Email Research
Thank you for your interest in sharing Moody's Research. You have reached the daily limit of Research email sharings.
Thank you!
You have successfully sent the research.
Please note: some research requires a paid subscription in order to access.
Already a customer?
LOG IN
Don't want to see this again?
REGISTER
Accept our to continue to Moodys.com:
PLEASE READ
AND SCROLL DOWN!
By clicking “I AGREE” [at the end of this document],
you indicate that you understand and intend these terms and conditions to be
the legal equivalent of a signed, written contract and equally binding, and
that you accept such terms and conditions as a condition of viewing any and all
Moody’s information that becomes accessible to you [after clicking “I AGREE”] (the
“Information”). References herein to “Moody’s” include Moody’s
Corporation, Inc. and each of its subsidiaries and affiliates.
Terms of One-Time Website Use
1. Unless
you have entered into an express written contract with Moody’s to the contrary,
you agree that you have no right to use the Information in a commercial or
public setting and no right to copy it, save it, print it, sell it, or publish
or distribute any portion of it in any form.
2. You
acknowledge and agree that Moody’s credit ratings: (i) are current opinions of
the future relative creditworthiness of securities and address no other risk; and
(ii) are not statements of current
or historical fact or recommendations to purchase, hold or sell particular
securities. Moody’s credit ratings and
publications are not intended for retail investors, and it would be reckless
and inappropriate for retail investors to use Moody’s credit ratings and
publications when making an investment decision. No
warranty, express or implied, as the accuracy, timeliness, completeness,
merchantability or fitness for any particular purpose of any Moody’s credit
rating is given or made by Moody’s in any form whatsoever.
3. To the extent permitted by law, Moody’s and its directors,
officers, employees, representatives, licensors and suppliers disclaim
liability for: (i) any indirect, special, consequential, or incidental losses
or damages whatsoever arising from or in connection with use of the
Information; and (ii) any direct or compensatory damages caused to any person
or entity, including but not limited to by any negligence (but excluding fraud
or any other type of liability that by law cannot be excluded) on the part of
Moody’s or any of its directors, officers, employees, agents, representatives,
licensors or suppliers, arising from or in connection with use of the
Information.
4. You agree to read [and
be bound by] the more detailed disclosures regarding Moody’s ratings and the
limitations of Moody’s liability included in the Information.
5. You agree that any disputes relating to this agreement or your use of
the Information, whether sounding in contract, tort, statute or otherwise,
shall be governed by the laws of the State of New York and shall be subject to
the exclusive jurisdiction of the courts of the State of New York located in
the City and County of New York, Borough of Manhattan.
I AGREE
26 Jun 2018
Frankfurt am Main, June 26, 2018 -- Moody's Investors Service, (Moody's) has today downgraded
the corporate family rating (CFR) of the German defense manufacturing
company H&K AG (Heckler & Koch) to Caa1 from B3 and the probability
of default rating (PDR) to Caa1-PD from B3-PD. The
rating outlook has been changed to negative from stable.
"Our decision to downgrade Heckler & Koch's rating reflects
the company's weak liquidity profile and very high leverage.
The group's liquidity has deteriorated markedly in the first five
months of the year despite shareholders contributing EUR 30 million to
the company in the form of a shareholder loan early 2018. As of
May 2018 Heckler & Koch had EUR 27.8 million unrestricted cash
on balance, a reduction of around EUR 20 million YTD May 2018 (excluding
the EUR 30 million shareholder loan). The group's weak liquidity
profile is further exacerbated by the material risk of breaching the SFA
covenant at the end of June 2018. The group's Moody's
adjusted leverage ratio deteriorated to 9.4x at the end of 2017
(6.2x in 2016) as a result of a 37.9% decline in
EBITDA and despite EUR 50 million equity increase and successful debt
refinancing in 2017. While the company expects EBITDA this year
to recover, in the first four months of 2018 it was down 60%
compared to the same period last year" says Vitali Morgovski, a
Moody's Assistant Vice President-Analyst and lead analyst for Heckler
& Koch.
RATINGS RATIONALE
Today's downgrade reflects a significant deterioration in Heckler
& Koch's liquidity profile. By the end of Q1 2018 liquidity
was down to EUR 10.9 million and in April 2018 the company was
supported by a EUR 30 million interest-free loan from its shareholders.
While this has improved the amount of unrestricted cash available,
Moody's sees a risk of a further decline to below EUR 20 million
in the coming few months, which in Moody's view represents
a minimum required amount to run the company's day-to-day
business. In light of the company's weak performance we see
a risk of further covenant breach at the end of Q2 2018, which would
require further support from the shareholders to obtain an equity cure
or similar.
Today's action also reflects the weakness in earnings and cash generation
in the second half of 2017 that continued in the first few months of 2018.
