/raid1/www/Hosts/bankrupt/TCR_Public/200618.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
Thursday, June 18, 2020, Vol. 24, No. 169
Headlines
ABILITY INC: Posts US$7.7 Million Net Loss in 2019
ACHILLES ACQUISITION: S&P Rates New Term Loans 'B'
ADVANTAGE SALES: Moody's Alters Outlook on B3 CFR to Negative
AMERICAN AIRLINES: S&P Rates $100MM Revenue Bonds Series 2020 'B-'
ASTOR EB-5: Case Summary & 20 Largest Unsecured Creditors
AUTODESK INC: Egan-Jones Lowers FC Senior Unsecured Rating to BB
AVSC HOLDING: S&P Downgrades ICR to 'CCC'; Outlook Negative
BETTER THAN LOGS: Case Summary & 20 Largest Unsecured Creditors
BOARDRIDERS INC: S&P Lowers ICR to 'CCC+'; Outlook Negative
BRIGGS & STRATTON: Skips $6.7 Million Interest Payment
BROOKLYN EVENTS CENTER: S&P Withdraws B+ Senior Secured Debt Rating
BUZZARDS BENCH: U.S. Trustee Unable to Appoint Committee
CACI INTERNATIONAL: Egan-Jones Hikes Sr. Unsecured Ratings to BB+
CALFRAC HOLDINGS: Moody's Cuts CFR to Ca & Alters Outlook to Neg.
CALFRAC WELL: S&P Downgrades ICR to 'D' on Missed Interest Payment
CALIFORNIA PIZZA: Moody's Lowers CFR to Ca, Outlook Negative
CALIFORNIA RESOURCES: Extends Forbearance Period Until June 30
CARROLS RESTAURANT: Moody's Rates $50MM Term Loan Add-on 'B3'
CATSKILL DISTILLING: Hires Neal Brickman as Special Counsel
CHISOM HOUSING: S&P Lowers 2012A Revenue Bonds Rating to 'B-'
CINEMARK HOLDINGS: Egan-Jones Lowers Senior Unsecured Ratings to B
CIRCLE L CONSTRUCTION: Voluntary Chapter 11 Case Summary
CLEARWATER SEAFOODS: S&P Cuts ICR to B; Ratings Off Watch Negative
COLUMBUS MCKINNON: Egan-Jones Hikes Sr. Unsecured Ratings to BB-
COMSTOCK RESOURCES: Fitch Alters Outlook on 'B' IDR to Positive
COMSTOCK RESOURCES: Moody's Hikes CFR to B3 & Unsec. Notes to Caa1
COWBOY CLEANERS: U.S. Trustee Unable to Appoint Committee
CROCKETT COGENERATION: Moody's Hikes Senior Secured Notes to B3
DANA INC: Fitch Rates Proposed $400MM Unsecured Notes 'BB+/RR4'
DANA INC: Moody's Rates New $400MM Sr. Unsecured Notes 'B2'
DAWN ACQUISITIONS: S&P Downgrades ICR to 'B-' on Elevated Leverage
DELTA AIR LINES: S&P Rates Senior Unsecured Notes 'BB'
DICK'S SPORTING: Egan-Jones Lowers Senior Unsecured Ratings to BB-
DIOCESE OF ST. CLOUD: U.S. Trustee Appoints Creditors' Committee
DOLLAR TREE: Egan-Jones Lowers Senior Unsecured Ratings to BB+
DUNN PAPER: S&P Alters Outlook to Stable, Affirms 'B-' ICR
DUQUESNE, PA: S&P Removes 'BB' GO Bond Rating From Watch Negative
DXP ENTERPRISES: S&P Alters Outlook to Stable, Affirms 'B' ICR
EQM MIDSTREAM: Fitch Rates New Sr. Unsecured Notes 'BB/RR4'
EQM MIDSTREAM: Moody's Rates Proposed Unsec. Notes 'Ba3'
EQUINOX HOLDINGS: S&P Cuts First-Lien Facility Rating to 'CCC'
EXGEN RENEWABLES IV: Moody's Reviews B2 Secured Rating for Upgrade
EXPEDIA GROUP: Egan-Jones Lowers Senior Unsecured Ratings to BB-
EXTRACTION OIL: Fitch Cuts LongTerm IDR to 'D' on Bankr. Filing
FIBERCORR MILLS: Case Summary & 20 Largest Unsecured Creditors
FLYNN RESTAURANT: S&P Downgrades ICR to 'B-' on Lower Revenues
FORD MOTOR: Egan-Jones Lowers FC Senior Unsecured Rating to B+
FOSSIL GROUP: Egan-Jones Lowers Senior Unsecured Ratings to CCC-
GAP INC: Egan-Jones Lowers Senior Unsecured Ratings to B-
GAVILAN RESOURCES: July 27 Auction of All/Substantially Assets Set
GEORGIA DIRECT: Auction Sale of Remaining Personal Properties OK'd
GGI HOLDINGS: Gold's Gym Woodinville Appointed as Committee Member
GI DYNAMICS: Gets Two-Week Extension of 2017 Note Maturity Date
GREENSKY HOLDINGS: S&P Rates $75MM Tranche B-2 Term Facility 'B+'
GRUBHUB INC: S&P Keeps 'B+' Issuer Credit Rating on Watch Negative
HELIX GEN: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
HOOVER GROUP: S&P Downgrades ICR to 'CCC-'; Outlook Negative
HORIZON THERAPEUTICS: S&P Alters Outlook to Positive
HUNTSMAN CORP: Egan-Jones Lowers FC Senior Unsecured Rating to BB
HYTERA COMMUNICATIONS: U.S. Trustee Appoints Creditors' Committee
IFRESH INC: Delays Filing of Annual Report Due to COVID-19
J.C. PENNEY: Seeks to Hire Katten Muchin as Special Counsel
J.C. PENNEY: Seeks to Hire Kirkland & Ellis as Counsel
JETBLUE AIRWAYS: S&P Lowers New Term Loan Due 2024 Rating to 'B+'
KLAUSNER LUMBER: July 17 Auction of Substantially All Assets Set
KOSMOS ENERGY: Fitch Cuts LongTerm IDR to 'B', Outlook Negative
LANDS' END: S&P Downgrades ICR to 'CCC' on Refinancing Concerns
LEVEL 3 FINANCING: S&P Rates New $1BB Senior Unsecured Notes 'BB'
MAINES PAPER: Hires Getzler Henrich as Financial Advisor
MAINES PAPER: Hires Stretto as Claims and Noticing Agent
MEDNAX INC: S&P Affirms 'B+' ICR on Sale of Radiology Business
MICRO HOLDING: S&P Rates $500MM First-Lien Term Loan 'B'
NASCAR HOLDINGS: S&P Affirms 'BB' ICR; Outlook Negative
NEENAH INC: Moody's Rates New $200MM Secured Term Loan 'Ba3'
NEW GOLD: S&P Alters Outlook to Negative, Affirms 'B' ICR
NEXEO PLASTICS: S&P Downgrades ICR to 'B-' on Higher Leverage
NICHOLAS H. NOYES MEMORIAL HOSP: S&P Cuts Rev Debt Rating to 'BB-'
NORBORD INC: S&P Affirms 'BB' ICR Despite Higher Leverage
NORDSTROM INC: Egan-Jones Lowers Senior Unsecured Ratings to B+
PANOCHE ENERGY: Moody's Hikes Senior Secured Rating to B3
PARKING MANAGEMENT: Hires Joseph J. Blake as Appraiser
PATHWAY VET: S&P Assigns 'B' Issuer Credit Rating; Outlook Stable
PILGRIM'S PRIDE: Fitch Hikes LT IDR & Sr. Unsecured Notes to BB+
PLAINS ALL: Egan-Jones Lowers Senior Unsecured Ratings to BB
PLAYERS NETWORK: Case Summary & 20 Largest Unsecured Creditors
PLAYPOWER HOLDINGS: S&P Downgrades ICR to 'B-'; Outlook Negative
QUORUM HEALTH: Judge Grants Mudrick's Motion to File Reply
RECESS HOLDINGS: S&P Downgrades ICR to 'B-' on Higher Leverage
RGIS HOLDINGS: S&P Lowers ICR to 'D' on Missed Interest Payment
ROCK CHURCH: Asks Court to Refrain From Appointing Committee
SHAKER RD: Voluntary Chapter 11 Case Summary
SHIFT4 PAYMENTS: Moody's Hikes CFR to B2 & Alters Outlook to Pos.
STANDARD INDUSTRIES: Moody's Rates New Unsec. Notes Due 2030 'Ba2'
SUPERIOR PLUS: S&P Lowers ICR to 'BB-' on Elevated Leverage
TARGA RESOURCES: S&P Affirms 'BB' ICR; Outlook Stable
TAUBMAN CENTERS: Egan-Jones Lowers FC Sr. Unsecured Rating to BB-
TECH DATA: Egan-Jones Hikes Senior Unsecured Ratings to BB+
TIMOTHY A. MORRIS: $450K Private Sale of Benson Property Approved
TITAN INTERNATIONAL: Stockholders Pass All Proposals at Meeting
TOLL BROTHERS: Egan-Jones Lowers Senior Unsecured Ratings to BB-
TOPAZ SOLAR: Moody's Hikes Rating on Senior Secured Debt to B3
TOWN SPORTS: Warns of Possible Bankruptcy Filing
TRINITY INDUSTRIES: Egan-Jones Lowers Sr. Unsecured Ratings to BB-
UFC HOLDINGS: S&P Rates New $150MM First-Lien Term Loan 'B'
ULTRA RESOURCES: S&P Assigns 'BB+' Rating to $25MM DIP Facility
US SHIPPING: Moody's Confirms B3 CFR, Outlook Negative
VAIL RESORTS: Egan-Jones Lowers Senior Unsecured Ratings to BB+
VARSITY BRANDS: S&P Rates $100MM Senior Secured Notes 'CCC+'
W.R. GRACE: S&P Alters Outlook to Negative, Affirms 'BB' ICR
WATCO COS: S&P Affirms 'B-' Issuer Credit Rating; Outlook Stable
WG PARTNERS: Moody's Reviews B1 Senior Secured Rating for Upgrade
WMG ACQUISITION: Moody's Rates $900MM Sr. Secured Notes 'Ba3'
YOUNG MEN'S: U.S. Trustee Unable to Appoint Committee
[^] Recent Small-Dollar & Individual Chapter 11 Filings
*********
ABILITY INC: Posts US$7.7 Million Net Loss in 2019
--------------------------------------------------
Ability Inc. reported a net and comprehensive loss of US$7.74
million on US$1.88 million of revenues for the year ended Dec. 31,
2019, compared to a net loss and comprehensive loss of US$10.19
million on US$539,000 of revenues for the year ended Dec. 31,
2018.
As of Dec. 31, 2019, the Company had US$17.22 million in total
assets, US$20.08 million in total liabilities, and a total
shareholders' deficit of US$2.86 million.
Ziv Haft, Certified Public Accountants (Isr.) BDO Member Firm, in
Tel Aviv, Israel, the Company's auditor since 2015, issued a "going
concern" qualification in its report dated June 15, 2020 citing
that the Company has an accumulated deficit, working capital
deficit, suffered recurring losses and has negative operating cash
flow. Additionally, the Company is under an investigation of the
Israeli Ministry of Defense, which ordered a suspension of certain
export licenses. Additionally, severe restrictions imposed by many
countries on global travel as a result of the coronavirus disease
of 2019 outbreak have impeded the Group's ability to complete the
phase of the systems acceptances. These matters, along with other
reasons, raise substantial doubt about the Company's ability to
continue as a going concern.
Ability said, "Due to the continued low revenues and continued
significant legal and professional services fees, we have an
accumulated deficit, we suffered recurring losses and we have a
negative operating cash flow. We are under an investigation of the
IMOD, which ordered a suspension of certain export licenses.
Additionally, severe restrictions imposed by many countries on
global travel as a result of the COVID-19 outbreak have impeded our
ability to complete the phase of the systems acceptances with
respect to certain of our projects."
A full-text copy of the Form 20-F is available for free at the
Securities and Exchange Commission's website at:
https://is.gd/QE3TdX
About Ability Inc.
Ability Inc. is a holding company operating through its
subsidiaries Ability Computer & Software Industries Ltd., Ability
Security Systems Ltd., and Telcostar, which provide advanced
interception, geolocation and cyber intelligence products and
solutions that serve the needs and increasing challenges of
security and intelligence agencies, military forces, law
enforcement agencies and homeland security agencies worldwide.
ACHILLES ACQUISITION: S&P Rates New Term Loans 'B'
---------------------------------------------------
S&P Global Ratings said it assigned its 'B' debt rating to Achilles
Acquisition LLC's (d/b/a OneDigital) proposed $75 million
incremental first-lien term loan and $25 million delayed-draw term
loan (available for 12 months) both due October 2025. S&P also
assigned a '3' recovery rating, indicating its expectation of
meaningful recovery (50%) in the event of payment default.
The new financing will have similar terms to the previous
first-lien term loan, though both facilities will be non-fungible.
OneDigital will use the proceeds to pay down the $20 million of
revolver drawn and to put cash on the balance sheet for future
acquisitions.
The company's leverage in the 12 months ended March 31, 2020, pro
forma for the financing, was about 7.9x, elevated for the current
rating level. As the company uses proceeds for acquisitions over
the next year, leverage should improve, but this could be offset if
revenue or earnings deteriorate in light of the potential for
weakened operating conditions. Accordingly, S&P's negative outlook
on OneDigital continues to reflect heightened risk of credit
metrics being sustained at levels unsupportive of the current
rating within the next 12 months.
ADVANTAGE SALES: Moody's Alters Outlook on B3 CFR to Negative
-------------------------------------------------------------
Moody's Investors Service changed the outlook on Advantage Sales &
Marketing Inc. to negative from ratings under review. At the same
time, Moody's confirmed the company's B3 corporate family rating
and the B2 and Caa2 ratings for the first lien and second lien
credit facilities, respectively. The probability of default rating
was downgraded to Caa1-PD from B3-PD to reflect Moody's view of
high default risk with an above average recovery in the event of
default. The negative outlook reflects Moody's view that
Advantage's credit metrics will weaken through the end of 2020 amid
headwinds from the coronavirus outbreak that will pressure the
company's ability to address its 2021 debt maturities on favorable
economic terms. This action concludes the review for downgrade
initiated on March 19, 2020.
"Advantage's ratings will continue to face pressure until the
company addresses its 2021 debt maturities, particularly as ongoing
headwinds created by the coronavirus are expected to reach its low
point in the second quarter. There is also uncertainty with how the
retail and consumer products environment will change long term as a
result of the pandemic," said Moody's AVP-Analyst Andrew MacDonald.
"However, the confirmation of the corporate family rating reflects
its view that credit metrics should improve in 2021 as demo
operations resume and that the company should be able to address
debt maturities by the end of 2020. Failure to do so would lead to
downward ratings pressure given the limited timetable."
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. Advantage's
customers, clients and overall consumer behavior has been
significantly affected by the shock, more specifically, the
suspension of in-store sampling services and, partially offset by,
the increased demand for other sales services, including
headquarter sales and instore service offerings such as sanitation
and merchandising. Advantage's need to address significant debt
maturities during the next 12 months has left the company
vulnerable refinancing risk in light of the outbreak. Moody's
regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health and
safety. Its action reflects the impact on Advantage of the breadth
and severity of the global macroeconomic shock, and the related
broad deterioration in credit quality it has triggered.
Confirmations:
Issuer: Advantage Sales & Marketing Inc.
Corporate Family Rating, Confirmed at B3
Senior Secured 1st Lien Term Loan, Confirmed at B2 (LGD2) from
(LGD3)
Senior Secured 1st Lien Revolver Credit Facility, Confirmed at B2
(LGD2) from (LGD3)
Gtd Senior Secured 2nd Lien Term Loan, Confirmed at Caa2 (LGD5)
Downgrades:
Issuer: Advantage Sales & Marketing Inc.
Probability of Default Rating, Downgraded to Caa1-PD from B3-PD
Outlook Actions:
Issuer: Advantage Sales & Marketing Inc.
Outlook, Changed To Negative From Ratings Under Review
RATINGS RATIONALE
Advantage's B3 CFR broadly reflects its expectation that the
company's debt-to-EBITDA leverage (Moody's adjusted) when
considering the impact of the coronavirus will increase to the
mid-to-low 7x by year end 2020 from 6.5x as of the twelve months
ended March 31, 2020. Moody's bases this assumption on management's
estimate for revenue and EBITDA declines in the second quarter of
2020 and Moody's expectation of a less severely impacted second
half of the year based on the resumption of in-store sampling,
albeit on a very gradual and regionally focused level. Nonetheless,
there is uncertainty about the company's long-term prospects for
reducing leverage that may depend on how the retail and consumer
segments adapt to the risk of the current outbreak and future
pandemics. Advantage had previously demonstrated organic revenue
growth in the low single digits in 2019, leaving limited cushion
for continued long term growth should structural industry headwinds
develop after the current pandemic passes including changes in
consumer retail behavior or in-store traffic levels. While the
company's liquidity is weak given its maturity profile, the company
has sufficient liquidity to operate leading up to its July 2021
maturity and is supported by cash balances of $238 million at March
31, 2020 that have been further bolstered by proceeds from the
securitization of receivables sold in April 2020. The rating is
supported by Advantage's market position as the largest sales and
marketing agency in the US, its history of high customer retention
rates of about 98% and its history of successfully integrating
roughly 62 acquisitions since 2014.
The negative outlook reflects Moody's view that Advantage's credit
metrics will weaken during the next 12 months and that the
likelihood of a default should the company not be able to address
its near-term debt maturities at economically feasible terms.
The B2 rating on the first lien credit facilities reflects a one
notch override versus the B1 outcome based on its recovery
adjustment to the Moody's Loss Given Default model.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded should Advantage successfully address its
upcoming debt maturities with revenue and earnings expectations
supportive of debt-to-EBITDA sustained below 6.5x, EBITA/interest
expense of 1.75x, and free cash flow to debt sustained above 1%.
Ratings could be downgraded should Advantage's operating
performance decline such that debt-to-EBITDA increases to 7.5x,
EBITA/interest expense approaches 1x, or liquidity deteriorates
including negative free cash flow and reliance on revolver
borrowings. Failure to address the July 2021 term loan maturity
before the end of 2020 could also prompt a ratings downgrade.
Advantage Sales & Marketing Inc., headquartered in Irvine,
California, is a business solutions provider to consumer products
manufacturers and retailers. It provides outsourced sales,
marketing and merchandising services primarily in the US and Canada
and also in select markets abroad. Advantage is majority owned by
Leonard Green & Partners, L.P. and CVC Capital Partners and
minority owned by Bain Private Equity and management/other
investors. Revenues are nearly $3.8 billion for the twelve months
ended March 31, 2020.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
AMERICAN AIRLINES: S&P Rates $100MM Revenue Bonds Series 2020 'B-'
------------------------------------------------------------------
S&P Global Ratings assigned its 'B-' issue-level rating to American
Airlines Inc.'s $100 million New York Transportation Development
Corp. special facility revenue bonds series 2020 (American Airlines
Inc. John F. Kennedy International Airport Project). The company is
issuing these bonds to fund a portion of the cost of the renovation
and expansion of its facilities at JFK Airport as well as the
defeasance of the Aug. 1, 2020, maturity of its outstanding New
York Transportation Development Corp. special facility revenue
bonds series 2016. S&P rates the series 2020 bonds at the same
level as its 'B-' issuer credit rating on American Airlines Inc.,
which is two notches higher than its issue-level rating on its
senior unsecured debt, because the bondholders have the benefit of
a security package that is not available to the general unsecured
creditors. American and its parent American Airlines Group Inc.
guarantee the payments on the bonds and those guarantees are
secured by a mortgage on the company's leasehold interest in the
facility lease of Terminal 8 and related facilities at JFK Airport
from the Port Authority of New York and New Jersey.
