MOODY'S LOWERS THE ISSUER RATING OF CHARGEURS
New York, March 20, 2001 -- Moody's Investors Service has today downgraded the issuer rating of Chargeurs SA to Ba1 from Baa3. This rating action follows the recent announcement by Chargeurs that it intends to buy-back up to 28.4% of the company's outstanding share capital for a cash consideration of up to Euro 152 million. While the company's underlying operating performance has recorded an improvement over the last two years, from the perspective of an unsecured lender this improvement has been mitigated by the company's continuing high focus on shareholder value. The rating outlook has been changed to stable from negative.
It is Moody's expectation that the buy-back will be financed with the company's existing cash balances, and while it is possible that the buy-back may not be fully subscribed, we expect Chargeurs subsequent equity levels to fall below historical levels, as will its liquid assets. The company has tended to manage its balance sheet in order to optimise returns for shareholders and the proposed buy-back follows a previous buy-back, announced in March 1999, for 26% of the company's share capital, which in eventuality was only 55% subscribed.
Chargeurs operations are focused on four key businesses, three of which, together representing almost 85% of group revenues, are related to the apparel industry. The largest of the group's operations is the wool business, accounting for over 40% of turnover, which processes raw wool and transforms it into a semi-finished product that is sold to spinners. Chargeurs holds market leadership positions in each of its four businesses, both its manufacturing operations and revenues are geographically diverse and it has successfully expanded its higher margin niche business of protective films. Although during 1998 and 1999 the company's wool operations in particular were impacted by the Asian crisis, this situation has now improved and the profitability of this business has rebounded strongly.
The company's net debt levels have reduced significantly in recent years as Chargeurs has restructured its business portfolio and sold non-strategic assets. However, much of this debt reduction, and the resulting improvement in debt protection measurements, are attributable to the extensive use of off-balance sheet financing. The company has actively used innovative and highly structured financing techniques which, while helping to lower finance costs, have also resulted in a not insubstantial portion of its assets and liabilities being removed from the balance sheet.
Chargeurs SA itself currently has no outstanding rated debt in the market.
The rating outlook is stable, reflecting Moody's expectation that, while we expect the company to continue to focus on shareholder value and also to consider potential infill acquisition opportunities, Chargeurs strong market positions in niche markets will help it to maintain its underlying improvement in operating performance.
Headquartered in Paris, France, Chargeurs is the world's leading processor of raw wool, interlining and since 2000 protective films. The company also has significant operations in other apparel-related industries, such as wool fabrics. Chargeurs had 1999 revenues in excess of Euro 1 billion.
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