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Global Credit Research - 03 Sep 2010
Approximately $346 million rated debt affected
New York, September 03, 2010 -- Moody's Investors Service has changed the rating outlook of GSI
Holdings LLC to negative from stable and affirmed all ratings, including
the B3 corporate family and probability of default.
The negative rating outlook reflects elevated leverage for the rating
level and risk of GSI's asset write-down/restructuring charge
track record since 2007 continuing, which would prolong the elevated
leverage. Without demonstration that GSI can achieve and sustain
higher earnings, the ratings would likely be downgraded.
The B3 corporate family rating affirmation reflects the company's very
high leverage juxtaposed to a reasonably good farm equipment demand outlook
and our expectation that credit metrics should materially improve in 2011.
The outlook for farm income, despite a soft economy, bodes
well for grain storage and poultry/swine farming equipment orders,
which should keep GSI's revenues well above 2009's $500
million mark. Management's renewed focus on core operations
should provide a basis for better earnings/cash flow. The rating
anticipates moderating credit metrics well before large debt maturities
begin (the revolver expires in August 2013). Toward this end,
the company has reportedly closed a costly, unprofitable manufacturing
plant in Brazil during 2010. The B3 CFR anticipates that the magnitude
of GSI's write-downs and restructuring costs will substantially
diminish after the expected 2010 Brazil plant closure expenses.
Also providing some offset to the very high leverage, GSI's
B3 CFR benefits from an adequate liquidity profile. Liquidity profile
adequacy reflects relatively low capital spending needs, limited
near-term debt maturities, and relaxed first lien credit
agreement terms. Specifically, GSI's credit agreement
features a maximum first-lien net leverage test that adds-back
write-downs and expected savings from restructuring to the EBITDA
calculation. The B3 CFR anticipates that permitted EBITDA add-backs
should help sustain near-term financial ratio covenant compliance.
The ratings would likely be downgraded if debt to EBITDA remains above
7.0 times. Stabilization of the ratings would likely depend
on the company achieving and sustaining leverage below 6.0 times
with an adequate liquidity profile.
Corporate family and probability of default, B3
$50 million first lien revolver due 2013, B2, LGD 3,
$305 million first lien term loan due 2014, B2, LGD
Moody's last rating action on GSI occurred July 27, 2009 when
the corporate family rating was downgraded to B3 from B2.
For more information please refer to the credit opinion on moodys.com.
The principal methodology used in rating GSI Holdings, LLC was Heavy
Manufacturing rating methodology published in November 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
GSI Holdings Corp. headquartered in Assumption, IL,
is a manufacturer and supplier of agricultural equipment. The company's
products include grain storage systems, and swine and poultry production
equipment. Revenues in 2009 were over $500 million.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's changes GSI's rating outlook to negative, affirms B3 CFR
250 Greenwich Street
New York, NY 10007
No Related Data.
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