ASTOR EB-5: Case Summary & 20 Largest Unsecured Creditors
---------------------------------------------------------
Debtor: Astor EB-5, LLC
956 Washington Avenue
Miami Beach, FL 33139
Business Description: Astor EB-5, LLC -- http://hotelastor.com--
is a Florida limited liability company doing
business as Hotel Astor. Located a few
blocks from the beach, this art deco
boutique hotel with original 1930s terrazzo
floors offers modern rooms, private terraces
with courtyard, and on-site pools, among
other amenities. The Debtor previously
sought bankruptcy protection on Nov. 14,
2018 (Bankr. S.D. Fla. Case No. 18-24170).
Chapter 11 Petition Date: June 17, 2020
Court: United States Bankruptcy Court
Southern District of Florida
Case No.: 20-16595
Judge: Hon. Robert A. Mark
Debtor's Counsel: Joel M. Aresty, Esq.
JOEL M. ARESTY P.A.
309 1st Ave S
Tierra Verde, FL 33715
Tel: 305-904-1903
E-mail: aresty@icloud.com
Estimated Assets: $10 million to $50 million
Estimated Liabilities: $1 million to $10 million
The petition was signed by Manuel Ferreria, manager.
A copy of the petition is available for free at PacerMonitor.com
at:
https://is.gd/O8jFww
List of Debtor's 20 Largest Unsecured Creditors:
Entity Nature of Claim Claim Amount
------ --------------- ------------
1. 1651 Astor LLC $241,905
6971 N. Federal Hwy
Suite 100
Boca Raton, FL 33487
2. SMS Lodging LLC $162,662
c/o Levine & Partners, P.A.
3350 Mary St.
Miami, FL 33133
3. Booking.com $30,288
P.O. Box 1639 1000 BP
Amsterdam, The Netherlands
4. Cole, Scott & Kissane $28,229
9150 South Dadeland Blvd
Suite 1400
Miami, FL 33156
5. Alejandro Martinez $25,000
1618 Sand Hill Road
Apt 105
Palo Alto, CA 94304
6. Maria Claudia Lodo $25,000
11659 Vinci Drive
Windermere, FL 34789
7. Stem LLC $18,000
c/o Chase Lawyers
21 SE 1 Ave.
Suite 700
Miami, FL 33131
8. Allen Norton & Blue PA $16,642
121 Majorca Avenue
Suite 300
Coral Gables, FL 33134
9. City of Miami Beach $16,292
1700 Convention Center Drive
Miami Beach, FL 33139
10. Washing Kings $16,236
1712 SW 1 St.
Miami, FL 33135
11. TY Group $15,129
10800 NW 106 St.
Suite 12 Miami, FL 3317
Suite 12
Miami, FL 33178
12. Florida Dept of Revenue $14,223
8175 NW 12th Street
Suite 224
Doral, FL 33126
13. Florida Power & Light $12,229
General Mail Facility
Miami, FL 331
14. Citi Business AAdvantage $12,174
P.O. Box 9001037
Louisville, KY 40290-1037
15. Atlantic Broadband $11,382
P.O. Box 371801
Pittsburgh, PA 15250-7801
16. American Express $11,300
Merchant Financing
World Financial Center
200 Vessey St.
New York, NY 10285
17. The Murtha Law Group, P.A. $11,008
7351 Office Park Place
Melbourne, FL 32940
18. Ford Harrison $7,450
P.O. Box 890836
Charlotte, NC 28289-0836
19. Neighbors Coffee Company $6,476
5963 SW 21 St
West Park, FL 33023
20. Waste Management $6,431
P.O. Box 4648
Carol Stream, IL 60197-4648
AUTODESK INC: Egan-Jones Lowers FC Senior Unsecured Rating to BB
----------------------------------------------------------------
Egan-Jones Ratings Company, on June 10, 2020, downgraded the
foreign currency senior unsecured rating on debt issued by Autodesk
Incorporated to BB from BB+.
Headquartered in San Rafael, California, Autodesk Incorporated is a
leading provider of computer-aided design software, offering a
broad portfolio of 3D computer-aided design (CAD) applications and
tools.
AVSC HOLDING: S&P Downgrades ICR to 'CCC'; Outlook Negative
-----------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on AVSC Holding
Corp. to 'CCC' from 'B-' and removed all of its ratings on the
company from CreditWatch, where S&P placed them with negative
implications on March 16, 2020.
At the same time, S&P is lowering its issue-level rating on the
company's first-lien debt to 'CCC' from 'B-' and its issue-level
rating on the company's second-lien debt to 'CC' from 'CCC'. S&P's
recovery ratings on the debt remain unchanged.
Companies have cancelled most of their group-based business travel
and events during the COVID-19 pandemic and S&P expects new event
bookings to pickup slowly.
Hotel and convention center-based corporate and group events have
ground to a halt since the beginning of the COVID-19 pandemic in
the U.S. Therefore, AVSC's revenue has declined substantially
because the demand for its audiovisual services is directly tied to
such events. While certain parts of the U.S. economy are
contemplating reopening in the summer of 2020, S&P believes the
recovery in group-based events in hotels, the primary source of
AVSC's revenue, will materially lag the rest of the travel and
hotel industry. Consequently, S&P expects the company's revenue to
be minimal in the second and third quarters of 2020 before slowly
recovering in the fourth quarter. Specifically, S&P forecasts that
AVSC will report a 55%-65% decline in its total reported revenue
for 2020. While S&P does expect the company's revenue to rebound in
2021, it believes the company's revenue growth in the first half of
the year will lag the rating agency's prior expectations.
S&P believes a default scenario is likely in the next 12 months
despite management's cost actions.
AVSC has aggressively managed its cost base in light of its minimal
revenue generation during the pandemic. Specifically, the company
has reduced its variable costs from revenue-based commissions, the
direct labor tied to its revenue services, as well as its supplies,
travel and entertainment, and freight. S&P said, "In addition, the
company has temporarily reduced some fixed costs in its selling,
general, and administrative (SG&A) functions through furloughs and
restructuring programs. While these cost-management initiatives are
substantial, S&P believes they will be insufficient to offset the
company's poor revenue generation, which the rating agency believes
will last for most of 2020 and into 2021. Absent outside sources of
capital, S&P expects AVSC's stranded operating costs--combined with
its debt interest costs, debt amortization payments, capital
expenditure, and working capital uses--to deplete its current
liquidity in the next 12 months and lead to a payment default or an
in- or out-of-court restructuring.
The company will need an amendment or waiver to avoid a technical
default under its covenants. The company has drawn $115 million
under its $135 million revolving credit facility and is holding
this cash on its balance sheet to bolster its liquidity during this
unprecedented period of minimal revenue. The first-lien leverage
covenant on its revolving credit facility is active because it has
drawn on more than 35% of the revolver's commitment, thus the
company must maintain first-lien net leverage of less than 7x as of
the first quarter of 2020. This requirement tightens to 6.85x
beginning in the second quarter. While the company was in
compliance with this covenant as of the first quarter of 2020, S&P
expects the company's diminishing EBITDA generation to lead to a
covenant violation by the second half of 2020.
"In our opinion, AVSC will need to secure an amendment or waiver
under its credit agreement to avoid a technical default and
maintain access to the liquidity provided by its revolving credit
facility. We believe that it could secure an amendment, though we
anticipate that it will be costly and may restrict the company's
future financial flexibility," S&P said.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus outbreak.
"Some government authorities estimate the pandemic will peak about
midyear, and we are using this assumption in assessing the economic
and credit implications. We believe the measures adopted to contain
COVID-19 have pushed the global economy into recession. As the
situation evolves, we will update our assumptions and estimates
accordingly," S&P said.
"The negative outlook on AVSC reflects our view that the company
will face a liquidity event in the next 12 months due to its
negligible EBITDA and negative cash flow generation, which will
deplete its liquidity sources. Our outlook also incorporates the
risk that the company's performance may be worse than we expect if
the coronavirus continues to spread for an extended period or it
employs poor cost management such that we believe a default
scenario is inevitable in the next six months," S&P said.
S&P could lower its rating on AVSC if it believes the company will
inevitably default on its debt or pursue a distressed debt exchange
or in-/out-of-court restructuring in the next six months. S&P
believes this scenario could occur if the company faces
greater-than-expected operating and working capital costs that
deplete its available liquidity faster than the rating agency
currently expects.
"We could raise our rating on AVSC if we believe it will be able to
manage its operating costs, working capital, and liquidity such
that we do not believe a default scenario is likely over the next
12 months. This scenario would most likely occur if the company
receives an external source of funding and liquidity injection
through a debt or equity offering," S&P said.
BETTER THAN LOGS: Case Summary & 20 Largest Unsecured Creditors
---------------------------------------------------------------
Debtor: Better Than Logs Inc.
17 A Street
Drummond, MT 59832
Business Description: Better Than Logs Inc. --
http://betterthanlogs.com-- designs and
manufactures concrete log siding products.
Chapter 11 Petition Date: June 16, 2020
Court: United States Bankruptcy Court
District of Montana
Case No.: 20-20160
Debtor's Counsel: Matt Shimanek, Esq.
SHIMANEK LAW PLLC
317 East Spruce Street
Missoula, MT 59802
Tel: 406-544-8049
E-mail: matt@shimaneklaw.com
Estimated Assets: $50,000 to $100,000
Estimated Liabilities: $1 million to $10 million
The petition was signed by Jonathan Perry, president.
A copy of the petition containing, among other items, a list of the
Debtor's 20 largest unsecured creditors is available for free at
PacerMonitor.com at:
https://is.gd/Cg6GD9
BOARDRIDERS INC: S&P Lowers ICR to 'CCC+'; Outlook Negative
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S&P Global Ratings lowered its ratings, including its issuer credit
rating on U.S.-based action sports apparel company Boardriders
Inc., to 'CCC+' from 'B-'.
The pandemic has eroded Boardriders' EBITDA, and S&P believes the
company's capital structure is unsustainable. Before the COVID-19
pandemic, Boardriders was already in a relatively vulnerable
position because of negative free cash flow generation due to
restructuring costs from the Billabong integration. A ransomware
attack in late 2019 also hurt profitability and cash flow, and the
company had minimal cushion under its net leverage covenant. Now it
has been heavily affected by the pandemic, which has caused
temporary closures of its retail stores as well as those of its
wholesale customers. At the onset of the pandemic, it took a number
of actions to minimize the damage, including employee furloughs or
reduced hours, salary reductions, and cancelling purchase orders.
However, these actions were not enough to offset the profitability
impact of an expected 40% revenue decline in the second fiscal
quarter of 2020 (ended April 30, 2020), mostly in its wholesale and
retail channels, modestly offset by e-commerce growth. The company
expects a significant EBITDA loss in the quarter, partially due to
volume declines and partially due to other factors such as
inventory liquidation and increased estimates of provisions for
losses from doubtful customer accounts. S&P expects full-year
fiscal 2020 (ending October 2020) reported EBITDA will be negative
and will not be enough to cover the company's annual cash interest
expense of about $45 million-$50 million unless the company obtains
additional liquidity and EBITDA rebounds closer to normalized
levels in the coming quarters.
The company will likely need additional liquidity to meet its
obligations over the next 12 months; otherwise, a default might
become highly likely. The drop in sales volumes will significantly
pressure the company's liquidity position over the next 12 months.
As of late May, Boardriders had about $100 million in cash and $15
million in revolving credit facility availability, which S&P
believes might not be sufficient to cover operating needs and
interest expense over the next 12 months, and the company indicated
that it might seek additional liquidity from its stakeholders. S&P
assumes that the company will be able to obtain this liquidity
through a combination of debt and equity from its lenders and its
financial sponsor owner, Oaktree. S&P believes Oaktree is
supportive of Boardriders, and earlier in the year Oaktree said it
was considering actions, including an equity contribution to cure a
potential future covenant violation. Therefore, S&P does not
believe a default scenario is highly likely over the next year.
However, the negative outlook reflects the possibility that S&P
could lower the rating by one or more notches if the company were
not able to raise the cash it needs to get through the next several
months, which would significantly increase the risk of a near-term
default. S&P could also lower the rating if the additional debt
burden from any new capital increased interest costs such that the
rating agency believed the company would have difficulty meeting
its interest payments with internally generated cash, thereby
causing S&P to believe a default in the next 12 months were
likely.
S&P expects significant improvements in profitability and credit
measures next year, but its expectation for negative free cash flow
generation still indicates an unsustainable capital structure.
Assuming it can get the necessary cash to make it through the next
several months, the company's fiscal 2021 (ending October 2021)
should be significantly better than fiscal 2020, and S&P expects
the company will generate positive EBITDA. Still, S&P believes the
capital structure is unsustainable primarily because it expects
free cash flow to remain negative through at least fiscal 2021, and
the company will continue to face the same challenge it faced
before the pandemic hit: returning to sales growth after several
years of flat to declining revenue. Constant currency revenue was
roughly flat in fiscal 2018 and declined in the mid-single-digit
percentages in 2019, primarily due to planned retail store
closures, declines in its DC brand, and a ransomware attack that
shifted some sales into early fiscal 2020. After completing most of
its initial restructuring and cost-savings initiatives in fiscal
2019 (ended October 2019), the company planned to shift its focus
to growth investments. Those plans were derailed by the COVID-19
pandemic, and S&P suspects it will be even more challenging to
return to sales growth given that it will likely have to cut back
on growth investments to preserve liquidity.
The negative outlook reflects the possibility that S&P will lower
its rating on Boardriders if it believes the risk of a near-term
default has increased, including a high likelihood of a specific
default scenario occurring within a year.
"We could lower our rating on Boardriders if a specific default
scenario in the next 12 months became likely. This could happen if
we no longer believed that the company would be able to obtain the
liquidity it needs in order to fund operations over the next
several months. It could also occur if the interest cost from
additional debt were too burdensome, or if we believed the company
would engage in a distressed debt exchange or other restructuring
without adequate compensation for lenders. It could also occur if a
resurgence of the coronavirus caused widespread store closures
again that led to negative EBITDA," S&P said.
"We could consider a positive rating action once we believed that
the company would be able to generate positive free cash flow while
maintaining adequate liquidity. We are unlikely to take a positive
rating action until demand for its products improves over the next
few quarters and we believe that future strict coronavirus
lockdowns are unlikely to recur," the rating agency said.
BRIGGS & STRATTON: Skips $6.7 Million Interest Payment
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With the approval of the Board of Directors of Briggs & Stratton
Corporation, the Company has chosen not to make an interest payment
of $6.7 million due on June 15, 2020 with respect to the Company's
outstanding 6.875% Senior Notes due 2020. Under the indenture
governing the Notes, the Company has a 30-day grace period to make
the Interest Payment before such non-payment constitutes an event
of default with respect to the Notes. During the grace period,
non-payment of the Interest Payment does not constitute a default
or event of default under the Credit Agreement. Failure to pay the
Interest Payment by July 15, 2020 will result in an event of
default under the Indenture and an event of default under the
Credit Agreement.
JPMorgan Credit Agreement Amendment
Briggs & Stratton Corporation, Briggs & Stratton AG, and certain
other subsidiaries of the Company entered into Amendment No. 5 to
Revolving Credit Agreement, among the Company, B&S AG, the other
loan parties party thereto, the lenders party thereto and JPMorgan
Chase Bank, N.A., as administrative agent. The Amendment, which
became effective on June 12, 2020, amends the Revolving Credit
Agreement, dated as of Sept. 27, 2019. The Amendment amends
certain provisions of the Existing Credit Agreement to, among other
things:
* revise the event of default respecting approval of a
permitted junior debt financing, equity issuance and/or real
property sale-leaseback transaction to require such a
transaction to have its proposed terms and conditions
approved by the required lenders and the Agent, and to be
closed, effective and fully funded on such approved terms,
in each case on or before July 15, 2020;
* during the period beginning on the Effective Date and ending
on July 26, 2020, increase the required borrowing
availability that the Company and its subsidiaries must
maintain under the revolving credit facility to at least
$22.5 million;
* reduce the maximum aggregate amount available for borrowing
or letters of credit under the revolving credit facility
that the Existing Credit Agreement contemplated by (i) $50
million to $550 million as of the Effective Date and (ii) an
additional $50 million to $500 million as of July 15, 2020;
and
* increase the applicable margins paid to lenders as part of
the variable interest rates for (i) LIBOR borrowings to 550
basis points and (ii) base rate borrowings to 450 basis
points, in each case effective on and after July 15, 2020.
On June 12, 2020, after the effectiveness of the Amendment, the
Company and its subsidiaries had $305.1 million of borrowings and
$53.0 million of letters of credit outstanding under the Credit
Agreement. As a result, availability under the Credit Agreement
was $61.9 million as of June 12, 2020.
Restores Base Salaries
On June 11, 2020, the Compensation Committee of the Company's Board
of Directors approved restoring the respective base salaries of the
Company's named executive officers from the previously disclosed
reduced levels that have been in effect since April 1, 2020.
Effective as of July 1, 2020, the named executive officers' base
salaries will be restored as follows: Todd J. Teske, chairman,
president and chief executive officer ($963,000); Mark A.
Schwertfeger, senior vice president and chief financial officer
($450,000); David J. Rodgers, senior vice president & president –
engines & power ($487,000); William H. Reitman, senior vice
president & president – support ($410,000); and Harold L. Redman,
senior vice president & president – Turf & Consumer Products
($400,000). The salary reductions for all other salaried employees
of the Company will also be restored effective July 1, 2020.
On June 11, 2020, the Board of Directors approved cash retention
awards for certain of the Company's executive officers and other
key employees. The aggregate amount of Retention Awards approved
was $5.125 million. Retention Awards to be paid to named executive
officers are as follows: Todd J. Teske, chairman, president and
chief executive officer ($1,200,000); Mark A. Schwertfeger, senior
vice president and chief financial officer ($600,000); David J.
Rodgers, senior vice president & president – engines & power
($425,000); and Harold L. Redman, senior vice president & president
– Turf & Consumer Products ($425,000). The Retention Awards will
be paid promptly following execution by the Participants of a
Retention Award agreement, which is anticipated to occur in the
near future.
Under the Retention Award program, a Participant will be required
to repay the Retention Award net of any tax withholding in the
event the Participant voluntarily resigns or is terminated by the
Company for cause before the earlier of June 11, 2021 or
consummation by the Company of certain significant transactions
specified in the Retention Award agreement. The Retention Awards
are in lieu of annual bonus and long-term incentive compensation
awards for fiscal 2021.
All other elements of the named executive officers' compensation
remain unchanged.
About Briggs & Stratton
Briggs & Stratton Corporation (NYSE: BGG), headquartered in
Milwaukee, Wisconsin, is a producer of gasoline engines for outdoor
power equipment, and is a designer, manufacturer and marketer of
power generation, pressure washer, lawn and garden, turf care and
job site products through its Briggs & Stratton, Simplicity,
Snapper, Ferris, Vanguard, Allmand, Billy Goat, Murray, Branco, and
Victa brands. Briggs & Stratton products are designed,
manufactured, marketed and serviced in over 100 countries on six
continents. Visit http://www.basco.com/and
http://www.briggsandstratton.comfor additional information.
