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14 Sep 2009
New York, September 14, 2009 -- Moody's Investors Service downgraded its ratings on Mohawk Industries
Inc's (Mohawk) senior unsecured notes to Ba2 from Ba1 following
the company's announcement that it entered into a $600 million
secured ABL revolving credit facility. At the same time,
Moody's affirmed all other existing ratings including the Ba1 CFR,
Ba1 PDR and SGL 2 speculative grade liquidity rating. The rating
outlook is still negative.
The downgrade of the unsecured notes reflects the structural subordination
that was created when the company replaced its two unsecured revolving
credit facilities with a new 4 year ABL revolver, which has security
on the company's most liquid assets: inventory and accounts
receivable. "Inclusion of a $600 million secured obligation
in the company's capital structure increases the potential loss
of unsecured creditors in a default scenario as the ABL lenders would
have priority over the unsecured lenders" said Kevin Cassidy,
Senior Credit Officer at Moody's Investors Service.
Affirmation of the Ba1 CFR rating reflects Mohawk's leading market
share in the carpet segment, floor tiling segment and the Unilin
(laminate) segment, its scale with close to $6 billion in
revenue, strong cash flow and its generally conservative financial
policies. These factors help offset the continuing weakness in
housing and discretionary consumer spending and deterioration in Mohawk's
credit metrics. However, Moody's expects improvement
in Mohawk's credit metrics in 2010 as the company has lowered its
breakeven levels with significant cost reductions and the lack of warranty
reserve of over $100 million recorded in Q1 2009.
Affirmation of the SGL 2 liquidity rating reflects our belief that Mohawk
will maintain its good liquidity profile over the next 12 -18 months.
The liquidity profile is highlighted by the lack of maintenance financial
covenants in the new $600 million 4 year ABL revolving credit facility,
strong annual operating cash flow of around $600 million,
cash balances of over $200 million and the lack of dividends or
share repurchases. The principal constraint to Mohawk's liquidity
is the $500 million maturity in January 2011, which Moody's
believes will be repaid with a combination of free cash flow, ABL
revolver borrowings and possibly additional capital market transactions.
Additional constraints on the company's liquidity is the reduction
of the size of revolving credit facility to $600 million from over
$700 million (US and European revolver combined) and the elimination
of the $250 million accounts receivable securitization facility.
The continuing negative outlook reflects Moody's concern over declining
demand trends, which are caused by the continuing weakness in the
housing market, discretionary consumer spending and capital spending.
The negative outlook also reflects our apprehension over future discretionary
consumer spending patterns even when the macro economy and housing market
starts to grow as consumers are likely to be cautious with their discretionary
spending in the near term.
Moody's subscribers can find further details in the Mohawk Industries
Credit Opinion published on Moodys.com.
Corporate Family Rating at Ba1;
Probability of Default Rating at Ba1;
Speculative Grade Liquidity rating at SGL-2;
Ratings downgraded/assessments assigned:
$900 million 6.125% senior unsecured notes,
due 2016 to Ba2 (LGD 4, 67%) from Ba1 (LGD 4, 60%);
$500 million 5.75% senior unsecured notes,
due January 15, 2011 to Ba2 (LGD 4, 67%) from Ba1 (LGD
$400 million 7.20% senior unsecured notes,
due April 15, 2012 to Ba2 (LGD 4, 67%) from Ba1 (LGD
Headquartered in Calhoun, Georgia, Mohawk Industries is a
leading producer of floor covering products for residential and commercial
applications in the U.S. Mohawk products includes brands
such as Mohawk, Unilin, Karastan, Ralph Lauren,
Lees, Bigelow, Dal-Tile and American Olean.
Revenue for the twelve months ended June 30, 2009, approximated
The last rating action was taken on February 25, 2009, when
Moody's downgraded the ratings to Ba1 with a negative outlook.
The principal methodology used in rating Mohawk was the Global Consumer
Durables Goods methodology which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the rating process of rating Mohawk can also
be found in the Credit Policy & Methodologies directory.
Corporate Finance Group
Moody's Investors Service
Moody's downgrades Mohawk's notes to Ba2; outlook still negative
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
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