(The following statement was released by the rating agency)
NEW YORK, March 30 - Standard & Poor's Ratings Services said today that it affirmed its 'BB-' corporate credit and senior secured bank loan ratings on Metaldyne Corp. and the 'B' senior unsecured and subordinated debt ratings. The outlook was revised to negative from stable.
The Plymouth, Mich.-based auto supplier had approximately $932 million in total debt outstanding at Sept. 28, 2003, including operating leases.
"The outlook revision reflects our near-term concerns related to the company's announcement yesterday that it will not be able to file its Form 10-K because of an independent inquiry into certain matters at the company's Sintered division (about 10% of total sales)," said Standard & Poor's credit analyst Linli Chee.
The negative outlook also reflects longer-term concerns that new business wins may not be able to offset the company's highly leveraged capital structure in an industry that remains subject to intense competitive pricing and rising raw material costs. Downside protection is afforded by Metaldyne's niche market-leadership position in certain segments of its markets, good working relationships with the automakers, good engineering capabilities, a concentration on value-added products, and fair customer and platform diversity, which has allowed the company to generate satisfactory operating margins of around 13%.
The inquiry relates to allegations that income at the division had been deliberately overstated by about $20 million from 1996 to 1999 and then understated by $10 million from 2000 to 2003 by the division controller.
The timing for the completion, or the scope, of the audit and inquiry has not been determined. The company is in the process of seeking a waiver of the reporting requirements from its senior credit facility and receivables facility lenders, which is deemed high likely to be granted. The ability to retain access to sources of funding is an important underpinning to the company's ongoing operations. Failure to file the 10K by mid-April could result in the acceleration of Metalyne's $100 million senior unsecured and $250 million subordinated notes should holders of at least 25% in principal amount of outstanding notes declare the notes due immediately. Standard & Poor's does not expect the notes to be accelerated.
"The ratings could be lowered if the company's near-term access to liquidity becomes severely constrained and/or debt leverage does not improve over the next 12 months to levels consistent with the current rating," Ms Chee said.
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find Ratings, then Credit Ratings Search.