Briggs & Stratton reported a net loss of $54.08 million for the
year ended June 30, 2019, compared to a net loss of $11.32 million
for the year ended July 1, 2018. As of March 29, 2020, Briggs &
Stratton had $1.59 billion in total assets, $930.28 million in
total current liabilities, $419.77 million in total other
liabilities, and $239.34 million in total shareholders'
investment.
* * *
As reported by the TCR on June 4, 2020, S&P Global Ratings lowered
its rating on Wisconsin-based small engine manufacturer Briggs &
Stratton Corp. (BGG) to 'CCC-' from 'CCC'. "We believe BGG's very
high debt load will remain unsustainable, reducing the likelihood
of the company refinancing the $195 million of unsecured notes at
par. Although the operating environment may not be as challenging
in FY21 as it was in FY20, we forecast sales will continue to
decrease next year as the company and its channel partners continue
to deal with weaker demand due to the coronavirus and resulting
economic slowdown. Profitability will likely improve only modestly
on cost-cuts and operating efficiencies. As a result, we expect
leverage will remain well above 10x throughout FY21," S&P said.
As reported by the TCR on April 16, 2020, Moody's Investors Service
downgraded its ratings for Briggs & Stratton Corporation, including
the company's corporate family rating and probability of default
rating (to Caa3 and Ca-PD, from B3 and B3-PD, respectively). The
downgrades reflect Moody's expectation of an increased likelihood
of default via a pre-emptive debt restructuring due to the
company's perceived inability to refinance its $195 million of
senior unsecured notes due December 2020, as compounded by its high
financial leverage and deemed untenable capital structure.
BROOKLYN EVENTS CENTER: S&P Withdraws B+ Senior Secured Debt Rating
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S&P Global Ratings withdrew its 'B+' issue-level rating on Brooklyn
Arena Local Development Corp.'s senior secured series 2016A, 2016B,
and 2009 payments in lieu of taxes (PILOT) bonds because it lacks
information that it considers necessary to maintain the rating. The
rating was on CreditWatch, where S&P placed it with negative
implications on Dec. 10, 2019. S&P also notes that the issuer
requested it withdraw the rating.
BUZZARDS BENCH: U.S. Trustee Unable to Appoint Committee
--------------------------------------------------------
The Office of the U.S. Trustee on June 15, 2020, disclosed in a
court filing that no official committee of unsecured creditors has
been appointed in the Chapter 11 case of Buzzards Bench, LLC.
About Buzzards Bench
Houston, Texas-based Buzzards Bench owns and operates natural gas
production and processing assets located in Carbon and Emery
Counties in Utah. It was established in 2018 initially to acquire
properties located in the Buzzards Bench field in Utah. These
properties were previously owned and operated by XTO Energy Inc., a
subsidiary of ExxonMobil Corporation. For more information, visit
https://www.buzzardsbench.com/
Buzzards Bench, LLC and Buzzards Bench Holdings, LLC sought Chapter
11 protection (Bankr. S.D. Tex. Lead Case No. 20-32391) on April
30, 2020. At the time of the filing, Debtors each disclosed assets
of between $10 million and $50 million and liabilities of the same
range. Judge David R. Jones oversees the cases. The Debtors
tapped Gray Reed and McGraw LLP as their bankruptcy counsel, and
Claro, LLC as their financial and marketing advisor.
CACI INTERNATIONAL: Egan-Jones Hikes Sr. Unsecured Ratings to BB+
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Egan-Jones Ratings Company, on June 9, 2020, upgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by CACI International Inc. to BB+ from BB.
Headquartered in Arlington County, Virginia, CACI International
Inc. provides information technology products and services.
CALFRAC HOLDINGS: Moody's Cuts CFR to Ca & Alters Outlook to Neg.
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Moody's Investors Service downgraded Calfrac Holdings, LP's
Corporate Family Rating to Ca from Caa2, Probability of Default
Rating to Ca-PD from Caa2-PD, senior unsecured notes rating to C
from Caa3 and Speculative Grade Liquidity Rating to SGL-4 from
SGL-3. At the same time the outlook was changed to negative from
stable.
"The downgrade reflects its view that Calfrac's current capital
structure is not sustainable and the company will imminently look
to restructure its debt" said Moody's Analyst Jonathan Reid.
This rating action follows Calfrac's announcement that it will
defer the June 15, 2020 cash interest payment on its US$432 million
unsecured notes [1]. If the company does not make the payment
within the 30-day grace period Moody's will append an "/LD"
designation to PDR indicating that a limited default has occurred.
Downgrades:
Issuer: Calfrac Holdings, LP
Corporate Family Rating, Downgraded to Ca from Caa2
Probability of Default Rating, Downgraded to Ca-PD from Caa2-PD
Speculative Grade Liquidity Rating, Downgraded to SGL-4 from SGL-3
Senior Unsecured Regular Bond/Debenture, Downgraded to C (LGD5)
from Caa3 (LGD4)
Outlook Actions:
Issuer: Calfrac Holdings, LP
Outlook, Changed To Negative From Stable
RATINGS RATIONALE
Calfrac (Ca CFR) is challenged by: 1) high near-term debt
restructuring risk and the associated risk of substantial principal
losses to creditors; 2) a very-high debt burden and significant
negative free cash flow generation over the next 12-18 months as a
result of the rapid decline in pressure pumping activity levels;
and 3) the company's concentration in the pressure pumping segment
combined with its relatively small size compared to larger
diversified oilfield service players. Calfrac is supported by: 1)
its strong market position in Canada; and 2) basin diversifications
in the US and internationally (Russia and Argentina) that
alleviates down cycles in any one region under more normalized
industry conditions.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The oilfield
service sector has been one of the sectors most significantly
affected by the shock given its sensitivity to demand and oil
prices. More specifically, the weaknesses in Calfrac's credit
profile have left it vulnerable to shifts in market sentiment in
these unprecedented operating conditions and Calfrac remains
vulnerable to the outbreak continuing to spread and oil prices
remaining weak. Moody's regards the coronavirus outbreak as a
social risk under its ESG framework, given the substantial
implications for public health and safety. Its action reflects the
impact on Calfrac of the breadth and severity of the oil demand and
supply shocks, and the broad deterioration in credit quality it has
triggered.
Governance risks considered as part of this rating are Calfrac's
financial policies that have led to high debt loads in a volatile
industry resulting in weak leverage and interest coverage, and have
led to elevated risk of debt restructuring and losses to
debtholders.
Calfrac has weak liquidity (SGL-4). Calfrac's sources of liquidity
are approximately C$140 million over the next four quarters versus
uses of around C$120 million in negative free cash flow. Sources
include approximately C$35 million of accessible cash (its
assumption of around C$65 million of cash on hand less C$30 million
in operating cash which Moody's believes the company needs to run
the business) and about C$105 million available under its
approximately C$275 million (C$375 million commitment) revolving
borrowing base credit facility due June 2022 as of its June 15,
2020 press release. Moody's expects that based on the dramatic
decline in EBITDA generation expected in 2020, there is a very high
likelihood that Calfrac will breach the financial covenants of its
credit facility in the next four quarters. Alternative liquidity is
limited as Moody's believes the current environment of the global
oilfield services industry would make it difficult for the company
to sell assets.
Calfrac's US$432 million senior unsecured notes are rated C, one
notch below the Ca CFR, reflecting of the priority ranking C$375
million secured credit facility and the US$120 million in second
lien notes in accordance with Moody's Loss Given Default
Methodology.
The negative outlook reflects high likelihood that Calfrac will
restructure its debts which could result in lower levels of
recovery for debtholders than currently estimated.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if Calfrac defaults on elements of
its capital structure or if Moody's expects the recovery value on
Calfrac's unsecured notes to be lower than currently estimated.
The ratings could be upgraded if Calfrac significantly reduced its
debt to more sustainable levels while improving its overall
liquidity, if the company substantially eliminated the risk of
violating its covenants, and if Moody's believes the risk of debt
restructuring has been substantially reduced.
Calfrac Holdings, LP, an indirectly wholly owned subsidiary of
Calfrac Well Services Ltd. Calfrac Well Services Ltd. is a Calgary,
Alberta-based provider of hydraulic fracturing services to
exploration and production companies.
The principal methodology used in these ratings was Global Oilfield
Services Industry Rating Methodology published in May 2017.
CALFRAC WELL: S&P Downgrades ICR to 'D' on Missed Interest Payment
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S&P Global Ratings lowered its long-term issuer credit rating on
Calgary, Alta.-based Calfrac Well Services Ltd. to 'D' (default)
from 'CCC-' after the company did not pay its June 15 interest
payment on its senior unsecured notes due 2026.
The rating agency believes the company is unlikely to make the
interest payment on the notes within the 30-day grace period as it
pursues long-term capital structure solutions. A failure to pay
interest on the notes before the end of the grace period would be
an event of default under all the company's other debt
obligations.
At the same time, S&P lowered its issue-level rating on the
company's senior unsecured notes due 2026 to 'D' from 'CC'. S&P's
recovery rating on the unsecured debt is unchanged at '5',
indicating its expectation of 15% recovery under its simulated
default scenario.
"The downgrade reflects our belief that continued weak crude oil
prices, the depressed demand outlook for oilfield services, and the
distressed level at which Calfrac's debt is trading make it likely
the company will not make the interest payments within the grace
period. The company continues discussions with its debtholders, and
we believe these will result in a comprehensive debt restructuring
or a bankruptcy filing," S&P said.
CALIFORNIA PIZZA: Moody's Lowers CFR to Ca, Outlook Negative
------------------------------------------------------------
Moody's Investors Service downgraded California Pizza Kitchen,
Inc.'s Corporate Family Rating to Ca from Caa3 and Probability of
Default Rating to Ca-PD/LD from Caa3-PD. In addition, Moody's
downgraded CPK's 1st lien senior secured revolver to Ca from Caa2,
1st lien senior secured term loan to Ca from Caa2 and 2nd lien
senior secured term loan to C from Ca. In addition, Moody's
assigned a B3 to CPK's $60 million super -priority delayed draw 1st
lien term loan. The rating outlook is negative.
"The downgrade reflects CPK's decision not to pay interest due to
1st lien and 2nd lien term loan lenders on May 29, 2020, as well as
its intention not to make future debt service payments on these
debt instruments," stated Bill Fahy, Moody's Senior Credit Officer.
CPK entered into a forbearance agreement with its 1st lien TL
lenders covering the failure to pay principal or interest, as well
as failure to provide year-end audited financial statements and
covenant violations. "Moody's views the non-payment of interest and
principal as an event of default regardless of the existence of a
forbearance agreement since required payments as well as future
payments will not be made within the contractual terms of the
respective credit agreements " stated Fahy. CPK has not yet entered
into a forbearance agreement with 2nd lien lenders.
Downgrades:
Issuer: California Pizza Kitchen, Inc. (CPK)
Probability of Default Rating, Downgraded to Ca-PD/LD from Caa3-PD
(/LD Appended)
Corporate Family Rating, Downgraded to Ca from Caa3
Senior Secured 1st Lien Bank Credit Facility, Downgraded to Ca
(LGD3) from Caa2 (LGD3)
Senior Secured 2nd Lien Bank Credit Facility, Downgraded to C
(LGD5) from Ca (LGD5)
Assignments:
Issuer: California Pizza Kitchen, Inc. (CPK)
Senior Secured Priority Term Loan, Assigned B3 (LGD1)
Outlook Actions:
Issuer: California Pizza Kitchen, Inc. (CPK)
Outlook, Remains Negative
RATINGS RATIONALE
CPK's credit profile reflects its need to complete a balance sheet
restructuring as weak operating performance that was further
exacerbated by restrictions across CPK's restaurant base to help
contain the spread of the coronavirus are expected to result in a
material deterioration in earnings, free cash flow and credit
metrics. CPK is further constrained by the near-term refinancing
risk with its revolver due August 23, 2021 and weak liquidity. CPK
benefits from a high level of brand awareness, various strategic
initiatives to enhance the customer experience and reduce costs,
and success of some recently opened stores with average unit
volumes higher than its average restaurant.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The restaurant
sector has been one of the sectors most significantly affected by
the shock given its sensitivity to consumer demand and sentiment.
More specifically, the weaknesses in CPK's credit profile,
including its exposure to widespread location closures have left it
vulnerable to shifts in market sentiment in these unprecedented
operating conditions and CPK's remains vulnerable to the outbreak
continuing to spread. Moody's regards the coronavirus outbreak as a
social risk under its ESG framework, given the substantial
implications for public health and safety.
Governance risk associated with private equity ownership is a
negative rating factor for CPK given the aggressive financial
strategies employed by private equity owners including high
leverage and the heightened risk of debt financed distributions to
shareholders. CPK is majority owned by affiliates of Golden Gate
Capital.
The negative outlook reflects its view for the need of CPK to
restructure its balance sheet and significantly strengthen cash
flows.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded if CPK reaches an agreement to right size
its capital structure to a level that can be supported by current
operating levels.
Ratings could be downgraded in the event CPK is unable to
successfully execute an out of court restructuring of its balance
sheet and operations.
California Pizza Kitchen, Inc. is an owner, operator and franchisor
with 224 casual dining restaurants in 28 states and 7 countries.
The company is majority owned by affiliates of Golden Gate Capital.
Annual revenue was approximately $570 million for the LTM period
ending March 31, 2020.
The principal methodology used in these ratings was Restaurant
Industry published in January 2018.
CALIFORNIA RESOURCES: Extends Forbearance Period Until June 30
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California Resources Corporation and certain of its subsidiaries
entered into amendments with respect to those certain forbearance
agreements, dated June 2, 2020 with:
* certain lenders representing a majority of the outstanding
principal amount of the loans under its Credit Agreement,
dated as of Sept. 24, 2014, by and among the Company, as the
Borrower, the subsidiary guarantors party thereto, the
various Lenders identified therein, JPMorgan Chase Bank,
N.A., as Administrative Agent, a Lender and a Letter of
Credit Issuer, and Bank of America, N.A., as a Lender and a
Letter of Credit Issuer;
* certain lenders representing a majority of the outstanding
principal amount of the term loans under its Credit
Agreement, dated Aug. 12, 2016, by and among the Company, as
the Borrower, the various Lenders identified therein and The
Bank of New York Mellon Trust Company, N.A., as
Administrative Agent; and
* certain lenders representing a majority of the outstanding
principal amount of the term loans under its Credit
Agreement, dated as of Nov. 17, 2017, by and among the
Company, as the Borrower, the subsidiary guarantors party
thereto, the various Lenders identified therein and The Bank
of New York Mellon Trust, N.A., as Administrative Agent.
Pursuant to the Amendments, the Forbearing Parties agreed to extend
the period in which they will forbear from exercising any remedies
under the Credit Agreements with respect to the failure to make
certain interest payments due on May 29, 2020 until the earlier of
(a) 11:59 p.m. (New York time) on June 30, 2020 and (b) the date
the Forbearance Agreements otherwise terminate in accordance with
their terms. The Amendments also modified certain of the covenants
with which the Company must comply during the forbearance period.
The failure to comply with such covenants, among other things,
would result in the early termination of the forbearance period.
About California Resources
California Resources Corporation -- http://www.crc.com-- is an oil
and natural gas exploration and production company headquartered in
Los Angeles, California. CRC operates its resource base
exclusively within the State of California, applying complementary
and integrated infrastructure to gather, process and market its
production.
California Resources reported a net loss attributable to common
stock of $28 million for the year ended Dec. 31, 2019, compared to
net income attributable to common stock of $328 million for the
year ended Dec. 31, 2018. As of Dec. 31, 2019, the Company had
$6.96 billion in total assets, $709 million in total current
liabilities, $4.87 billion in long-term debt, $146 million in
deferred gain and issuance costs, $720 million in other long-term
liabilities, $802 million in redeemable non-controlling interests,
and total deficit of $296 million.
* * *
In March 2019, S&P Global Ratings lowered the issuer credit rating
on the company to 'CC' from 'CCC+'. The downgrade follows the
company's announcement of a potential exchange transaction that
aims to swap CRC's 8% second-lien notes due 2022, 5.5% unsecured
notes due 2021, and its 6% unsecured notes due 2024 into two
packages of new securities including a) "RoyaltyCo" notes and
RoyaltyCo Class B shares or b) 1.75 lien term
loan and CRC warrants.
As reported by the TCR on April 6, 2020, Moody's Investors Service
downgraded California Resources Corp.'s Corporate Family Rating to
Caa3 from Caa1. The rating actions reflect CRC's elevated
restructuring risk, including the potential for a bankruptcy filing
or distressed exchange, following its failed attempt to execute a
debt for debt exchange in March.
CARROLS RESTAURANT: Moody's Rates $50MM Term Loan Add-on 'B3'
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Moody's Investors Service assigned a B3 rating to Carrols
Restaurant Group, Inc.'s proposed $50 million term loan add-on. The
net proceeds will be used to repay outstanding loans under the
company's revolving credit facility, thereby improving liquidity.
Pro-forma for the transactions, Carrols will have cash and cash
equivalents of approximately $37M and revolver availability of $98
million.
Carrols' B3 corporate family rating, B3-PD probability of default
rating, B3 first lien bank loan and SGL-3 speculative grade
liquidity ratings remain unchanged. The outlook is negative.
Beginning in late March 2020 same store sales declined
precipitously due to mandated closure of dine-in units and shelter
in place orders caused by the outbreak of COVID-19. However,
starting in April, same store sales began a steady improvement,
turning positive in June. Drive-through, delivery operations and
higher average ticket along with cost reductions, deferrals and
reduction in capital spending has allowed the company to generate
positive cash flow in April and May.
The negative outlook reflects the need to reduce leverage at a time
of material demand uncertainty caused by the evolving coronavirus
pandemic.
Assignments:
Issuer: Carrols Restaurant Group, Inc.
Senior Secured Bank Credit Facility, Assigned B3 (LGD3)
RATINGS RATIONALE
Carrols B3 CFR benefits from its material scale (1,090 units), the
2019 addition of a new faster growing concept, Popeye's Louisiana
Kitchen, geographic diversification across 23 states, well balanced
day-part offerings and a solid track record of same store sales
growth. Carrol's is supported by its good relationship with
Restaurant Brands International, Inc. (owner of Burger King), its
position as the largest franchisee in the Burger King system (14%
of units) and RBI's 15% equity ownership of Carrols. Carrols' is
constrained by the need to digest acquisitions and ramp-up new
builds that have been added to the system at a rapid pace over the
past few years, the competitive and promotional operating
environment, and wage and cost inflation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could result in a downgrade include a sustained
deterioration in traffic, EBIT/interest sustained below 1.0x,
debt/EBITDA remains above 6.5x or if liquidity weakens.
Factors that could result in an upgrade include debt/EBITDA
dropping to 5.75x, EBIT/Interest rising to 1.4x, and generating
positive free cash flow on a consistent basis.
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The restaurant
sector has been one of the sectors most significantly affected by
the shock given its sensitivity to consumer demand and sentiment.
More specifically, the weaknesses in Carrol's credit profile have
left it vulnerable to shifts in market sentiment in these
unprecedented operating conditions and Carrol's remains vulnerable
to the outbreak continuing to spread. Moody's regards the
coronavirus outbreak as a social risk under its ESG framework,
given the substantial implications for public health and safety.
Carrols Restaurant Group, Inc. owns and operates approximately
1,036 Burger King and 65 Popeyes restaurants across 23 states in
the Northeast, Midwest, South and Southeast. Revenue for the
year-end December 29, 2019 was $1.46 billion.
