(The following statement was released by the rating agency)
NEW YORK, May 19 - Standard & Poor's Ratings Services said today that its 'BB-' corporate credit rating on Gentek Inc. remains on CreditWatch with positive implications where it was placed on March 26, 2004, when the company announced that it had agreed to sell its Krone communications business to unrated ADC Telecommunications Inc.
Standard & Poor's today also withdrew its 'B' senior secured rating (with a second lien), as the debt was repaid in full with asset sale proceeds. GenTek announced yesterday that it had completed the sale for $294 million in cash and the assumption of around $56 million of pension and employee-related liabilities. Net proceeds mostly reduced debt and, after application of proceeds, the company is expected to have $25 million-$35 million of cash and less than $2 million in debt.
Hampton, N.H.-based GenTek Inc. is a diversified provider of automotive and industrial products and specialty chemicals, with revenues around $1 billion (before the Krone sale). The Krone unit had revenues of $316 million and adjusted operating income of $13 million in 2003. GenTek emerged from bankruptcy in November 2003.
Several key issues--distinct from the obvious benefits of substantial debt reduction--will be considered in resolving the CreditWatch. GenTek's remaining businesses are still diverse; some are quite profitable, while others are more challenged. As evidenced by the Krone sale, however, there is potential for fairly large shifts in the company's business mix and financial structure over time, as the new board of directors formulates strategy.
"As a result, we expect to evaluate Gentek's corporate strategy and financial policy," said Standard & Poor's credit analyst Robert Schulz.
GenTek's new board, installed as a result of the bankruptcy proceedings that ended in November 2003, is working to formulate its strategy. GenTek's growth in the past was mainly through acquisitions, but the company has indicated that it will now focus on the remaining businesses--but even those businesses are diverse, so an understanding of emphasis will be important.
While GenTek's debt has been substantially reduced as a result of the Krone sale, the strategic direction and mix of organic growth versus acquisitive growth is likely to require some future financing. Understanding expectations for the capital structure will be an important topic.
"We will consider the impact of these issues on the company's prospective business and financial profile. If growth plans and the resulting financial profile are considered to be improved and sustainable, a modest upgrade is possible," Mr. Schulz said.
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