unsecured issuer rating lowered to Caa3 from Caa1.
The ratings downgrades are based on heightened uncertainty over the principal
amount recoverable on Viasystems' senior subordinated notes, whether
based on the implicit valuation of equity to be exchanged for the notes
under a proposed recapitalization, or on some combination of equity
and reduced note principal, as subject to negotiation; and
the recognition that agreement on a debt restructuring plan that commands
the tacit approval of Viasystems' bank lenders could be difficult to obtain.
The risk lies in Viasystems' ability to strengthen its balance sheet and
improve upon its free cash flow coverage of fixed charges, made
all the more urgent by the company's missed June 1 interest payment on
the notes. A successful resolution would be contingent upon the
company, its pre-IPO shareholder, Hicks, Muse
Tate & Furst, and an ad hoc committee of noteholders coming
to agreement on a proportion of equity ownership that could be exchanged
for the notes, and possibly identifying sources for additional equity
investment in the company. Secondly, the resolution would
have to engender support from the remaining stakeholders, including
those noteholders who haven't participated in the discussions to date,
preferring not to submit to trading restrictions on the notes, as
well as the company's vendors and bank lenders. The risk is mitigated,
to some degree, by the bank lenders' continued support, as
evidenced by unanimous consent to a third amendment to the bank credit
facility under which the banks agreed to forbear from exercising various
remedies after the company failed to comply with its senior debt leverage
covenant. This arrangement, originally in place through May
29, 2002, was subsequently extended by 90 days. Additionally,
Hicks, Muse, having recently increased its investment in the
company through open market purchases of $232 million of the senior
subordinated notes and $51 million of the company's senior secured
bank debt, presumably at discounted prices, would be motivated
to bring about a consensus for ameliorating Viasystems' capital structure.
In Moody's opinion, Viasystems maintains adequate liquidity to continue
to operate in this environment, although the company's exposure
to the telecommunications end market will continue to pressure operating
margins. As of March 31, 2002, the company recorded
$70 million cash on hand with about $18 million borrowing
availability under the revolver, which is currently limited to $100
million. During FY2002Q1 the company applied over $14 million
in cash toward operations, largely to fund losses and an increase
in accounts receivable, and utilized another $7 million for
The ratings on the bank credit facilities and revised outlook are based
on our belief that Viasystems' bank lenders will continue to exercise
forbearance, providing sufficient time for the company, Hicks,
Muse and the senior subordinated noteholders to reach an agreement.
To date, the company announced that it has come to an understanding
involving, at minimum, the exchange of the $500 million
of senior subordinated notes principal for equity under a recapitalization,
but the participants in the discussions, including Hicks,
Muse, comprise only 68% ownership share of the notes.
Under the Indenture, any amendment that would reduce the principal
of the notes would require the consent of each noteholder. Furthermore,
the proposed exchange of senior subordinated notes for equity would still
leave the company with a negative consolidated tangible net worth,
barring additional conversions of debt to equity and/or an additional
equity investment in the company by new or existing investors.
Hicks, Muse had previously invested $507 million of cash
equity in Viasystems, and during 2001 loaned the company $100
million through the purchase of senior discount notes.
Viasystems' FY2002Q1 net revenues decreased to $225 million,
the fifth consecutive quarterly decline and only 49% of FY2000Q4
peak revenues of $456 million. Adjusted EBITDA of $86
million for the LTM ended March 31, 2002 would not have covered
fixed charges over that period, but would have provided over 2 times
coverage of pro forma interest requirements on solely the $508
million senior secured bank debt going forward. The company must
additionally confront term loan amortization requirements of $28.5
million in FY2003 and $56 million in FY2004. As of March
31, total debt outstanding amounted to 13.5 times LTM EBITDA,
while the senior secured debt was about 6.1 times. FY2001
capital expenditures were nearly $79 million, although capex
was pared substantially in FY2002Q1. While accounts receivable
increased to $178 million by the end of FY2002Q1 from $157
million at year-end, days sales outstanding were about the
same, declining to 68 days from 69 days.
Under the third amendment to the credit agreement, and reenforced
under the guarantee and collateral agreement, Viasystems' bank lenders
have received a pledge as well as a further security interest, for
as long as any Event of Default remains uncured, in Viasystems'
Chinese operating companies, including the printed circuit board
fabrication operations in Guangzhou and Zhongshan obtained in the 1999
acquisition of Kalex Printed Circuit Board Ltd. Viasystems' Asian
assets, all of which are in China, included over 2.5
million square feet of plant floor owned, approximately 300,000
square feet of plant floor leased, and a complement of manufacturing
equipment, much of which was resituated from certain of the company's
North American installations in 2001. The book valuation of these
assets was recorded at $370 million as of December 31. Successful
execution within China would be strategically important to any global
electronics manufacturing services provider, due not only to China's
very low labor costs, but also to the increasing importance of local
content specified for OEM shipments destined for the Chinese market.
The scale of Viasystems' China operations, their existing qualification
by leading OEM customers, and the validation of the business by
key vendors could be instrumental in a successful marketing effort.
If the company is unable to successfully recapitalize, prospective
proceeds from a sale of the Chinese operations could be supplemented by
recovery from assets in North America, which were valued on December
31 at $441 million.
Viasystems Group, Inc., headquartered in St.
Louis, Missouri, has evolved from a manufacturer and marketer
of printed circuit boards and custom-designed backpanels for telecommunications,
computer, automotive, military and other industrial uses to
a leading, full-service provider of electronics manufacturing
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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