The principal methodology used in this rating was Restaurant
Industry published in January 2018.
CATSKILL DISTILLING: Hires Neal Brickman as Special Counsel
-----------------------------------------------------------
Catskill Distilling Co., Ltd., seeks authority from the U.S.
Bankruptcy Court for the Southern District of New York to employ
The Law Offices of Neal Brickman, P.C., as special counsel to the
Debtor.
Catskill Distilling requires Neal Brickman to advise the Debtor of
its rights regarding the transactional elements of the sale of its
assets, including the negotiation of the contract of sale and the
closing thereof.
Neal Brickman will be paid at the hourly rate of $500.
Neal Brickman will also be reimbursed for reasonable out-of-pocket
expenses incurred.
Neal Brickman, partner of The Law Offices of Neal Brickman, P.C.,
assured the Court that the firm is a "disinterested person" as the
term is defined in Section 101(14) of the Bankruptcy Code and does
not represent any interest adverse to the Debtor and its estates.
Neal Brickman can be reached at:
Neal Brickman, Esq.
The Law Offices of Neal Brickman, P.C.
420 Lexington Avenue, Suite 2440
New York, NY 10170
Tel: (212) 986-6840
About Catskill Distilling Co.
Catskill Distilling Company, Ltd., is a distillery in Bethel, N.Y.,
owned and run by Stacy Cohen.
Catskill Distilling Company filed a petition under Chapter 11 of
the Bankruptcy Code (Bankr. S.D.N.Y. Case No. 19-36861) on Nov. 19,
2019. In the petition signed by Stacy Cohen, president, the Debtor
was estimated to have $1 million to $10 million in both assets and
liabilities.
Michelle L. Trier, Esq., at Genova & Malin, is the Debtor's legal
counsel.
CHISOM HOUSING: S&P Lowers 2012A Revenue Bonds Rating to 'B-'
-------------------------------------------------------------
S&P Global Ratings lowered its rating on Public Finance Authority,
Wis.' series 2012A multifamily housing revenue bonds, issued for
Chisom Housing Group (CHG), Wash.'s Section 8 assisted-housing pool
project, by nine notches to 'B-' from 'A-'. The outlook is
negative.
"The downgrade reflects a sudden and significant increase in
expenses, which will negatively affect adjusted net operating
income and result in a precipitous decrease in adjusted debt
service coverage to below 1x in fiscal 2020," said S&P Global
Ratings credit analyst Emily Avila.
S&P has analyzed the pool's environmental, social, and governance
risks relative to coverage and liquidity, management and
governance, and market position. It considers the pool's
environmental risks to be somewhat elevated, because five out of 11
properties are in coastal areas of the country subject to extreme
weather conditions. This contributed to the significant increase in
insurance expense, which will have long-term financial implications
for the pool. S&P views the obligor's governance risk to be higher
than average compared with the sector due to its lack of risk
mitigation policies and strategic plans, which leaves the pool
vulnerable to operational volatility. Health and safety concerns
related to the COVID-19 pandemic, which S&P considers a social risk
under its ESG factors, and how those risks affect timely debt
service payments, will be minimal for subsidized affordable
multifamily housing properties. As such, in S&P's opinion, the
pool's social risks are in line with those of the sector.
The negative outlook reflects S&P's opinion of the pool's very low
projected and adjusted debt service coverage (DSC) in fiscal 2020
and very low levels of liquidity reserves. S&P expects expenses
will likely remain high, which could result in further decreases in
DSC. Management indicates it may need to tap the debt service
reserve fund to pay bond debt service within the year.
CINEMARK HOLDINGS: Egan-Jones Lowers Senior Unsecured Ratings to B
------------------------------------------------------------------
Egan-Jones Ratings Company, on June 11, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Cinemark Holdings Inc. to B from BB. EJR also
downgraded the rating on commercial paper issued by the Company to
B from A2.
Headquartered in Plano, Texas, Cinemark Holdings, Inc. operates
movie theaters.
CIRCLE L CONSTRUCTION: Voluntary Chapter 11 Case Summary
--------------------------------------------------------
Debtor: Circle L Construction, Inc.
500 Throckmorton, Suite 2002
Fort Worth, TX 76102
Business Description: Circle L Construction, Inc. is a foundation,
structure, and building exterior contractor.
Chapter 11 Petition Date: June 16, 2020
Court: United States Bankruptcy Court
Northern District of Texas
Case No.: 20-42073
Judge: Hon. Mark X. Mullin
Debtor's Counsel: David Ritter, Esq.
RITTER SPENCER PLLC
15455 Dallas Parkway, Suite 600
Addison, TX 75001
Tel: (214) 295-5078
E-mail: dritter@ritterspencer.com
Estimated Assets: $500,000 to $1 million
Estimated Liabilities: $1 million to $10 million
The petition was signed by Patricia Van Weezel, president.
A copy of the petition is available for free at PacerMonitor.com
at:
https://is.gd/QiGv5v
CLEARWATER SEAFOODS: S&P Cuts ICR to B; Ratings Off Watch Negative
------------------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on Bedford,
N.S-based Clearwater Seafoods Inc. and subsidiary Clearwater
Seafoods L.P. to 'B' from 'B+'. S&P also lowered its issue-level
rating on Clearwater's senior secured debt to BB-' from 'BB' and
senior unsecured notes to 'B' from 'B+'.
At the same time, S&P Global Ratings removed all of its ratings on
Clearwater from CreditWatch, where they had been placed with
negative implications March 10.
S&P anticipates widespread shutdowns and restaurant closures
spurred by the COVID-19 pandemic to severely affect demand for
Clearwater's key products. The impact of the pandemic and attempts
to contain it have resulted in event cancellations and severe
conditions for the restaurant industry globally. Clearwater is a
vertically integrated harvester, processor, and distributor of
premium quality seafood mainly to dine-in restaurants, food service
distributors, and grocery chains. The company generates about 50%
of its revenues from the food service customers, namely dine-in
restaurants, hotels, bars, and cruise lines. S&P expects
significantly weaker demand for the company's key species,
particularly lobsters, clams, scallops, and langoustines (which are
premium and super premium products), for the next few months as
various countries are still in the very early stages of easing
shelter-in-place restrictions. Furthermore, consumers could
increasingly adopt social distancing practices that will likely
keep restaurant traffic and operating capacity very low until the
outbreak is contained. While consumers might still use restaurant
delivery services during the pandemic, S&P does not believe this
will offset the impact of the decline in restaurant traffic.
"Given the uncertainties around the timing and speed of recovery
and longer-term adoption of social distancing practices, we now
expect Clearwater's revenues and EBITDA could sharply drop for
fiscal 2020. As a result, we forecast debt to EBITDA on an S&P
Global Ratings' adjusted basis to meaningfully weaken to about the
7x area for fiscal 2020, from about 4.5x as of year-end 2019,
gradually improving to the 6.0x area in fiscal 2021," the rating
agency said.
Cost-saving initiatives and government subsidy programs should
support EBITDA and margins. S&P forecasts that Clearwater's fiscal
2020 EBITDA margins on an S&P Global Ratings' adjusted basis could
weaken by more than 200 basis points relative to fiscal 2019
primarily because of a decline in revenues, but not a concurrent
reduction in expenses. S&P also estimates that Clearwater could
incur additional costs related to employee protection and safety,
which could modestly weigh on EBITDA. However, the rating agency
positively views the favorable support from federal governments
(wage subsidy programs) and other operating cost-saving measures
Clearwater has undertaken and believes these factors will prevent
the company's EBITDA and margins from deteriorating by a
significant degree.
The growth in the retail segment could partially offset the
pressures from the foodservice segment. S&P expects Clearwater's
retail revenues to modestly benefit from a surge in demand for
certain species such as frozen shrimp, scallops (used in ready-made
meals), and turbot as consumers stay home for an extended time.
Furthermore, shifting consumer preferences toward a healthier diet
could provide support to the company's revenues in the near term.
However, in S&P's opinion, these favorable trends are insufficient
to offset volume and revenue losses from the food service segment
in the near term.
S&P expects Clearwater to maintain an adequate liquidity position.
It estimates Clearwater will generate modestly positive free cash
flow despite declining revenues and EBITDA due in part to
cost-saving initiatives, working capital management, and reduction
in capital expenditures (capex). Furthermore, the company has
suspended shareholder dividends and has secured covenant amendments
for fiscal 2020. In addition, with about C$56 million in cash as of
March 31, 2020, and about C$90 million of availability under the
cash flow revolver, S&P believes Clearwater has sufficient
liquidity to manage through these unprecedented circumstances.
S&P acknowledges a high degree of uncertainty about the rate of
spread and peak of the coronavirus. Some government authorities
estimate the pandemic will peak about midyear, and the rating
agency is using this assumption to assess the economic and credit
implications. S&P Global Economics believes the measures adopted to
contain the coronavirus have pushed the global economy into
recession.
Environmental, social, and governance (ESG)credit factors for this
credit rating change:
-- Health and Safety
The negative outlook reflects the risks that an extended period of
restaurant closures, travel restrictions, and capacity limits even
after shelter-at-home orders are eased could cause greater
volatility in earnings. It also incorporates the risks that these
factors could keep Clearwater's credit measures elevated and
constraint the company's ability to recover operationally.
Separately, the outlook reflects the uncertainty as to how the
strategic review will affect the company's business and financial
risk profiles.
"We could lower the ratings within the next 12 months if we expect
that Clearwater's adjusted debt to EBITDA will remain above 7x in
2021 owing to higher-than-expected revenue erosion or pressure on
profitability," S&P said.
"Although unlikely until COVID-19 risks abates, we could revise the
outlook to stable if Clearwater is on track to strengthen credit
measures, including improving debt to EBITDA in the 6x area," the
rating agency said.
COLUMBUS MCKINNON: Egan-Jones Hikes Sr. Unsecured Ratings to BB-
----------------------------------------------------------------
Egan-Jones Ratings Company, on June 11, 2020, upgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Columbus McKinnon Corporation of New York to BB- from B+.
Columbus McKinnon Corporation of New York designs, manufactures,
and distributes a variety of material handling, lifting, and
positioning products.
COMSTOCK RESOURCES: Fitch Alters Outlook on 'B' IDR to Positive
---------------------------------------------------------------
Fitch Ratings has affirmed the Issuer Default Rating of Comstock
Resources, Inc. at 'B'. Fitch also affirmed Comstock's secured
revolver at 'BB'/'RR1' and the senior unsecured notes at
'B+'/'RR3'. The Rating Outlook was revised to Positive from
Negative.
CRK's rating reflects the company's position as the largest
producer of natural gas in the Haynesville shale basin, industry
low operating and drilling cost structure, ability to generate
positive FCF under Strip pricing assumptions, low differentials due
to its proximity to the Henry Hub, deep drilling inventory, and
significant equity commitment from its largest shareholder, Jerry
Jones. In addition, Comstock has increased its hedging program with
more than 60% of 2021 production hedged. This is offset by limited
liquidity. Approximately 89% of the revolver commitment was drawn
down as of March 31, 2020. However, pro forma for the proposed
senior note issuance, Fitch expects the draw down will be reduced
to 62% of the commitment. Fitch expects the company will be free
cash flow positive with proceeds to further reduce the revolver.
However, liquidity could be an issue if prices remain at
historically low levels for a longer period of time. Fitch also
believes that Comstock will be a consolidator of the Haynesville
basin, although past transactions were structured with significant
equity contributions and were not leveraging events.
The Positive Outlook reflects Fitch's expectation of positive free
cash flow, which would be applied to reduce debt and lead to
improved credit metrics over the next 12-18 months.
KEY RATING DRIVERS
Low Cost Operator: Comstock has one of the lowest operating cost
structures among its natural gas peers due to its low lease
operating costs and gathering and transportation costs. Fitch
believes the company's scale in the Haynesville will allow CRK to
further reduce gathering and transportation costs as current
contracts lapse. In addition, margins are similar to some of the
best Permian oil-based operators, as CRK's proximity to Henry Hub
allows the company to achieve minimal differentials and premium
pricing for its natural gas. Drilling costs have also declined over
time as the company has achieved scale through acquisitions. Fitch
anticipates further drilling cost reductions in the current low
commodity price environment.
Improving Liquidity: Comstock has drawn $1.25 billion on its $1.4
billion secured revolver as of March 31, 2020. The company is
planning to issue $400 million of senior unsecured notes with
proceeds to be applied to paying down the revolver. Thus, liquidity
is expected to improve from $166 million as of March 31, 2020 to
$532 million. Further, Fitch expects Comstock to generate FCF at
existing low Strip and Fitch base case pricing with proceeds to be
used to further reduce the revolver.
Largest Haynesville Producer: Following the acquisition of Covey
Park in 2019, Comstock is now the largest producer in the
Haynesville shale basin. The scale provides for significantly lower
operating, gathering and transportation, and drilling costs. The
Haynesville is located close to the Henry Hub and other major
natural gas buyers, which provides for lower differentials and
higher realized gas prices. Comstock has approximately 1,977 net
drilling locations in the Haynesville with 71% of the locations
with laterals greater than 5,000 feet. Approximately 95% of the
acreage is held by production, and the company operates 91% of its
position. The basin also benefits from favorable differentials
owing to its proximity to the Henry Hub and Gulf Coast, lower
midstream costs, and deep inventory.
FCF Despite Low Prices: Fitch believes Comstock can generate FCF in
its Base and Strip case scenarios, which reflect historically low
commodity prices, given its low operating and drilling cost
structure. The company is currently operating four rigs, down from
nine upon closing the Covey Park acquisition, with capex expected
in the $400 million-$450 million range leading to low single-digit
growth over the next several years. Fitch believes this number is
conservative given that oilfield service costs are rapidly
declining as those providers are scrambling for business. The
certainty of the free cash flow over the next two years is enhanced
by the company's hedging program.
Solid Hedging Program: Comstock aims to hedge approximately 50%-60%
of its forward 12-month gas production. The company has hedged
approximately 50% of its 2020 expected production at an average
price of $2.64 and greater than 60% of its 2021 production at an
average price of $2.51.
Preferred No Equity Credit: Fitch does not apply its Corporate
Hybrids Treatment and Notching Criteria as the new preferred stock
will be held by existing equity investors, or affiliates. Instead,
Fitch utilizes its Corporate Rating Criteria on applying equity
credit for shareholder and affiliated loans. The preferred stock
contains a provision for a mandatory cash redemption upon a change
of control. As a result, Fitch is not allowing equity credit for
the preferred stock. Given the stock is held by existing equity
investors and the lack of capital market access, Fitch does not
expect the preferred to be refinanced.
KEY ASSUMPTIONS
-- Base case West Texas Intermediate oil prices of $32 in 2020,
$42 in 2021, $50 in 2022, and long-term price of $52;
-- Base case Henry Hub natural gas price of $1.85 in 2020, $2.45
in 2021, $2.45 in 2022, and long-term price of $2.45;
-- Production growth of 55% in 2020 following Covey Park
acquisition and mid-single digit growth throughout the forecasted
period;
-- Four-rig program resulting in capex of $405 million in 2020.
Capex increasing to $470 million for the remainder of the
forecasted period;
-- No incremental acquisitions, divestitures or equity issuance.
Any FCF is assumed to be used to reduce debt. Fitch expects the
company to be a consolidator but is not projecting any acquisitions
given current industry and capital markets environment.
RECOVERY ASSUMPTIONS:
The recovery analysis assumes that Comstock Resources would be
reorganized as a going-concern in bankruptcy rather than
liquidated.
Fitch has assumed a 10% administrative claim.
Going-Concern (GC) Approach
Comstock's GC EBITDA assumptions reflects Fitch's projections under
a stressed case price deck, which assumes Henry Hub natural gas
prices of USD1.65 in 2020, USD1.65 in 2021, USD2.00 in 2022 and
USD2.25 in 2023.
The GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganization EBITDA level upon which Fitch bases the
enterprise valuation. The GC EBITDA assumption uses 2023 EBITDA,
which reflects the decline from current pricing levels to stressed
levels and then a partial recovery coming out of a troughed pricing
environment.
The model was adjusted for reduced production and varying
differentials given the material decline in the prices from the
previous price deck.
An EV multiple of 3.75x EBITDA is applied to the GC EBITDA to
calculate a post-reorganization enterprise value. The choice of the
multiple considered the following factors:
-- The historical case study exits multiples for peer companies
ranged from 2.8x-7.0x, with an average of 5.6x and median of 6.1x;
-- Comstock's $2.2 billion acquisition of Covey had an
approximate EBITDA multiple of 4.0x. Given that Comstock is the
only consolidator in the basin, Fitch believes higher multiples are
unlikely;
-- No value is assigned for the Bakken assets as there are no
plans for further drilling and the wells are being run down.
Liquidation Approach
The liquidation estimate reflects Fitch's view of the value of
balance sheet assets that can be realized in sale or liquidation
processes conducted during a bankruptcy or insolvency proceeding
and distributed to creditors.
Fitch considers valuations such as SEC PV-10 and M&A transactions
for each basin including multiples for production per flowing
barrel, proved reserves valuation, value per acre and value per
drilling location.
The senior secured revolver is expected to be fully drawn given the
current draw. The revolver is senior to the senior unsecured bonds
in the waterfall.
The allocation of value in the liability waterfall results in
recovery corresponding to 'RR1' recover for the senior secured
revolver ($1.4 billion) and a recovery corresponding to 'RR3' for
the senior unsecured notes ($1.875 billion pro forma for the notes
offering).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Executable plan to enhance liquidity greater than $500 million
through application of FCF, asset sales or equity to reduce the
revolver;
-- Demonstrated execution of generating positive FCF;
-- FFO increasing above $850 million;
-- Mid-cycle Gross Debt/EBITDA below 3.0x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A change in terms of financial policy that is debt holder
unfriendly, including not applying a material portion of FCF to
debt reduction;
-- Inability to enhance liquidity over next 12-18 months;
-- Material reduction in the borrowing base that further limits
liquidity.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Improving Liquidity and Runway: Comstock had $16 million of cash on
hand and availability under its $1.5 billion revolver of $150
million as of March 31, 2020. Pro forma for the senior note
issuance, availability under the revolver is expected to improve to
$530 million. In addition, Fitch anticipates the company will
generate positive free cash flow over the next several years, with
proceeds to be used to further reduce the revolver. Comstock's next
maturity is the revolver in 2024, followed by two senior note
maturities in 2025 ($625 million) and 2026 ($1,250 million pro
forma for the note issuance).
The borrowing base and commitments were reset at $1.4 billion from
$1.5 billion during the spring 2020 redetermination. The revolver
has two financial covenants: a leverage ratio of less than 4.0:1.0
and a current ratio of at least 1.0:1.0. The company was in
compliance with both as of March 31, 2020.
Although Comstock has been acquisitive, the financing structure of
the acquisitions has been conservative with strong equity
components to lighten the debt load. Fitch's expectation is that
Comstock will continue to be a consolidator of the Haynesville
basin but will limit the leverage component given the lack of
access to debt capital markets and material draw on the revolver.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
COMSTOCK RESOURCES: Moody's Hikes CFR to B3 & Unsec. Notes to Caa1
------------------------------------------------------------------
Moody's Investors Service upgraded Comstock Resources, Inc.'s
Corporate Family Rating to B3 from Caa1, Probability of Default
Rating to B3-PD from Caa1-PD and existing senior unsecured notes
ratings to Caa1 from Caa2. Moody's assigned a Caa1 rating to
Comstock's proposed offering of $400 million of new senior
unsecured notes due 2026. Comstock's Speculative Grade Liquidity
rating was upgraded to SGL-3 from SGL-4. The outlook was changed to
stable from negative. The proceeds from the senior notes offering
will be used to repay revolver borrowings.