Revenue and EBITDA last year were down 10% and 37.9%,
respectively, due to delays in product deliveries caused by the
implementation of a new concept for production and assembly lines in Oberndorf,
Germany. This led to an increase in Moody's adjusted leverage
ratio to 9.4x at the end of 2017 from 6.2x in 2016.
Moody's expects that the company's leverage will deteriorate
further during 2018 to more than 10x. The new product introduction
(VP9SK pistols) for the US commercial market also occurred later than
expected and the overall demand in the US commercial market was weaker
in 2017. At the same time the company is bearing additional costs
of construction of a new manufacturing facility in the US. Furthermore,
problems with SAP system for order processing additionally delayed product
deliveries.
These issues have not been completely resolved this year. While
revenue is starting to show an improving trend and is currently up year-on-year,
EBITDA is yet to recover and was down 60% in the first four months
of 2018 compared to the same period last year. Operating cash flow
was negative so far this year and free cash flow was naturally more so.
Moody's views a material risk that Heckler & Koch will not be
able to achieve its budget in 2018, even assuming a recovery in
the second half of the year.
While the company is obviously facing some serious operating challenges
at present, its competitive position on the market remains strong,
reflected in solid order backlog and increasing order intake. In
2017 Heckler & Koch's order intake increased by 1.6%
y-o-y and given the delayed deliveries its order backlog
(excluding orders for which export licenses are not expected to be granted)
rose by 25% by the end of the year to EUR 156 million, which
corresponds to around ¾ of H&K's annual sales.
Year-to-date order intake developed even better, rising
40% y-o-y through May.
Moody's positively acknowledged a successful refinancing of H&K's
EUR 220 million notes with EUR 130 million SFA due 2022 and EUR 60 million
Senior Notes due 2023 complemented by a EUR 50 million equity injection
in 2017. As a result group's reported gross debt declined
from EUR 220 million in 2016 to EUR 182 million in 2017 and its interest
expense should be approximately EUR 8 million lower in 2018 compared to
the previous year. Additionally, the company was able to
agree a covenant amendment (on leverage ratio and minimum cash level)
with lenders in its SFA facility that it otherwise would breach given
a substantial decline in EBITDA.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects Moody's view that there is a material
risk of leverage ratio (Moody's adjusted) remaining at the current
elevated level, well in excess of 8x, even in case of recovery
in the second half of 2018. Furthermore, Moody's understands
that the covenant headroom in SFA facilities in Q2 and Q3 this year will
be very low and the amount of unrestricted cash on the balance sheet could
continue to decline as we do not expect H&K to generate positive FCF
this year.
WHAT COULD MOVE THE RATINGS - UP
• Positive FCF generation supporting company's liquidity such that
it increases to in excess of EUR 25 million on a sustainable basis
• Expectations that Moody's adjusted gross debt/EBITDA will remain
sustainably below 6.5x
• Tender wins and no material contract losses, to ensure the
company's earnings sustainability.
WHAT COULD MOVE THE RATINGS -- DOWN
• Eroding liquidity such that the amount of unrestricted cash trends
towards EUR 10 million,
• Moody's adjusted gross debt/EBITDA sustainably above 8x
Liquidity
Moody's views Heckler & Koch's liquidity as weak.
Operating issues also affected company's unrestricted cash position
on the balance sheet that declined to EUR 18.7 million at the end
of 2017 (EUR 20.8 million in 2016). By the end of Q1 2018
liquidity was down to EUR 10.9 million and the company was supported
by an interest-free loan from its shareholders. While this
has improved the amount of unrestricted cash to EUR 27.8 million
at the end of May 2018, Moody's sees a risk of a further decline
to below EUR 20 million in the coming few months, which in Moody's
view represents a minimum required amount to run company's day-to-day
business. While EUR 30 million revolving credit facility was available
to Heckler & Koch in the past, the company no longer has access
to this RCF, as it was not extended last year. Furthermore,
we see a material risk of breaching the covenant at the end of June and
September 2018. While H&K has an equity cure option,
it would require further liquidity injection from its shareholders.
PROFILE
Headquartered in Oberndorf, Germany, Heckler & Koch is
a leading, privately-owned defense contractor in the small
arms sector. Heckler & Koch predominantly supplies the armed
forces of NATO and NATO equivalent countries, European and US Special
Forces, European police forces and US federal law enforcement agencies.
The company also serves the commercial market. It designs,
produces and distributes small arms, including rifles, side
arms, sub-machine guns, machine guns and grenade launchers,
as well as a variety of other related products & services.
In 2017 Heckler & Koch generated sales of EUR 182 million and reported
EBITDA of EUR 30 million.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Aerospace and Defense
Industry published in March 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vitali Morgovski
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
|
|
