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16 Aug 2004
MOODY'S LOWERS SPEC GRADE LIQUIDITY RATING FOR WISE METAL GROUP TO SGL-4
New York, August 16, 2004 -- Moody's Investors Service lowered its speculative grade liquidity
rating for Wise Metal Group LLC to SGL-4 from SGL-3,
indicating weak liquidity. The lower rating was prompted by concerns
regarding the adequacy of the company's external committed liquidity
following rather sizable revolver borrowings in the second quarter of
2004. While Wise is benefiting and should continue to benefit from
stronger business conditions over the next 12 months, a $39
million increase in working capital occurred in 2Q04 and required a $38
million increase in revolver borrowings, leaving net revolver availability
of only about $12 million at the end of June. To shore up
liquidity, Wise and Congress Financial, its bank lender,
recently executed a $17 million receivables sale agreement,
with no offsetting reduction to the size of the existing revolver.
Nevertheless, Wise's liquidity is relatively modest and the
receivables sale agreement terminates on January 1, 2005.
Moody's SGL ratings do not assume that borrowers will be able to
extend financing agreements at maturity.
At June 30, 2004, Wise had borrowings of $61 million
under its $75 million secured revolving credit facility and letter
of credit usage of $2 million. The $17 million receivables
sale agreement was executed at the end of July and was used to reduce
revolver borrowings. Allowing for fluctuating revolver balances
as a result of normal operations and the periodic sale of receivables,
Moody's expects revolver availability could range between $12
-- 29 million over the next 12 months. However, the
January 2005 termination of the receivables sale agreement would once
again limit Wise's liquidity. Even assuming the receivables
agreement is extended, there is the possibility that the company
would utilize all of its external committed financing arrangements if,
for example, working capital investment increased significantly
over the next 12 months. Alternate sources of liquidity for Wise
include increasing the size of its revolver and an equipment sale and
leaseback. Moody's notes that the company's aluminum
and natural gas hedging activities often require the posting of initial
margin with counterparties, and may require the posting of additional
collateral or letters of credit when mark-to-market exposures
exceed specified ranges, and this activity is not included in our
The revolver's financial covenants do not apply when excess revolver
availability is more than $10 million. Were the covenants
to be tested, Wise is expected to remain in compliance with the
In 2Q04, Wise reported favorable trends for volume, productivity,
and conversion margin, and said that a 1 cent/lb. conversion
price increase was "sticking". Therefore, 2Q04
results were ahead of 2003 results and exceeded 1Q04. LTM EBITDA
was $34 million at June 30, 2004, and should rise over
the next several quarters. However, based on Moody's
forecast, free cash flow could be negative over the 12-month
horizon of the SGL rating.
Moody's long-term ratings for Wise (senior implied of B2)
reflect its dependence on a single asset, dependence on sales chiefly
to two customers, and lack of pricing power in a mature market dominated
by two much larger, financially stronger, and fully integrated
competitors, Alcan and Alcoa. Wise may not have the financial
resources required to adapt to significant technological or aluminum can
design changes. Market share concentration and intense competition
among packaging companies and their customers, the beverage companies,
as well as competition from other packaging materials such as plastics
and glass, have limited the operating margins earned by producers
of can stock and this is expected to continue. The ratings are
supported by the technological capabilities of Wise's Listerhill
facility, its fairly stable conversion costs, and the modest
but encouraging progress it has made in expanding its can stock customer
Wise Metals Group LLC produces aluminum can stock and packaging products
from a casting and rolling facility in Muscle Shoals, Alabama.
The company has its headquarters in Baltimore, Maryland.
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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