"Comstock's ratings upgrade reflects its improved liquidity, the
largely equity-funded redemption of preferred stock and increased
hedge position for 2021," said Jonathan Teitel, a Moody's analyst.
"The enhanced liquidity and additional natural gas hedges better
position Comstock to contend with a low natural gas price
environment."
Upgrades:
Issuer: Comstock Resources, Inc.
Probability of Default Rating, Upgraded to B3-PD from Caa1-PD
Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4
Corporate Family Rating, Upgraded to B3 from Caa1
Senior Unsecured Notes, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)
Assignments:
Issuer: Comstock Resources, Inc.
Senior Unsecured Notes, Assigned Caa1 (LGD5)
Outlook Actions:
Issuer: Comstock Resources, Inc.
Outlook, Changed to Stable from Negative
RATINGS RATIONALE
Comstock's B3 CFR reflects basin concentration in the Haynesville
Shale, a natural gas focus and the low natural gas price
environment. Proximity to Henry Hub drives low basis differentials
for its natural gas production and the Haynesville has solid
gathering and pipeline infrastructure providing no takeaway
capacity concerns. Comstock is prioritizing free cash flow
generation and reduced leverage in 2020 over production growth.
Moody's expects positive free cash flow in 2020 to support debt
reduction through further repayments of revolver borrowings.
Longer-term, the large amount of proved undeveloped reserves will
require significant capital investment to drive sustained
production growth. Comstock's increased hedge position will
partially protect cash flow from low natural gas prices and reduce
exposure to volatile prices more generally. The company has no
near-term debt maturities with its revolver not expiring until 2024
and its bonds in 2025 and 2026. Comstock benefits from the support
of its majority-owner, Jerry Jones, who has invested a significant
amount of equity in the company.
The reduction in borrowings on the revolver using net proceeds from
the proposed bonds will improve liquidity by freeing up capacity on
the facility. Previously, Comstock's heavy reliance on the revolver
was a considerable constraint on liquidity. The full redemption of
$210 million of 10% Series A Convertible Preferred Stock in May
2020 largely funded by the issuance of common stock reduces annual
preferred dividends by $21 million, benefiting retained cash flow
and partially offsetting the incremental annual cash interest from
the new bonds. The $175 million of 10% Series B Convertible
Preferred Stock remains outstanding. This perpetual preferred
equity was issued to Jerry Jones in conjunction with funding of the
Covey Park acquisition in 2019.
The SGL-3 rating reflects Moody's view that Comstock will maintain
adequate liquidity through 2021. Comstock's revolver expires in
2024 and has a $1.4 billion borrowing base effective as of May 2020
following the semiannual redetermination. An amendment to the
revolver in June will keep the borrowing base at this level
following the bond issuance. The borrowing base was reduced from
$1.575 billion previously because of lower natural gas and oil
prices. Elected commitments had previously been $1.5 billion and
the commitment was reduced to $1.4 billion. As of March 31, 2020,
the company had $1.25 billion drawn on its revolver. Pro forma for
this transaction, the company is estimated to have less than $900
million drawn on its revolver and a minimal cash balance. The
revolver has financial covenants comprised of a maximum leverage
ratio and minimum current ratio. Moody's expects that financial
covenants could limit the company's access to less than the full
revolver availability, but that the effective availability will be
sufficient to meet the company's liquidity needs. The additional
hedging that Comstock has added more certainty to free cash flow
generation and reduced risk of covenant violations.
Comstock's 7.5% senior unsecured notes due 2025, 9.75% senior
unsecured notes due 2026 and proposed 9.75% senior unsecured notes
due 2026 are rated Caa1, one notch below the CFR, reflecting their
effective subordination to the secured revolver due 2024 (unrated)
which has a priority claim to the company's assets.
The stable outlook reflects Moody's expectation that Comstock will
generate positive free cash flow and further reduce leverage while
maintaining adequate liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a downgrade include higher leverage,
including retained cash flow to debt falling below 15%;
EBITDA/interest below 3x; a deterioration of liquidity; negative
free cash flow that leads to higher debt; or debt-funded
acquisitions.
Factors that could lead to an upgrade include consistent positive
free cash flow generation while growing both production and
reserves; lower leverage and retained cash flow to debt sustained
above 25%; and a leveraged full cycle ratio above 1.5x.
The principal methodology used in these ratings was Independent
Exploration and Production Industry published in May 2017.
Comstock, headquartered in Frisco, Texas, is a publicly-traded
independent exploration and production company with operations
focused in the Haynesville Shale. Average daily production for the
quarter ended March 31, 2020 was 1.4 Bcfe/d (98% natural gas).
COWBOY CLEANERS: U.S. Trustee Unable to Appoint Committee
---------------------------------------------------------
The Office of the U.S. Trustee on June 15, 2020, disclosed in a
court filing that no official committee of unsecured creditors has
been appointed in the Chapter 11 case of Cowboy Cleaners, Ltd.
About Cowboy Cleaners
Cowboy Cleaners, Ltd. is a San Antonio, Texas-based company that
offers cleaning services. It conducts business under the name
Cowboy Cleaners, Inc.
Cowboy Cleaners sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. W.D. Tex. Case No. 20-50897) on March 8,
2020. The petition was signed by Cowboy Cleaners President
Victoria Maisel. At the time of the filing, the Debtor had
estimated assets of less than $50,000 and liabilities of between
$500,001 and $1 million. Judge Craig A. Gargotta oversees the
case. James S. Wilkins, Esq., at Wilkins & Wilkins, L.L.P., is the
Debtor's legal counsel.
CROCKETT COGENERATION: Moody's Hikes Senior Secured Notes to B3
---------------------------------------------------------------
Moody's Investors Service has upgraded Crockett Cogeneration, LP's
senior secured notes to B3 from Caa1 and has placed the rating
under review for further upgrade. The outlook was changed to rating
under review from positive.
RATINGS RATIONALE
Its rating action reflects the majority support of Pacific Gas &
Electric Company's creditors for the utility's Plan of
Reorganization, the approval of the POR by the California Public
Utilities Commission, and its view of PG&E's credit quality upon
its emergence from bankruptcy. Through the PG&E bankruptcy, the
utility has remained current on obligations owed to power
generators including Crockett and the POR incorporates the utility
assuming its power purchase agreements, including the PPA with
Crockett. PG&E's bankruptcy and the risk of PPA rejection in
bankruptcy has been the primary risk constraining Crockett's credit
quality since the project derives virtually all of its operating
cash flow from its PPA with PG&E.
The rating also acknowledges Crockett's historically volatile
financial performance that is expected to continue through the term
of the debt. When determining the energy revenue component of
Crockett's revenues, the market heat rate used is the short-run
avoided cost, which has increased the volatility of Crockett's cash
flow due to low natural gas prices, variation in hydrology levels
and the continued increase in installed renewable electric capacity
across California. During 2019, the market heat rate, which helps
determine the SRAC price, improved to an average of 8,284 Btu/kwh
from 7,310 Btu/kwh in the previous year, leading to an improvement
in the debt service coverage ratio being above the 1.20x restricted
payment test for the first time in three years. Given the project
is able to defer some of its greenhouse gas emission costs based on
a pre-determined schedule that trues up every third year, in the
event the project does not purchase all of the corresponding carbon
instruments in the year GHG emissions are incurred, the DSCR on a
cash basis could be less than 1.0x, in such true-up year.
Crockett's liquidity remains adequate with a cash funded 6-month
debt service reserve fund of $12 million that was previously backed
by a $25 million letter of credit facility that was terminated on
March 6, 2020 and replaced with cash. In addition to the debt
service reserve fund, as of March 31, 2020, the project had $3.7
million in the major maintenance reserve account and unrestricted
cash of $7.3 million.
The review for upgrade will consider the expected emergence of PG&E
from bankruptcy including the confirmation by the bankruptcy court
leading to an emergence by the utility thereafter balanced against
the expected operating and financial performance of the project
including among other things, the ongoing SRAC related challenges.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
FACTORS THAT COULD LEAD TO AN UPGRADE
A rating upgrade is possible if PG&E emerges from bankruptcy under
its POR with an improved credit profile and the project continues
to maintains strong operating performance and adequate liquidity.
FACTORS THAT COULD LEAD TO A DOWNGRADE
The project could be downgraded if PG&E does not emerge from
bankruptcy under the terms of the POR, if the project were to
underperform, if liquidity resources were to decline appreciably
owing to SRAC related or other reasons, or if the project lost its
Qualifying Facility status.
PROFILE
Crockett is a California limited partnership formed in 1986 to own
and operate a 240-megawatt natural gas-fired electric power and
steam cogeneration facility located at the C&H sugar refinery in
Crockett, California. The entire electric output is sold to PG&E
under a 30-year Power Purchase Agreement that expires in May 2026,
and the steam is sold to C&H under a steam sales agreement that
expires in 2026. The facility operates as a QF as defined under the
Public Utility Regulatory Policies Act of 1978. Consolidated Asset
Management Services provides operations and maintenance services.
Crockett is currently indirectly owned by GEPIF NAP I Holdings,
LLC, who is indirectly owned by an infrastructure fund managed by
BlackRock, and 8.27% by Osaka Gas Company, Ltd.
METHODOLODY
The principal methodology used in this rating was Power Generation
Projects published in June 2018.
DANA INC: Fitch Rates Proposed $400MM Unsecured Notes 'BB+/RR4'
---------------------------------------------------------------
Fitch Ratings has assigned a rating of 'BB+'/'RR4' to Dana
Incorporated's proposed issuance of $400 million in senior
unsecured notes due 2028. Proceeds from the notes will be used for
general corporate purposes, including repaying $100 million in
outstanding borrowings on the company's revolver. DAN's Long-Term
Issuer Default Rating is 'BB+', and the Rating Outlook is
Negative.
KEY RATING DRIVERS
Ratings Overview: DAN's ratings are supported by the company's
market position as a top global supplier of driveline components
for light, commercial and off-road vehicles, as well as sealing and
thermal products. In the near term, the company's performance will
be significantly affected by the steep downturn in global light,
commercial and off-highway vehicle production driven by the
coronavirus pandemic, but Fitch expects the company's strong
liquidity position and financial flexibility will help it manage
through the worst of the crisis relatively well. That said, the
Negative Rating Outlook reflects Fitch's concerns that a deeper or
more prolonged downturn than currently envisioned could result in
the company's credit profile being weaker than previously expected
for an extended period. Fitch could downgrade DAN's ratings if it
appears that the company's credit protection metrics will remain
weaker than Fitch's downgrade sensitivities beyond year-end 2021.
DAN has a stated objective of achieving metrics consistent with
investment-grade ratings over the longer term, although debt
increased in conjunction with the Oerlikon Drive Systems
acquisition in 2019, and will increase further with the current
debt issuance. However, its decisions to annuitize a large portion
of its pension obligations in 2019 and to fund the ODS acquisition
with pre-payable term loans point toward its ongoing focus on
reducing debt and debt-like obligations over the intermediate term.
In conjunction with the proposed issuance, DAN will terminate the
364-day secured bridge facility that it entered into in April
2020.
In addition to Fitch's concerns regarding the effect of the
coronavirus pandemic on DAN's operational and financial
performance, other rating concerns include industry cyclicality,
particularly in the commercial and off-highway vehicle sectors, and
volatile raw material costs. With over 40% of DAN's revenue tied to
the more cyclical commercial and off-road vehicle segments, the
company is potentially exposed to greater revenue volatility than
suppliers that are primarily tied to the light vehicle sector.
However, DAN's more varied product portfolio provides a level of
customer diversification not seen at its primary competitors, and
commercial and off-road vehicle components tend to carry higher
margins than those for light vehicles.
Positive FCF: Fitch expects DAN's FCF to be modestly positive in
2020, driven by positive working capital, lower capex and the
company's decision to suspend paying common dividends starting in
the second quarter of 2020. In 2021, Fitch expects FCF to remain
positive, but it will likely be held back somewhat by an expected
working capital use of cash as business levels increase during the
year. A potential reinstatement of the dividend in 2021 could also
weigh on FCF. Fitch expects DAN's FCF margin to run at around 1.0%
in 2021 if the company reinstates its dividend in the first quarter
of the year and then to rise toward 3.0% in the following years on
more typical market conditions. Fitch expects capex as a percentage
of revenue to run in the 4.0% to 4.5% over the next several years,
with capex at the higher end of that range in 2020 as a result of
lower revenue.
Relatively Low Leverage: As a result of weak end-market conditions
and higher debt, Fitch now expects DAN's gross EBITDA leverage
(gross debt/EBITDA as calculated by Fitch) to be relatively high at
year-end 2020 but to return toward historical levels over the next
couple of years. Fitch expects the company will target any excess
cash toward debt reduction, with a focus on its pre-payable debt.
Fitch expects gross EBITDA leverage to be near 3.0x by year-end
2021 and to fall toward 2.5x by year-end 2022. Fitch also expects
FFO leverage to be around 3.5x at year-end 2021 but to decline
below 3.0x by year-end 2022.
Solid Coverage Metrics: Fitch expects DAN's FFO interest coverage
to decline by about 2x in 2020 as a result of the weak market
conditions. However, Fitch expects FFO interest coverage to rise to
about 6.0x by year-end 2021 and to rise further, toward 8.5x, in
2022 on a combination of higher FFO and declining interest
expense.
DERIVATION SUMMARY
DAN has a relatively strong competitive position focusing primarily
on driveline systems for light, commercial and off-road vehicles.
It also manufactures sealing and thermal products for vehicle
powertrains and drivetrains. DAN's driveline business competes
directly with the driveline businesses of American Axle &
Manufacturing Holdings, Inc. and Meritor, Inc. (BB-/Stable),
although American Axle focuses on light vehicles, while Meritor
focuses on commercial and off-road vehicles. From a revenue
perspective, DAN is similar in size to American Axle, although
American Axle's driveline business is a little larger than DAN's
light vehicle driveline business. Compared with Meritor, DAN has
roughly twice the annual revenue overall, and DAN's commercial and
off-highway vehicle driveline segments are a little larger overall
than Meritor's commercial truck and industrial segment.
DAN's EBITDA margins are roughly in-line with auto suppliers in the
low-'BBB' range. However, EBITDA leverage is more consistent with
auto and capital goods suppliers in the 'BB' range, such as Delphi
Technologies PLC (BB/Rating Watch Positive), Allison Transmission
Holdings, Inc. (BB/Stable), Meritor, or The Goodyear Tire & Rubber
Company (BB-/Negative).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
-- U.S. light vehicle sales decline at about 20% in 2020, while
global sales decline about 15%. After 2020, U.S. and global
sales rise but only make up about half the decline in 2020.
Sales do not return toward 2019 levels until 2022.
-- The global commercial vehicle and off-highway markets are
weak in 2020, with improvement seen in 2021, but, like the
light vehicle markets, a return toward 2019 levels is not
seen until 2022.
-- DAN's revenue declines roughly in-line with vehicle
production in 2020 when adjusted for a full year's worth
of ODS revenue. Revenue rises in 2021 but does not return
toward 2019 levels until 2022.
-- EBITDA margins decline in 2020 on lower production,
partially offset by cost savings measures. Margins improve
in 2021 and improve further in 2022 as production volumes
return, synergies from the ODS acquisition are achieved and
other cost efficiencies are kept in place.
-- FCF margins run in the low-single-digit range throughout the
forecast, supported in 2020 by positive cash from working
capital on lower business levels, reduced capex and the
dividend suspension. FCF margins remain positive but are
pressured a bit in 2021 working capital cash usage and a
potential reinstatement of the dividend. Margins improve
further in 2022 on more normalized business conditions.
-- Capex as a percentage of revenue runs in the 4.0% to 4.5%
range over the next few years, with spending in 2020 near
the higher end of the range despite lower actual spending
due to lower revenue.
-- The company maintains a solid liquidity position, with
excess cash used for debt reduction, acquisitions or share
repurchases.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Sustained gross EBITDA leverage below 2.0x;
-- Sustained post-dividend FCF margin above 2.0%;
-- Sustained FFO leverage below 2.5x;
-- Sustained FFO interest coverage above 5.5x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A severe prolonged decline in global vehicle production that
leads to reduced demand for DAN's products for a sustained
period;
-- A debt-funded acquisition that leads to weaker credit metrics
for a prolonged period;
-- Sustained gross EBITDA leverage above 2.5x;
-- Sustained FCF margin below 1.0%;
-- Sustained EBITDA margin below 10%;
-- Sustained FFO leverage above 3.5x;
-- Sustained FFO interest coverage below 3.0x.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: As of March 31, 2020, DAN had $651 million of
consolidated cash, cash equivalents and marketable securities. In
addition to its cash on hand, DAN maintains additional liquidity
through a $1.0 billion secured revolver that is guaranteed by the
company's wholly owned U.S. subsidiaries and is secured by
substantially all of the assets of DAN and its guarantor
subsidiaries. The revolver expires in 2024. As of March 31, 2020,
$300 million was drawn on the revolver, and $21 million of the
available capacity was used to back letters of credit, leaving $679
million in available capacity.
Based on the seasonality in DAN's business, as of March 31, 2020,
Fitch has treated $100 million of DAN's cash and cash equivalents
as not readily available for the purpose of calculating net
metrics. This is an amount that Fitch estimates DAN would need to
hold to cover negative operating cash flow, maintenance capex and
common dividends without resorting to temporary borrowing.
Debt Structure: DAN's debt structure primarily consists of
borrowings on its secured credit facility (which includes the term
Loan A, term Loan B and revolver) and senior unsecured notes issued
by both DAN and its Dana Financing subsidiary.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
DANA INC: Moody's Rates New $400MM Sr. Unsecured Notes 'B2'
-----------------------------------------------------------
Moody's Investors Service assigned a B2 rating to Dana
Incorporated's new $400 million senior unsecured notes. The net
proceeds from the notes will be used for general corporate
purposes, including the partial paydown of borrowings under the
senior secured revolving credit facility. All other ratings of
Dana's debt are unaffected, including the corporate family rating
at Ba3 which was confirmed on June 12, 2020. The rating outlook is
negative.
The following rating was assigned:
Issuer: Dana Incorporated
Senior Unsecured Regular Bond/Debenture, at B2 (LGD5)
RATINGS RATIONALE
Dana's ratings take into account its strong competitive position as
a key, global supplier of vehicle drive line products and thermal
sealants for automotive and off-road vehicles, with relatively low
leverage and solid margins. Dana's product mix is exposed to light
trucks and SUVs in North America, a segment that continues to grow
even as overall vehicle production is weakening, which is a trend
expected to continue over the intermediate-term.
Dana's liquidity is very good, and the note issuance will provide
incremental flexibility to navigate the negative impact from the
negative impact from the coronavirus pandemic on global automotive
demand and manufacturing. See press release dated June 12, 2020.
Dana's role in the automotive and commercial vehicle industries
expose the company to material environmental risks arising from
increasing regulations on carbon emissions. Automotive
manufacturers and commercial fleet operators (particularly in the
off-highway markets) continue to announce the introduction of
electrified products to meet increasingly stringent regulatory
requirements. Dana has aggressively acquired electrification
technology and electrified product offerings to complement its own
Spicer branded product offerings. Products include electric motors,
inverters, chargers, generators, gearboxes, thermal management
products, battery-management systems, and electric powertrain
controls. Dana also provides customers with electric powertrain
system integration expertise.
