Dan River ratings knocked again
November 3, 2003-- Home Textiles Today,
Moody's Investors Service, a major corporate credit rating agency, said it has cut its ratings on the textile producer's debt after third-quarter sales fell by 30 percent, triggering a violation of restrictive debt covenants that require that cash flow exceed interest expense by a specific ratio.
It was the second debt rating agency to downgrade Dan River, following a similar action taken earlier by Standard & Poor's.
Moody's said it cut its rating on $157 million of 12.75 percent senior unsecured notes to 'Ca' from 'B3'. The senior implied rating was lowered to 'Caa2' from 'B2'; and the Senior Unsecured Issuer rating was lowered to 'Ca' from 'B3'. The ratings outlook was revised to 'negative' from 'stable'.
Moody's said the downgrade reflects its concern "that the company will need to execute a financial restructuring in the near term barring any unanticipated increase in revenues and cash generation." Moody's continued, "The downgrade also incorporates the rapid deterioration of Dan River's revenues and operating margins stemming from weak unit demand for the company's products despite strong promotional activity, continued price deflation, significant exposure to a key customer, Kmart, and increased raw material costs exacerbated by the under-absorption of fixed manufacturing costs."
Moody's said the downgrade also reflects its "concern with Dan River's vulnerability to negative systemic problems outside the company's control, such as domestic over-capacity in textile production and increased foreign competition."