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02 Nov 2001
MOODY'S LOWERS RATINGS ON VIASYSTEMS' SENIOR SUBORDINATED NOTES TO Caa3 AND ITS GTD SENIOR SECURED BANK CREDIT FACILITY TO B3
Approximately $1.1 Billion of Debt Securities Affected.
New York, November 02, 2001 -- Moody's Investors Service lowered Viasystems Group, Inc.'s
ratings and revised the company's ratings outlook to negative.
The following ratings are affected:
(i) Lowered to Caa3 from B3 Viasystems' $500 million 9-3/4%
senior subordinated notes, due 2007;
(ii) Lowered to B3 from B1 Viasystems' $149 million guaranteed
senior secured tranche B term loan, due 2007;
(iii) Lowered to B3 from B1 Viasystems' $289 million guaranteed
senior secured Chips term loans, due 2005;
(iv) Lowered to B3 from B1 Viasystems' $150 million guaranteed
senior secured revolving credit facility, due 2005, of which
$26 million had been drawn as of September 30, 2001;
(v) Senior implied rating lowered to B3 from B1; and
(vi) Senior unsecured issuer rating lowered to Caa1 from B2.
The ratings downgrade is based on the continued downturn in telecommunications
capital equipment spending, and the impact that delayed product
ramps are having on Viasystems' revenues and cash flow. Full recovery
of principal is now in jeopardy, and has become the dominant factor
in the rating on Viasystems' senior subordinated notes as the company's
balance sheet, highly leveraged since the initial 1997 issuance
of the notes, has deteriorated significantly after a succession
of write-offs and restructuring charges since the beginning of
the year. Stockholders' equity swung from $90 million as
of December 31, 2000 fiscal year end to a negative $171 million
as of September 30, 2001, largely due to a $49 million
inventory write-down; $139 million in restructuring
and impairment charges related to reductions in force and the cessation
of operations at the former Lucent printed circuit board (PCB) facility
in Richmond, Virginia and the company's Puerto Rico PCB plant;
and a $144 million write-off of a note received from the
independent PCB entity spun off to the company's pre-IPO shareholder,
Hicks, Muse Tate & Furst, at the time of the company's
IPO. Debt, including a $100 million senior note placed
in July with Hicks, Muse, totaled 6.2 times LTM EBITDA
as of FY2001Q3 end. Viasystems is in compliance with the 3.25
times senior debt leverage test established under the second amendment
to its bank credit agreement, negotiated as recently as June 28.
Although the test will be relaxed to 4.0 and 4.2 times over
FY2001Q4 and FY2002Q1, respectively, the company could have
difficulty meeting this less stringent covenant requirement over the next
several quarters. Moody's is concerned that the senior subordinated
notes' distressed trading levels would prompt Viasystems' banking group
to demand a bond restructuring before acquiescing to any further covenant
changes. The company has accumulated a deficit, only partially
offset by paid-in capital, of over $1.7 billion,
contributing to a negative consolidated tangible net worth of $614
million against about $1.05 billion of balance sheet debt.
The ratings additionally take into account Viasystems' narrow LTM free
cash coverage of pro forma fixed charges, based on expected capital
expenditures of $70-75 million for FY2001, of 1.3
times, and somewhat modest 6.8% return on assets,
based on LTM EBITA. FY2001Q1-Q3 operating income barely
broke even after accounting for the charges and write-offs.
FY2001Q3 revenues declined 34% year-over-year,
with 47% of revenues derived from telecommunications and networking.
However, communications exposure was down from 62% of revenues
for all of FY2000. The LTM gross margin, adjusted for depreciation,
was satisfactory at 13.6%, but is, in fact,
somewhat understated due to the company's practice of marking up assets
upon acquisition to market valuation, in conjunction with purchase
accounting rules. In contrast to certain of its electronics manufacturing
services (EMS) competitors, Viasystems has accounted for all of
its acquisitions under the purchase method of accounting.
The ratings are buttressed by the continual improvement in Viasystems'
competitive position, which has benefited from the migration of
a substantial proportion of the company's printed circuit board fabrication
activity to its low cost China facilities. Successful execution
within China is strategically important, due not only to China's
very low cost labor complement, but also to the increasing importance
of local content specified for OEM shipments destined for the Chinese
market. Viasystems maintains over 2.3 million sq.
ft. of PCB fabrication capacity in Guangzhou and Zhongshan,
with additional operations in China, including sites in Shanghai
and Nantong, dedicated to backpanel and enclosure assembly.
Although the preponderance of production activity has been concentrated
in low layer count commodity PCBs, advanced PCB capabilities at
Guangzhou have been elevated to eighteen layers count, with plans
under way to attain 22 layers count production in early 2002. The
company's PCB activity, which commands higher margins that electronics
manufacturing services, comprised only 33% of FY2001Q3 revenues,
having decreased to $88 million from the peak recorded in FY2000Q4
of $244 million, or by 64%. Yet, the
company's performance was remarkable when contrasted with Tier One EMS
rival Sanmina, which reported same quarter PCB revenues of $90
million, greater than an 80% decrease from the $460
million peak achieved in the equivalent 2000Q4 period.
The issuance of the 14% senior notes to Hicks, Muse,
who continue to be highly supportive, in lieu of any further injection
of equity, was ostensibly undertaken to avoid the dilution that
would have ensued in light of the depressed market value of Viasystems'
outstanding common stock. While the investment, for which
interest would accrue through maturity, augments Hicks, Muse's
sizable stake in the enterprise, represented by $507 million
previously invested cash equity, the further subrogation of the
senior subordinated notes does little to engender confidence among the
senior subordinated noteholders. Nevertheless, investors
and vendors could derive encouragement from the company's current liquidity
position, which was abetted by the note proceeds and could be further
enhanced by the possible issuance of up to an additional $50 million
of notes authorized under the second amendment to the credit facility.
As of September 30, liquidity consisted of $27 million in
cash, and available borrowing capacity under the revolver,
which was restored to about $112 million. Approximately
$26.5 million of net cash was provided by operating activities
in FY2001Q3, with the $66 million reduction in accounts receivable
and $19 million reduction in inventories offset by a $56
million reduction in accounts payable. Inventory turnover improved
to 6.1 times in FY2001Q3 while days sales outstanding and days
payables outstanding each declined by thirteen days. The current
ratio was 1.6. Customers, led by Lucent Technologies,
Marconi Communications, Alcatel, Nortel, Siemens,
General Electric, Sun Microsystems, Delco and Tellabs,
have remained loyal, awarding the company 54 new program wins in
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
Robert N. McCreary
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
No Related Data.
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