The negative outlook reflects the potential interruption of the
gradual and lengthy recovery of automotive industry conditions that
could be interrupted from a second wave of infection rates, and
Dana's exposure as a principally an original equipment supplier.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded with expectations of sustained
revenue growth leading to improved operating performance, EBITA/
interest over 3.5x, debt/EBITDA of 3.0x or lower, and consistent
positive free cash flow, while maintaining a very good liquidity
profile. Other factors supporting an upgrade would be cost
structure improvements, to better position the company to contend
with the cyclicality and continued discipline in return of capital
to shareholders.
A downgrade could arise if Moody's believes that through the
second-half of 2021 Dana's EBITA/interest coverage is expected to
be sustained at about 2.0x, or debt/EBITDA sustained at or above
4.0x. Other developments that could lead to ratings include
deteriorating liquidity, debt funded acquisitions, or aggressive
shareholder return policies resulting in leverage remaining
elevated.
The principal methodology used in these ratings was the Automotive
Supplier Methodology published in January 2020.
Dana Incorporated, headquartered in Maumee, Ohio, is a global
manufacturer of driveline, sealing and thermal management products
serving OEM customers in the light vehicle, commercial vehicle and
off-highway markets. Revenue for the LTM period ending March 31,
2020 was approximately $8.4 billion.
DAWN ACQUISITIONS: S&P Downgrades ICR to 'B-' on Elevated Leverage
------------------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on Dawn
Acquisitions LLC to 'B-' from 'B'. At the same time S&P lowered its
issue-level ratings on the company's secured revolving credit
facility and term loan to 'B+' from 'BB-'. The '1' recovery rating
(90% recovery estimate) is unchanged.
S&P expects Dawn Acquisitions LLC's operating performance to be
pressured for the remainder of the year, potentially weakening
credit protection measures.
In light of the economic recession, S&P believes Dawn's ability to
grow its revenue base will be hindered and deleveraging targets
could be further delayed. S&P estimates Dawn's debt to EBITDA will
rise to 9x through 2020. As of March 31, 2020, debt to EBITDA was
at 8.7x(last-twelve-months) as a result of the delayed closing of
spin-off from AT&T, a slower-than-anticipated sales ramp-up, an
understaffed sales force, and higher-than-anticipated churn. S&P
believes these trends could be exacerbated in the current
environment, particularly if smaller existing customers encounter
financial hardship and either seek to stretch payment terms or
permanently go out of business. The rating agency believes revenue
growth will be challenged by enterprise belt-tightening combined
with fewer in-person sales opportunities.
Under its base case, S&P anticipates debt will remain relatively
stable given the company's limited spending on growth capital
expenditure (capex) and its focus solely on maintenance and
improvements within existing facilities, including the construction
of "Meet Me Rooms. While this relatively low-cost initiative aims
to allow for a gradual transition to carrier-neutral data centers
in the longer term, this strategy could prove difficult to execute
as most carrier-neutral exchange points have already been
established and cannot easily be replicated.
S&P expects utilization at Dawn's data centers to remain well below
the industry average over the next 12-24 months before
stabilizing.
As of March 31, 2020, Dawn's utilization (power) rate was 66%
(slightly down from 67% at year end), which is significantly below
the retail colocation industry average of about 80%. Despite
positive long-term tailwinds across the data center sector, S&P
believes that Dawn's ability to increase utilization will be
challenged in the recession because potential new enterprise
customers may put spending on IT deployments on hold as they aim to
avoid upfront costs associated with an infrastructure migration,
and because its lack of significant network diversity is less
attractive to new customers seeking connections to a variety of
connectivity providers. Therefore, S&P believes operating
performance will remain challenged in the short to medium term.
Short-term colocation contracts reduce the predictability of cash
flows compared with hyperscale services.
Dawn focuses on colocation services, which typically have one- to
three-year contracts' length.
"We believe this compares negatively to that of hyperscale
providers, which have longer-term contracts of 10 years or more. We
believe this significantly limits predictability of cash flows and
can lead to greater volatility, particularly during a downturn. As
a result, S&P's tolerance for leverage is lower relative to that
for other data centers we rate," S&P said.
Although colocation customers tend to be sticky, Dawn's gross churn
increased slightly to 8% (annualized) during the first quarter of
2020, which is within the average churn for colocation providers.
As of the end of first-quarter 2020, about 70% of Dawn's revenue
was derived from well-capitalized corporations, including AT&T,
which accounts for 16% of revenue. S&P thinks this could mitigate
increasing churn for the year.
Dawn leases the vast majority of the data centers that it
operates.
As of first-quarter 2020, Dawn's portfolio comprised 31 data
centers, 22 of which are leased. S&P believes this reduces the
company's flexibility to monetize assets compared with that of
other data center operators that fully or largely own their
facilities. Moreover, this puts additional burden on Dawn's cost
structure with a high component of leasing costs--over 30% of
operating costs. This compares negatively to other data center
operators, such as Digital Realty and CyrusOne. S&P thinks that, in
the long term, it will constrain Dawn's ability to raise EBITDA
margins to industry averages (mid-50% versus low- to mid-40%)."
"The outlook on Dawn is negative and reflects the possibility that
we could lower our rating over the next 12 months to the CCC
category rating if we consider its capital structure to be
unsustainable, in the long term. Worsening operating performance or
deteriorating credit metrics could drive the rating action," S&P
said.
S&P could lower its ratings on Dawn if:
-- Churn increases, further contracting revenue and operating cash
flows beyond S&P's expectations.
-- Selling, general, and administrative (SG&A) expenses for sales
and marketing efforts increase further and drive lower than
anticipated EBITDA margins.
-- The company is unable to demonstrate a credible path toward
deleveraging.
S&P could revise the outlook to stable if:
-- Dawn's operating performance improves achieving higher
utilization and improves operating margins, both closer to industry
averages.
-- Credit protection metrics improve, with sustained deleverage.
DELTA AIR LINES: S&P Rates Senior Unsecured Notes 'BB'
------------------------------------------------------
S&P Global Ratings assigned its 'BB' issue-level rating and '4'
recovery rating to Delta Air Lines Inc.'s proposed senior unsecured
notes and placed the issue-level rating on CreditWatch with
negative implications. The '4' recovery rating indicates S&P's
expectation that lenders would receive average (30%-50%; rounded
estimate: 30%) recovery of their principal in the event of a
payment default. The company will use the proceeds from these notes
for general corporate purposes, including for potential debt
repayment.
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
-- The '4' recovery rating on Delta's proposed senior unsecured
notes reflects S&P's expectation for average (30%-50%) recovery,
which is affected by the large amount of secured debt and the
additional unsecured debt in the company's proposed debt
structure.
-- S&P's analysis includes the $2.95 billion 364-day secured term
loan facility, which it assumes rolls over on similar terms at
maturity, and the $1.6 billion 10-year low-interest loan provided
through the CARES Act payroll protection program that the rating
agency treats as a senior unsecured claim in the waterfall.
-- In addition, S&P assumes Delta's unfunded pension and other
post-employment benefits (OPEB) and a portion of its capacity
service agreements will have an unsecured claim at default. This
further dilutes the residual value available for the unsecured
noteholders.
-- Meanwhile, S&P's '1' recovery rating (rounded estimate: 95%) on
the secured term loan and senior notes remains unchanged. The term
loan and notes are secured on a pari passu first-lien basis by
Delta's domestic slots at JFK, LGA, and DCA, as well as its
U.S.-London, U.S.-European (ex. London), and U.S.-Latin American
routes, which S&P believes would retain significant value in a
distressed scenario and support a very high recovery for both
facilities.
Simulated default assumptions
-- S&P's simulated default scenario assumes a default occurring in
2025 triggered by adverse industry conditions combined with a
recession or other outside shocks to the aviation industry, such as
a major global pandemic or terrorist attack. The rating agency
expects that Delta would seek to reorganize through a second
Chapter 11 proceeding and believes the company would emerge from
bankruptcy again.
-- S&P has valued the company on a discrete asset value basis. The
rating agency's valuations reflect its estimate of the value of the
various assets at default based on net book value for current
assets and appraisals for aircraft and routes, which the rating
agency adjusts for expected realizations rates in a distressed
scenario.
Simplified waterfall
-- Net enterprise value (after 5% admin. costs): $17.9 billion
-- Valuation split (obligors/nonobligors): 100%/0%
-- Collateral value available to the senior secured term loan and
notes backed by slots, gates, and routes (SGR): $5.1 billion
-- Senior secured SGR term loan and notes claims: $5.1 billion
-- Recovery expectations: 90%-100% (rounded estimate: 95%)
-- Value available to non-SGR secured debt claims: $12.8 billion
-- Total secured debt claims (including enhanced equipment trust
certificates [EETCs] and aircraft notes): $6,225 million
-- Total value available to unsecured claims: $6,620 million
-- Senior unsecured notes/non-debt unsecured claims (including
pension and OPEB deficits): $11.5 billion/$9,448 million
-- Recovery expectations: 30%-50% (rounded estimate: 30%)
Notes: All debt amounts include six months of prepetition interest.
Collateral value equals asset pledge from obligors after priority
claims plus equity pledge from nonobligors after nonobligor debt.
In some instances, S&P rates equipment secured debt using its EETC
criteria, which is not part of this analysis but is available
separately.
Ratings List
Delta Air Lines Inc.
Issuer Credit Rating BB/Watch Neg/--
New Rating
Delta Air Lines Inc.
Senior Unsecured
USD notes BB /Watch Neg
Recovery Rating 4(30%)
DICK'S SPORTING: Egan-Jones Lowers Senior Unsecured Ratings to BB-
------------------------------------------------------------------
Egan-Jones Ratings Company, on June 9, 2020, downgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Dick's Sporting Goods Inc. to BB- from BB.
Headquartered in Coraopolis, Pennsylvania, Dick's Sporting Goods,
Inc. operates as a sporting goods retailer that manages stores
primarily in the eastern and central United States.
DIOCESE OF ST. CLOUD: U.S. Trustee Appoints Creditors' Committee
----------------------------------------------------------------
The U.S. Trustee for Region 12 on June 16, 2020, appointed a
committee to represent unsecured creditors in the Chapter 11 case
of The Diocese of St. Cloud in Minnesota.
The committee members are:
1. Matthew Breth
2. Eugene Hommerding
3. Donald Peschel
4. Lola Wolf
5. Joel Yaeger
The committee members are represented by Jeff Anderson & Associates
P.A. and Bradshaw & Bryant.
Jeff Anderson can be reached through:
Jeff Anderson, Esq.
Jeff Anderson & Associates P.A.
366 Jackson Street, Suite 100
St. Paul, MN 55101
Phone: (651)227-9990
Bradshaw & Bryant can be reached through:
Michael Bryant, Esq.
Bradshaw & Bryant
1505 Division St.
Waite Park, MN 56387
Phone: (320) 259-5414
Official creditors' committees serve as fiduciaries to the general
population of creditors they represent. They may investigate the
debtor's business and financial affairs. Committees have the right
to employ legal counsel, accountants and financial advisors at a
debtor's expense.
About Diocese of St. Cloud
The Roman Catholic Diocese of Saint Cloud is a Roman Catholic
diocese in Minnesota. The diocese covers Benton, Douglas, Grant,
Isanti, Kanabec, Mille Lacs, Morrison, Otter Tail, Pope, Sherburne,
Stearns, Stevens, Todd, Traverse, Wadena, and Wilkin counties.
The Roman Catholic Diocese of Saint Cloud sought protection under
Chapter 11 of the Bankruptcy Code (Bankr. D. Minn. Case No.
20-60337) on June 15, 2020. At the time of the filing, Debtor had
estimated assets of between $10 million and $50 million and
liabilities of between $1 million and $10 million. Quarles &
Brady, LLP is the Debtor's legal counsel.
DOLLAR TREE: Egan-Jones Lowers Senior Unsecured Ratings to BB+
--------------------------------------------------------------
Egan-Jones Ratings Company, on June 9, 2020, upgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Dollar Tree Incorporated to BB+ from BB.
Headquartered in Chesapeake, Virginia, Dollar Tree, Inc. operates a
discount variety store chain in the United States.
DUNN PAPER: S&P Alters Outlook to Stable, Affirms 'B-' ICR
----------------------------------------------------------
S&P Global Ratings revised its outlook on Alpharetta, Ga.-based
specialty paper and tissue manufacturer Dunn Paper Holdings Inc. to
stable from negative and affirmed its 'B-' issuer credit rating.
At the same time, S&P is affirming its 'B-' issue-level rating on
the company's first-lien credit facilities and its 'CCC'
issue-level rating on the company's second-lien term loan. S&P's
'3' recovery rating on the first-lien debt remains unchanged,
indicating its expectation for meaningful (50%-70%; rounded
estimate: 60%) recovery of principal in the event of a payment
default. S&P's '6' recovery rating on the second-lien debt also
remains unchanged, indicating its expectation for negligible
(0%-10%; rounded estimate: 0%) recovery of principal in the event
of a payment default.
The outlook revision reflects Dunn Paper's improved profit margins
and liquidity position. Dunn Paper's S&P-adjusted EBITDA margin
improved by nearly 380 basis points (bps) in 2019 due to a
favorable price spread and product mix and contributions from its
Ladysmith mill acquisition. Despite its higher level of
discretionary capital investment, the company reported free cash
flow of about $4.4 million in 2019. S&P expects its free cash flow
generation to remain positive at about $10 million in 2020. Dunn
Paper's recent margin expansion and debt repayment improved its
leverage and increased its headroom under the covenant on its
first-lien credit facilities. Additionally, the company is no
longer required to make quarterly amortization payments on its
first-lien term loan due to its excess cash flow prepayments over
the last few years. Although S&P does not assume it will borrow on
its revolver over the next year, it recognizes that Dunn Paper's
undrawn $30 million revolving credit facility and the $260.7
million outstanding balance on its first-lien term loan both mature
in August 2022.
"We believe the increasing demand for higher-margin tissue paper
will mitigate the weak demand for the company's food-service
channel products," S&P said.
Tissue currently accounts for about 60% of Dunn Paper's total sales
and about 70%-75% of its EBITDA. Because of the COVID-19 pandemic,
the company has experienced a surge in consumer demand for tissue
paper, particularly for towels, wipes, and products used in medical
applications. Additionally, the company is developing new products,
such as anti-microbial tissue, to capitalize on the current
momentum for tissue demand. Over the next 12 months, S&P
anticipates that strong demand for Dunn Paper's tissue products
will offset a drop in demand for its machine-glazed paper, which is
used in the production of lightweight food and flexible packaging
and sold to quick-service restaurants and fast casual markets.
S&P expects a supply shortage to increase secondary pulp prices,
which could pressure the company's earnings over the next 12
months. Due to record high market pulp prices in 2018, Dunn Paper
significantly reduced its reliance on virgin fiber by increasing
its secondary fiber usage to about 40.4% in 2018 from 29.5% in
2017. The company's acquisition of its seventh mill in 2018, which
produces conventional tissue parent rolls, also expanded its use of
recycled pulp. Throughout 2019, an oversupply of pulp put downward
pressure on pulp prices and the price of virgin pulp returned to
more normal levels. In conjunction with its secondary fiber
strategy, Dunn Paper has reduced its average cost per ton and
widened its price spread. Through the first quarter of 2020, the
pulp markets have remained weak and S&P anticipates only a modest
increase in virgin pulp prices for the remainder of the year.
However, due to the recent COVID-19 related office building and
school closures, the company has experienced a shortage in sorted
office paper (SOP), which has led to a sharp increase in recovered
paper prices. S&P expects the previously implemented downward
index-based price adjustments and higher secondary fiber prices to
reduce Dunn Paper's operating profit and partially offset its
productivity gains.
"The stable outlook reflects our expectation that Dunn Paper will
generate positive free cash flow and maintain adjusted leverage of
less than 6.0x over the next 12 months. The outlook also
incorporates our belief that the company will remain in compliance
with its financial covenant and preserve its adequate liquidity,"
S&P said.
S&P could revise its outlook on Dunn Paper to negative or lower its
ratings if:
-- The company's operating conditions deteriorate and its profit
margins contract beyond S&P's current expectations. This could
occur if an unexpected rise in pulp prices constrains its EBITDA or
the loss of a key customer materially reduces its sales;
-- The company's liquidity weakens and S&P sees increasing risk of
a covenant violation; or
-- It does not amend or refinance its 2022 debt maturities in a
timely manner.
Although S&P views an upgrade as unlikely at this time given the
significant economic uncertainty, it could raise its ratings on
Dunn Paper if:
-- S&P forecasts that the company will continue generating
sufficient free operating cash flow (FOCF) to fund its business
operations;
-- It improves its scale while maintaining financial policies
commensurate with debt to EBITDA approaching 5x; and
-- It addresses its 2022 debt maturities in a timely manner and
amends its financial covenants to provide it with greater operating
flexibility and ample covenant headroom.
DUQUESNE, PA: S&P Removes 'BB' GO Bond Rating From Watch Negative
-----------------------------------------------------------------
S&P Global Ratings removed its 'BB' rating on Duquesne, Pa.'s
previously rated general obligation (GO) bonds from CreditWatch,
where it was placed with negative implications on May 8, 2020. S&P
Global Ratings subsequently withdrew the rating.
"This action follows our repeated attempts to obtain timely
information of satisfactory quality, including the city's 2018
audit, to maintain our rating on the securities in accordance with
our applicable criteria and policies," said S&P Global Ratings
credit analyst Tiffany Tribbitt.
Although the city provided its 2018 municipal annual audit and
financial report prepared for the state's department of community
and economic development, S&P did not receive the complete audit
with financial statements and notes like it has in past years. The
withdrawal of this rating was preceded, in accordance with S&P's
policies, by any change to the rating that it considers appropriate
given available information.
DXP ENTERPRISES: S&P Alters Outlook to Stable, Affirms 'B' ICR
--------------------------------------------------------------
S&P Global Ratings revised the outlook on Houston-based industrial
supplier DXP Enterprises Inc. to stable from positive and affirmed
its 'B' issuer credit rating. At the same time, S&P affirmed its
'B+' issue-level rating on the company's $250 million term loan
with a '2' recovery rating.
S&P anticipates lower oil and gas spending and decreased economic
activity during the COVID-19 pandemic to reduce DXP's sales and
operating cash flows in 2020. It assumes a West Texas Intermediate
(WTI) crude oil price of $25 per barrel in 2020 based on
insufficient production cuts from OPEC and Russia and severe market
oversupply. S&P expects DXP's revenues to contract 20%-25% in 2020
due to austere cuts in oil and gas customers' capital spending
budgets and lower oil and gas production volumes. S&P estimates a
35%-40% drop in expected EBITDA versus 2019 because of a waning
backlog of orders in the second half of 2020 and the uncertainty of
new bookings in the next 12-24 months. The company distributes
industrial products and services to the late upstream, midstream,
or downstream oil and gas markets. These accounted for 42% of
consolidated sales in 2019. DXP has proactively diversified into
the general industrial, food and beverage, and chemical sectors,
which account for about 60% of 2019 sales, to mitigate cash flow
volatility during low oil and gas prices. S&P expects DXP to
operate at adjusted leverage of 4x-4.5x in 2020 and above 3.5x in
2021.
An acquisitive financial policy could further increase leverage and
decrease covenant headroom in the next 12 months. DXP has
acquired local distributors to expand its geographic footprint and
compete in original equipment manufacturers' (OEMs) closely guarded
territories. The company spent approximately $30 million on tuck-in
acquisitions over the past 24 months, using mostly cash and some
common stock. S&P expects DXP to continue its acquisitive strategy
in an attempt to offset some organic decline in revenues during the
economic recession. If financed with debt, new acquisitions could
increase leverage and squeeze covenant headroom below 10% (with
potential profit disruption from newly acquired businesses).
However, based on S&P's estimates, liquidity should adequately
support operations and payment of fixed charges. S&P expects DXP's
operating cash flow (OCF) will benefit from working capital release
in 2020 as the company reduces inventory to meet lower demand. S&P
expects the company to generate $60 million-$65 million in OCF,
which after capital expenditures and a mandatory cash flow sweep on
the term loan could leave $35 million - $40 million of
discretionary cash flow for acquisitions or voluntary debt
repayments.
Cost reduction and a focus on custom products should better support
profit margins relative to peers. S&P anticipates DXP will curb
operating expenses and consolidate operations to offset some margin
erosion in the second half of 2020. It also expects DXP to preserve
margins relative to other industrial distributors that offer "off
the shelf", commoditized products. DXP focuses on value-added
distribution (40%-50% of sales are customized integrated services)
and maintenance, repair, and operating (MRO) that enabled it to
generate superior adjusted EBITDA margins (9%-10%) in the past. S&P
estimates a 150-200 basis point EBITDA contraction due to lower
fixed cost absorption from reduced revenue.
No material maturities until 2023 and increased revolver capacity
provide financial flexibility. DXP's $250 million term loan B
(approximately $234 million outstanding as of May 31, 2020) is due
in August 2023. During the first quarter of 2020, DXP increased its
revolver capacity to $135 million from $85 million, which provides
additional liquidity during a decreased demand environment.
"The outlook revision to stable from positive reflects our view
that upward credit momentum has stalled with a sharp industry
downturn. We expect that DXP's EBITDA will contract 35%-40% due to
lower demand from oil, gas, and other industrial end markets and
leverage will increase above 3.5x in 2020 and 2021," S&P said.
"At the same time, we believe DXP will have sufficient liquidity to
cover its variable and fixed costs due to company's countercyclical
working capital and cost reduction measures in the next 12 to 24
months. The revision also incorporates the diminishing covenant
cushion on the company's term loan B," the rating agency said.
S&P could lower the rating on DXP if cash flows deteriorate further
due to reduced capital spending by oilfield services and equipment
manufacturing companies associated with low oil prices (less than
$35 per barrel). Specifically, S&P could lower the rating if cash
flow and liquidity weaken, as indicated by the following credit
measures:
-- EBITDA interest coverage dropped below 1.5x;
-- OCF approaches break-even;
-- The company loses access to its revolver borrowing capacity due
to a covenant breach, or
-- Leverage exceeds 7x.
S&P could raise the rating on DXP in the next 12 months if it
believes market conditions have stabilized and DXP's EBITDA
increases above $100 million. S&P believes this could occur if oil
prices improve and are sustained above $45 per barrel, which would
spur capital spending. Specific thresholds include:
-- Leverage to falls below 3x, incorporating acquisitions; and
-- DXP's covenant cushion exceeds 15%.
EQM MIDSTREAM: Fitch Rates New Sr. Unsecured Notes 'BB/RR4'
-----------------------------------------------------------
Fitch Ratings has assigned a 'BB'/'RR4' ratings to EQM Midstream
Partners LP's proposed senior unsecured notes offering. These notes
are to rank pari passu with EQM's existing and future senior
unsecured notes. Proceeds from the notes offering are expected to
be used to partially repay borrowings under the $3 billion revolver
expiring 2023 and for general partnership purposes. Fitch has
reviewed preliminary documentation for the notes offering; the
assigned ratings assume there will be no material variation from
the draft previously provided.
On June 15, 2020, Fitch affirmed EQM's Long-Term Issuer Default
Rating at 'BB' and the senior unsecured notes and revolver expiring
2023 at 'BB'/'RR4'. The Rating Outlook is Negative.
KEY RATING DRIVERS
MVP Further Delayed: On June 11, 2020, EQM announced that MVP has
experienced a delay. Fitch had previously assumed an in-service
date of Jan. 1, 2021. MVP now expects the in-service date to be
early 2021 with an approximate cost of $5.6 billion. The prior
budget for MVP was $5.3 billion to $5.5 billion. This project has
encountered large schedule delays and cost overruns due to
permitting and environmental challenges. EQM's earnings growth and
strengthening its balance sheet metrics is largely dependent on the
completion of MVP.
Counterparty Credit Risk: EQM derives roughly 70% of its revenues
from EQT, its primary counterparty. EQT is expected to remain EQM's
largest customer in the near to intermediate term. Fitch typically
views midstream service providers with high single counterparty
concentration as having exposure to outsized event risk. Due to the
combination of customer concentration and reservation-based
payment, EQM's credit risk is closely aligned with that of EQT and
the rating of EQT serves as a cap on the rating of EQM. As EQT is a
shipper on MVP, the completion of MVP will increase the amount of
EQT counterparty credit risk. As a positive, the MVP shipper group
also includes affiliates of three highly rated utilities.
Contract Renegotiation with EQT: Under the renegotiated gathering
contract with EQT, EQM received a new 15-year contract with longer
term higher minimum volume commitments, a global MVC rate, PA and
WV acreage dedications and capex protections. Since EQM is
dependent on EQT for its cash flows and future growth, EQT's
operational and financial health have a strong bearing on EQM's
credit profile. The new contract is intended to assist EQT's
drilling plans in an environment of prolonged low natural gas
prices. An important positive is that the benefit of certain rate
step-downs to EQT are held in abeyance until MVP is placed into
service. Fitch believes that the new contract has a marginal
positive impact on EQM's credit profile given the higher MVCs and
contract extension.
Roll-Up Provides Modest Benefit: ETRN announced that it will
acquire the outstanding publicly-held common units of EQM in an
all-stock transaction. Under the simplified structure, the entity
will be a single publicly traded C-Corp. This is subject to closing
conditions and approval from ETRN shareholders and EQM unitholders,
with voting on June 15, 2020 and a closing soon after. The roll-up
will provide ETRN with a broader investor base given the C-Corp
structure. Furthermore, the conversion to a C-Corp structure should
better align management and ETRN shareholders and alleviate some of
the governance complexity that partnerships possess.
Limited Geographic and Counterparty Diversification: EQM's business
lines and geographic diversity are limited with strong ties and
focus on EQT's production in the Appalachian region. Fitch
typically views single-basin operators with large customer
concentration like EQM as having exposure to outsized event risk,
which could be triggered by an operating issue at EQT or any
production difficulties in the Appalachian basin. Despite being in
one of the most prolific gas basins in the U.S., natural gas prices
and liquidity constraints have affected EQT's drilling plans, which
are intended to be alleviated to an extent by the recent contract
renegotiations and the natural gas prices returning to normal.
Revenues from Long-Term Capacity Reservation Payments: EQM's
operations are supported by long-term contracts with firm
reservation fees for both the gathering and transmission side of
the business. The new gathering contracts with EQT have a 15-year
contract life, and a weighted average remaining life of 14 years on
storage and transmission. Approximately 58% of the revenues
generated for the FYE December 2019 were generated from firm
reservation fees, which are expected to increase under the new
contract.
Environmental, Social and Governance: EQM has a relevance score of
4 for Group Structure as even with its simplification its group
structure is still complex. EQM also has a relevance score of 4 for
Exposure to Environmental Impacts as it continues to face
environmental permitting challenges for MVP. This has a negative
impact on the credit profile and is relevant to the rating in
conjunction with other factors.
DERIVATION SUMMARY
A comparable for EQM is Antero Midstream Partners, LP (AM; B/Rating
Watch Negative). Both entities operate in the Appalachian basin
with performance dependent on a large counterparty. AM has a single
counterparty, AR (B/RWN), making up the substantially all of its
revenues and earnings. EQM has material, concentrated counterparty
exposure to EQT but in lesser amounts than AM. EQM also has greater
size, scale and asset/business line diversity relative to AM and
lower business risk gas transportation assets in its portfolio.AM
exhibits low leverage compared with EQM, which has gathering and
transmission operations (and no processing). Fitch expects AM to
run leverage around 3.5x-4.0x in 2020, better than most of its
gathering and processing peers, and is better positioned relative
to EQM where Fitch expects leverage to be elevated for the next 18
months. However, leverage metrics are not the primary driver of
rating differences between the two issuers since AM's rating is
directly linked to its sponsor.
In terms of EBITDA, EQM is larger than DCP Midstream, LP (DCP;
BB+/RWN) and EnLink Midstream LLC (ENLC; BB+/Negative). All three
generate EBITDA over $1 billion. However, DCP is much more diverse
than EQM and EQM is less diverse than ENLC. DCP has higher volume
risk with only about 70% of its gross margins being generated from
fee-based contracts verses 90% of ENLC's gross margins. EQM had
approximately 58% of revenues from firm reservation fees for FYE
2019.
Fitch expects DCP's and ENLC's leverage to be in the 5.0x-5.5x
range in the near term (YE20 and YE21). At year-end 2020, Fitch
expects EQM to have leverage of approximately 5.6x-5.9x. DCP has
significant customer diversity whereas ENLC receives approximately
30% of revenues from its largest counterparty. EQM currently
receives approximately 70% of its revenues from EQT.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within its Rating Case for the Issuer:
-- Henry Hub natural gas prices of $1.85/mcf in 2020, $2.45/mcf
in in the years thereafter;
-- WTI oil price of $32/bbl in 2020, $42/bbl in 2021, $50/bbl
in 2022, and $52/bbl in 2023 and the long term;
-- Dividends in line with management guidance. No dividend
growth expected in forecast period;
-- MVP is in service in 2021;
-- No acquisitions or equity issuance assumed;
-- The preferred securities at EQM are half extinguished, and
the remaining preferred securities will be migrated to
ETRN.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Positive rating action at EQT may lead to a positive rating
action at EQM. If EQT were to be upgraded, EQM could be
upgraded. The outlook is not likely to be stabilized until
MVP comes into service;
-- Other positive rating action is not currently viewed as
likely in the medium term until MVP comes into service.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Any negative rating action at EQT;
-- At MVP, any further delays to the joint venture's revised
schedule, or meaningful cost increases to the approximately
$5.6 billion budget (8/8ths basis, excluding interest
during construction);
-- Leverage (total debt to adjusted EBITDA) of over 5.5x for
a sustained period; when the EQM buy-in transaction closes,
the 5.5x leverage will be calculated by reference to ETRN
consolidated leverage, in accordance with the consolidated
credit profile treatment under Fitch's parent-subsidiary
linkage (eg adding to EQM debt the deemed debt portion of
the new ETRN preferred shares);
-- Distribution coverage ratio below 1.0x on a sustained basis;
-- A change in operating profile such that EQM introduces a
material amount of non-fee-based contracts for its gathering
business;
-- Failure to proactively refinance the 2022 term loan or any
other liquidity challenges;
-- A change in the financial policies set by ETRN that is
materially averse to EQM's credit quality.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity in Near Term: As of March 31, 2020, EQM had
approximately $1.4 billion in liquidity. Cash on balance sheet was
approximately $14 million, in addition to the $1.3 billion
available under the $3 billion revolver (the availability is after
recognizing credit extensions of $235 million related to the
issuance of letters of credit). The revolver may be increased by up
to $750 million under the accordion feature, subject to lender's
consent. The bank agreement was recently amended to include
step-downs in its leverage restriction from a near-term restriction
of 5.75x to 5.0x over the next several years. With acquisitions,
EQM's maximum permissible leverage is 5.5x on a temporary basis. As
of March 31, 2020, EQM was in compliance with its covenants. Fitch
notes that the definition of leverage under the bank agreement is
materially different than its own definition of leverage. Fitch
expects EQM to maintain compliance with its covenants in the near
term.
EQM also has a $ 1.4 billion term loan facility executed in August
2019. This facility may be increased by up to $300 million, subject
to lender's consent. The facility carries the leverage covenants at
the same level as defined in the $3.0 billion revolver.
Debt Maturity Profile: EQM does not have debt maturities until the
$1.4 billion term loan matures in August 2022. The revolver will
mature in October 2023.
SUMMARY OF FINANCIAL ADJUSTMENTS
EQM forecast metrics referred to herein are calculated by reference
to ETRN financial statements, with an adjustment for the pending
preferred securities to reflect 50/50 debt to equity treatment.
EBITDA in the forecast metrics reflects cash received from EQT that
is booked to deferred revenue rather than revenue; when EQT cash
payments transition to where the deferred revenue is being
amortized into revenues, this amortization will be removed from
revenues to arrive at EBITDA. Regarding unconsolidated affiliates,
Fitch calculates midstream energy companies' EBITDA by use of cash
distributions from those affiliates, rather than, for example,
rateable EBITDA from those affiliates.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
EQM's default risk profile is significantly influenced by EQT,
which is its primary customer/counterparty.
EQM MIDSTREAM: Moody's Rates Proposed Unsec. Notes 'Ba3'
--------------------------------------------------------
Moody's Investors Service assigned a Ba3 rating to EQM Midstream
Partners, LP's proposed new senior unsecured notes due 2025 and
senior unsecured notes due 2027. The new notes are being offered to
repay a portion of the outstanding balance under the revolving
credit facility maturing in October 2023.
All other ratings for the company, including its Ba3 Corporate
Family Rating, remain unchanged. The outlook remains negative.
Assignments:
Issuer: EQM Midstream Partners, LP
Senior Unsecured Notes, Assigned Ba3 (LGD4)
RATINGS RATIONALE
EQM intends to use the net proceeds of the new notes issuance to
repay a portion of the outstanding balance under the revolving
credit facility. Moody's views this transaction as credit neutral
as the overall debt burden of the company remains mostly
unchanged.
In addition to the new notes' issuance, EQM has a $3 billion
revolving credit facility due 2023, $1.4 billion of term loan due
2022 and $3.5 billion of senior unsecured notes with staggered
maturities, as of March 31, 2020. EQM's revolver, term loan,
existing senior unsecured notes and the new senior unsecured notes
are all unsecured and are pari passu. Accordingly, the existing
senior unsecured notes and the new unsecured notes are rated Ba3,
the same as the CFR.
EQM's Ba3 CFR is constrained by its reliance on EQT Corporation
(EQT, Ba3 negative) as its anchor shipper and primary customer.
With about 70% of EQM's 2019 revenues derived from EQT, EQM's
credit profile is closely tied to that of EQT. Furthermore, EQM's
update on Mountain Valley Pipeline project's completion timeline
and budget, point to a slight delay in EQM's receipt of critical
MVP cash flow meant to materially ease EQM's debt leverage, and
potentially increased funding for EQM's share of the project
resulting in some incremental debt at EQM. In addition to higher
cost and cash flow delay, it also demonstrates yet another sign of
the difficulties that new pipeline developments have recently
faced, even in the post-permitting construction phase.
Notwithstanding the recent regulatory hurdles, the U.S. Supreme
Court's decision to overturn a lower-court ruling vis-à-vis the
U.S. Forest Service's authority to grant a special-use permit for
the construction of Atlantic Coast Pipeline, is a positive
development for MVP and its prospects for obtaining the final
regulatory approvals to complete the pipeline.
EQM supported by its close proximity to high production volumes in
the Marcellus Shale and the critical nature of its pipelines for
moving natural gas within the region to long haul pipelines.
Contract renegotiations with EQT have provided EQM with a new
15-year gas gathering agreement with longer-term and higher minimum
volume commitments and will enhance EQM's long-term cash flow
profile.
EQM's negative outlook follows EQT's negative outlook and the risks
of continued delays and budget increases at MVP.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
EQM's ratings could be downgraded if EQT is downgraded or if EQM's
debt to EBITDA increases substantially.
An upgrade of EQM is unlikely given EQT's negative outlook. EQM's
ratings could be considered for an upgrade if EQT is upgraded. EQM
must also maintain its existing stand-alone credit profile with
Debt/EBITDA reduced to below 5x.
The principal methodology used in these ratings was Midstream
Energy published in December 2018.
EQM Midstream Partners, LP is a master limited partnership that
owns and operates interstate pipelines and gathering lines
primarily serving Marcellus Shale production.
EQUINOX HOLDINGS: S&P Cuts First-Lien Facility Rating to 'CCC'
--------------------------------------------------------------
S&P lowered its issue-level rating on Equinox Holdings Inc.'s
first-lien revolver and term loan to 'CCC' from 'CCC+'."
Equinox Holdings Inc. plans to issue an unrated $150 million
first-lien B-2 term loan due 2024 that will have the same terms and
will be pari passu with its existing first-lien facility
(consisting of a $150 million revolver due 2022 and a $1.025
billion B-1 term loan due 2024). As a result, recovery prospects
are lowered for existing first-lien lenders under S&P's recovery
analysis because of the incremental first-lien debt in the capital
structure, and S&P is revising its recovery rating on the company's
existing first-lien revolver and term loan to '3' from '2'. The '3'
recovery rating reflects 50% to 70% recovery prospects (round
estimate: 65%) under S&P's default assumptions. As a result, S&P is
lowering its issue-level rating on the first-lien revolver and term
loan to 'CCC' from 'CCC+'."
In addition, S&P's 'CCC' issuer credit rating and negative outlook
are unchanged. S&P stated on May 28, 2020, that Equinox had cash on
hand at the end of the first-quarter 2020 in March of $183 million
and $140 million drawn on the company's $150 million revolver, and
that this level of cash may be less than adequate to cover the
anticipated cash burn over the next few months. While the new term
loan proceeds add liquidity, under S&P's current base case the
incremental cash may cover a few additional months of cash burn. It
is S&P's understanding that Equinox has reopened clubs in Texas,
Vancouver, and Florida, but not the large majority of clubs on the
east and west coasts, primarily in New York and California. While
clubs are closed, S&P has assumed anticipated cash needs include
primarily debt service and significantly reduced labor costs. Even
if all clubs reopen in the third quarter, depending on how quickly
revenue recovers, Equinox may continue to burn cash for several
months after clubs reopen while it brings its employees back from
furloughs, pays vendors (including rent) to remain current, and
brings facilities back online.
In addition, it is S&P's understanding that Equinox has entered
into an agreement with an affiliate also controlled by Related
Companies whereby the affiliate will contribute up to $125 million
of cash equity to cover Equinox's partial guarantee of SoulCycle's
credit facility. The guarantee requires Equinox to purchase the
higher of $72.8 million of SoulCycle's debt or the amount necessary
to reduce SoulCycle's leverage to 5x in any quarter ending before
the Feb. 15, 2021, payment due date. The SoulCycle credit facility
totals $265 million, and it is unclear to S&P at this time whether
the cash equity contribution would cover the full guarantee payment
obligation owed by Equinox when it becomes due Feb. 15, 2021, which
may present an additional use of Equinox's liquidity at that time.
If the equity contribution does not cover the full guarantee
payment, depending on company's liquidity position at that time,
S&P would view any further deferrals beyond Feb. 15, 2021, as
tantamount to a default.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety factors
Issue Ratings - Recovery Analysis
Key analytical factors:
-- S&P rates the company's $150 million revolving credit facility
due in 2022 and $1.025 billion secured first-lien term loan due in
2024 'CCC' with a '3' recovery rating. The company also has a $200
million secured second-lien term loan due in 2024 that S&P rates
'CC' with a '6' recovery rating.
-- S&P's simulated default scenario contemplates a payment default
occurring in 2021 as the anticipated recession and decreased
consumer confidence reduces its revenue, EBITDA, and cash flow.
-- S&P assumes a reorganization following the default and used an
emergence EBITDA multiple of 6x to value the company.
-- This is a higher multiple than S&P uses for some other rated
fitness club operators, which reflects Equinox's strong brand and
geographically desirable lease locations.
Simulated default assumptions:
-- Simulated year of default: 2021
-- EBITDA at emergence: $156 million
-- EBITDA multiple: 6x
-- Cash flow revolver: 100% drawn at default
Simplified waterfall:
-- Net enterprise value (after 5% administrative costs): $890
million
-- Estimated first-lien debt claims: $1.321 billion
-- Recovery expectation: 50%-70% (rounded estimate: 65%)
-- Estimated second-lien debt claims: $210 million
-- Value available to second-lien claims: $0
-- Recovery expectation: 0%-10% (rounded estimate: 0%)
Note: All debt amounts include six months of prepetition interest.
EXGEN RENEWABLES IV: Moody's Reviews B2 Secured Rating for Upgrade
------------------------------------------------------------------
Moody's Investors Service placed ExGen Renewables IV's B2 rating on
its senior secured term loan under review for upgrade.
RATING RATIONALE
The review for upgrade on EGR IV's B2 rating considers the expected
emergence of Pacific Gas & Electric's given the majority support of
PG&E creditors for the utility's proposed Plan of Reorganization,
the approval of the POR by the California Public Utilities
Commission, its view of PG&E's credit quality upon its emergence
from bankruptcy, and its expectation that the technical debt
default at EGR IV's AV Solar Ranch 1, LLC's will be resolved soon
thereafter. PG&E's reorganization plan incorporates the assumption
of the utility's power purchase agreements obligations including
the AVSR PPA. PG&E's bankruptcy and the risk of PPA rejection in
bankruptcy has been a key risk constraining EGR IV's credit quality
since nearly 40% of EGR IV's originally expected dividends are from
the AVSR solar project and AVSR derives all of its operating cash
flow from its PPA with PG&E. While PG&E continues to remain current
on its obligations to AVSR, the technical debt default at AVSR
caused by PG&E's bankruptcy has resulted in dividends trapped at
the operating company.
Supporting EGR IV's B2 rating is the borrower's broad portfolio of
renewable power projects with long term contracts, ownership by
Exelon Generation Company, LLC (ExGen: Baa2 stable), use of mostly
proven technology and debt structural protections. The borrower's
credit profile also reflects its high leverage at almost 10x
adjusted Debt to EBITDA resulting in low consolidated cash flow
metrics, modest holdco level cash flow coverage, structural
subordination to operating company debt across most assets,
substantial refinancing risk if AVSR cash flows are excluded, and
underlying resource risk.
EGR IV's rating could be upgrade by one or more notches to the
extent the technical debt default at AVSR is resolved and PG&E
fully emerges from bankruptcy including execution of its exit
financing by June 30th, 2020 according to its plan of
reorganization.
EGR IV's review for upgrade will consider the expected emergence of
PG&E from bankruptcy, the resolution of associated technical
default at EGR IV's AVSR solar project, and anticipate financial
performance on a prospective basis across the portfolio.
Factors that could lead to a upgrade
To the extent PG&E's emerges from bankruptcy, EGR IV's rating is
likely to increase depending on the resolution of the technical
debt default that exists at the AVSR project and the issuer's
operating and financial performance.
Factors that could lead to a downgrade
The project's rating could be downgraded if PG&E does not emerge
from bankruptcy pursuant to the terms of its POR, seeks to reject
its PPA obligations with AVSR, EGR IV is unable to meet its
financial covenant or a material project incurs major operational
problems.
ExGen Renewables IV, LLC, a holding company, indirectly owns around
a 1 GW (net ownership adjusted) portfolio of 33 operating solar,
wind and biomass power projects spread over 15 states. The projects
reached commercial operations from 2007 through 2017 and most of
the assets have operating company level debt while a few others
have tax equity financings. Almost half of EGR IV's dividends flow
through ExGen Renewables Partners, LLC, a joint venture with John
Hancock Life Insurance Company (USA). ExGen indirectly owns 100% of
EGR IV. As of June 2020, EGR IV had $774.5 million outstanding on
its senior secured term loan.
The principal methodology used in this rating was Power Generation
Projects published in June 2018.
EXPEDIA GROUP: Egan-Jones Lowers Senior Unsecured Ratings to BB-
----------------------------------------------------------------
Egan-Jones Ratings Company, on June 10, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Expedia Group Inc. to BB- from BB.
Headquartered in Seattle, Washington, Expedia Group, Inc. provides
online travel services for leisure and small business travelers.
EXTRACTION OIL: Fitch Cuts LongTerm IDR to 'D' on Bankr. Filing
---------------------------------------------------------------
Fitch Ratings has downgraded Extraction Oil & Gas, Inc.'s Long-Term
Issuer Default Rating to 'D' from 'CC'. In addition, Fitch has
downgraded XOG's secured revolver to 'CCC'/'RR1' from
'CCC+'/'RR1'and unsecured notes to 'C'/'RR6' from 'CC'/'RR4'.
Fitch's ratings reflect XOG's announcement that it has voluntarily
filed for relief under Chapter 11 of the U.S. Bankruptcy Code. The
company has entered into a restructuring support agreement with
certain of its unsecured noteholders, which outlines a plan for a
debt-for-equity swap in which the unsecured noteholders will
receive a majority of XOG's equity. However, consensus has not been
reached with the entire prepetition capital structure prior to
filing.
Fitch expects to withdraw the ratings 30 days after the petition
date.
KEY RATING DRIVERS
Voluntary Chapter 11 Filing: On June 15, 2020, XOG announced that
it has voluntary filed for relief under Chapter 11 of the U.S.
Bankruptcy Code. The company was facing a liquidity shortfall at
the end of June 202, and was unable to take action to extend the
runway without jeopardizing the value of its assets. The liquidity
shortfall resulted from materially lower oil prices from the impact
of the coronavirus pandemic on oil demand, and the oil price war
between Saudi Arabia and Russia.
DIP Financing in Place: The company obtained a $125 million
debtor-in-possession financing facility, which includes $50 million
of new money, of which $15 million will become immediately
available upon the bankruptcy order. Approximately $75 million of
the revolving loans will "roll up" into the new facility. The DIP
financing combined with cash on hand should provide sufficient
liquidity during the Chapter 11 cases to support continuing
business operations.
Tightening Liquidity: Prior to the bankruptcy filing, the company's
borrowing base and aggregate commitments on its credit facility was
reduced to $650 million from $950 million. XOG had approximately
$600 million in principal amount outstanding on the facility and
approximately $49.5 million in outstanding letters of credit, which
reduced the borrowing base availability to close to zero. At the
time of filing, XOG had approximately $35 million of liquidity
primarily in the form of cash.
Colorado Regulatory Risk: Senate Bill 19-181 was signed into law on
April 16, 2019, triggering 12+ rulemakings at the Colorado Oil and
Gas Conservation Commission. Fitch believes near-to-medium-term
operational risks are moderate under the new regulatory
environment; however, the regulatory environment may impede capital
market access as the company's maturities come due in 2021.
Approximately 37% of XOG's core acreage is in Weld County, which
has a favorable view of oil and gas drilling and generates
approximately 90% of total oil produced in Colorado. However, 32%
of the company's acreage is in Adams County and 22% is in Arapahoe
County, which are less favorable and are adopting more stringent
regulations.
ESG Considerations:
ESG - Social: Extraction has an ESG Relevance Score of '4' for
Exposure to Social Impacts, due to heightened regulatory pressure
for Colorado Oil & Gas operators, which may have a longer-term
impact on costs and inventory. Fitch believes this has a negative
impact on the credit profile and is relevant to the rating in
conjunction with other factors.
KEY ASSUMPTIONS
-- Base case West Texas Intermediate oil prices of $38 in 2020,
$45 in 2021, $50 in 2022 and long-term price of $52;
-- Base case Henry Hub natural gas price of $1.85 in 2020, $2.10
in 2021, $2.25 in 2022 and long-term of $2.50;
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that XOG would be reorganized as a
going concern in bankruptcy rather than liquidated. Fitch has
assumed a 10% administrative claim.
Going-Concern Approach
XOG's GC EBITDA assumption reflects Fitch's projections under a
base case oil price environment price deck, in which WTI and
natural gas are priced at $32.00 and $1.85 in 2020, $42.00 and
$2.45 in 2021, and $50.00 and $2.45 in 2022, as well as a long-term
price of $52.00 and $2.45.
The GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganization EBITDA level upon which it bases the enterprise
valuation. The GC EBITDA uses 2021-2022 EBITDA, which reflects the
decline from current pricing levels and then a partial recovery
coming out of a troughed pricing environment.
An EV multiple of 3.0x EBITDA is applied to the GC EBITDA to
calculate a post-reorganization enterprise value. The choice of
this multiple considered the following factors:
-- The historical bankruptcy case study exit multiples for peer
companies ranged from 2.8x-7.0x, with an average of 5.6x and a
median of 6.1x. XOG's multiple reflects its exposure to local
regulatory risks, lack of M&A activity, and the inability of energy
firms to access capital markets to finance acquisitions.
-- Fitch's GC assumptions lead to a valuation of $900 million, a
decrease from the previous year due to the regulatory overhang and
lower oil and natural gas price assumptions in the base case price
deck.
Liquidation Approach
Fitch used transactional and asset-based valuations, such as recent
transactions for the DJ Basin on a $/acre, $/drilling location,
$/flowing barrel and $/1P estimates to determine a reasonable sales
price for the company's assets.
Although previous M&A activity was considered, such as PDC Energy
Inc.'s acquisition of SRC Energy, Inc. in August 2019, Fitch has
adjusted the liquidation parameters to reflect the significantly
lower oil price environment and challenges to finance upstream
acquisitions.
Fitch's liquidation value was $689 million.
The pro forma capital structure includes $125 million of super
senior debtor-in-possession financing. The amended $650 million
revolving credit facility was reduced to $575 million to reflect
the $75 million "roll-up" to the DIP facility. The allocation of
value in the liability waterfall results in recovery corresponding
to RR1 recovery for the DIP facility and the first lien revolver
and a recovery corresponding to RR6 for the senior unsecured
guaranteed notes.
RATING SENSITIVITIES
Rating sensitivities are no longer applicable given the bankruptcy
filing.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Extraction has an ESG Relevance Score of 4 for Exposure to Social
Impacts, due to heightened regulatory pressure for Colorado Oil &
Gas operators, which may have a longer-term impact on costs and
inventory. Fitch believes this has a negative impact on the credit
profile and is relevant to the rating in conjunction with other
factors. Except for the matters discussed above, the highest level
of ESG credit relevance, if present, is a score of 3 - ESG issues
are credit neutral or have only a minimal credit impact on the
entity(ies), either due to their nature or the way in which they
are being managed by the entity(ies).
FIBERCORR MILLS: Case Summary & 20 Largest Unsecured Creditors
--------------------------------------------------------------
Three affiliates that concurrently filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code:
Debtor Case No.
------ --------
Fibercorr Mills LLC (Lead Case) 20-61029
670 17th St. NW
Massillon, OH 44647-5343
Cherry Springs of Massillon II, LLC 20-61030
670 17th St NW
Massillon, OH 44647-5343
Shew Industries, LLC 20-61031
670 17th St NW
Massillon, OH 44647-5343
Business Description: FiberCorr Mills is a Massillon-based
manufacturer of corrugated cardboard
products. The Shew family bought the
FiberCorr business from Georgia-Pacific in
February of 2000. Cherry Springs of
Massillon II is the owner of real property
consisting of FiberCorr's business premises.
Shew Industries, LLC is the parent company
of the other Debtors.
Web site: http://www.fibercorr.com/
Chapter 11 Petition Date: June 17, 2020
Court: United States Bankruptcy Court
Northern District of Ohio
Judge: Hon. Russ Kendig
Debtors' Counsel: Anthony J. DeGirolamo, Esq.
ANTHONY J. DEGIROLAMO, ATTORNEY AT LAW
3930 Fulton Dr., Ste. 100B
Canton, Ohio 44718
Tel: (330) 305-9700
Fax: (330) 305-9713
E-mail: ajdlaw@sbcglobal.net
Debtors'
Accountant &
Financial
Advisor: THE PHILLIPS ORGANIZATION
Fibercorr Mills'
Estimated Assets: $1 million to $10 million
Fibercorr Mills'
Estimated Liabilities: $10 million to $50 million
Cherry Springs'
Estimated Assets: $1 million to $10 million
Cherry Springs'
Estimated Liabilities: $1 million to $10 million
Shew Industries'
Estimated Assets: $0 to $50,000
Shew Industries'
Estimated Liabilities: $1 million to $10 million
The petitions were signed by David Shew, president.
Copies of the petitions containing, among other items, lists of the
Debtors' largest unsecured creditors are available for free at
PacerMonitor.com at:
https://is.gd/x8BPbl
https://is.gd/SMzQge
https://is.gd/zymY3P
FLYNN RESTAURANT: S&P Downgrades ICR to 'B-' on Lower Revenues
--------------------------------------------------------------
S&P Global Ratings lowered its ratings including the issuer credit
rating on California-based Flynn Restaurant Group LP to 'B-' from
'B'. The outlook is negative.
The downgrade reflects the company's high debt burden and the mixed
results to date at the borrowing group, which has been exacerbated
by the COVID-19 fallout.
S&P expects performance at the three restaurant concepts that are
in Flynn's restricted credit group (Panera, Taco Bell, and Arby's)
will, on balance, experience substantial declines in 2020 following
mixed results in 2019. While same-store performance for both Arby's
and Panera were sequentially better in Q4 2019 than previous
quarters, same-store sales remained slightly negative in 2019 while
Taco Bell continued to narrow its same-store sales gap with its
system (with low to mid-single digit positive comps in 2019). S&P
believes that QSR operators are somewhat less exposed to the
effects of the pandemic because take-out offerings account for a
higher percentage of their sales. However, S&P still expects
Flynn's QSR brands (Taco Bell and Arby's; about 35% of total sales
in fiscal 2019) to experience a significant deterioration due to
the pandemic with declines in sales in the
high-single-digit-percentage area. The rating agency also expects
the lunch day-part and catering business at the fast-casual Panera
operations to be severely hurt from the increase in remote working
arrangements and the decline in corporate and social events
resulting in sales declines in the high-teens-percent area in
2020.
S&P expects the casual dining Applebee's segment performance (50%
of sales and 33% of EBITDA in 2019) to continue to be soft in the
rating agency's base-case forecast. Although this segment is not
part of the creditors restricted group, S&P still take it into
account in its assessment of the group's overall credit quality
because the rating agency believes the parent is likely committed
to support the company's various operations. The casual dining
concept had flat same-store sales in 2019 (followed with
high-single-digit-percentage negative comps in the first quarter of
2020) and S&P expects revenue decline in the mid-to
high-teens-percentage range in 2020 due to reduced dine-in demand,
eroding appeal for the bar-and-grill space, and the current
recessionary environment.
In aggregate, S&P believes the company's consolidated same-store
sales will likely decline in the high-teen-percent area in fiscal
2020, which will reduce margins below historic levels and increase
its adjusted leverage in the high-single-digits-percent range this
year.
"We think the negative impact will likely persist beyond 2020 given
the current recessionary environment and continued high
unemployment," S&P said.
"While we believe the company's performance will recover in 2021,
we believe it will be at best, back to 2019 levels. As a franchisee
and 100% operator, the company remains susceptible to potentially
significant top-line and margin deterioration if there is a
protracted and meaningful decline in discretionary spending.
Although an aggressive growth strategy is not included in our base
case scenario, we think the company could re-lever in the future
given its financial sponsor ownership and its history of
debt-funded acquisitions such as the Arby's concept in December
2018," the rating agency said.
S&P expects Flynn to have sufficient liquidity to meet its
financial commitments in the short term.
Flynn continued operating its takeout and delivery orders during
the pandemic and implemented cost- reduction initiatives while
limiting its capital disbursements. In addition, the company has no
near-term maturities and has bolstered its cash balance by drawing
additional amounts under its revolver.
Environmental, social, and governance (ESG) factors relevant to the
rating action:
-- Health and safety factors.
The negative outlook reflects the heightened uncertainty regarding
the impact of the pandemic and the current recession on Flynn's
financial performance. S&P anticipates Flynn's leverage will remain
very high at more than to the mid-to high-6.5x through 2021. A
protracted and significant demand decline beyond its expectation
could weaken the company's credit measures and reduce its liquidity
into 2021, leading it to believe the company's capital structure is
no longer sustainable.
S&P could lower the rating if:
-- S&P believes Flynn's capital structure is unsustainable as a
result of a significantly deteriorated operating performance and
pressured ability to service its debt obligations.
-- This could occur if cash burn accelerates to the point where
S&P believes liquidity has been impaired or if it believes its
operations cannot recover from the setback caused by the pandemic,
in particular in its QSR operations.
-- If S&P expects credit metrics to remain weak including debt to
EBITDA sustained above 7.5x in 2021.
S&P could revise its outlook to stable if:
-- The company is able to recover from the impact of the pandemic
with QSR revenues offsetting declines in casual and fast-casual
dining sales such that S&P would anticipate persistent positive
free operating cash flow and leverage sustained less than 7.5x.
-- S&P believes changing consumer behaviors, as a result of the
coronavirus pandemic or the current recessionary environment, will
not be detrimental to Flynn's top-line and profitability.
FORD MOTOR: Egan-Jones Lowers FC Senior Unsecured Rating to B+
--------------------------------------------------------------
Egan-Jones Ratings Company, on June 11, 2020, downgraded the
foreign currency senior unsecured rating on debt issued by Ford
Motor Company to B+ from BB. EJR also downgraded the rating on
commercial paper issued by the Company to B from A3.
Headquartered in Dearborn, Michigan Ford Motor Company designs,
manufactures, and services cars and trucks.
FOSSIL GROUP: Egan-Jones Lowers Senior Unsecured Ratings to CCC-
----------------------------------------------------------------
Egan-Jones Ratings Company, on June 9, 2020, downgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Fossil Group Inc. to CCC- from CCC.
Headquartered in Richardson, Texas, Fossil Group, Inc. designs,
develops, markets, and distributes consumer fashion accessories.
GAP INC: Egan-Jones Lowers Senior Unsecured Ratings to B-
---------------------------------------------------------
Egan-Jones Ratings Company, on June 9, 2020, downgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by The Gap Incorporated to B- from B.
Headquartered in San Francisco, California, The Gap, Inc. is an
international specialty retailer operating retail and outlet
stores.
GAVILAN RESOURCES: July 27 Auction of All/Substantially Assets Set
------------------------------------------------------------------
Judge Jerrold N. Poslusny of the U.S. Bankruptcy Court for the
Southern District of Texas authorized the proposed auction and bid
procedures of Gavilan Resources, LLC and its affiliated debtors in
connection with the sale of all or substantially all their assets.
The salient terms of the Bidding Procedures are:
a. Bid Deadline: July 20, 2020 at 5:00 p.m. (CT)
b. Initial Bid: The Stalking Horse Agreement may contain (a)
an expense reimbursement for the reasonable, documented
out-of-pocket expenses of the Stalking Horse Bidder incurred in
connection with the Stalking Horse Agreement in an aggregate amount
not to exceed $500,000 and (b) a break-up fee for the Stalking
Horse Bidder in an amount not to exceed 3% of the cash portion of
the purchase price under the Stalking Horse Agreement, payable only
from the proceeds of a Sale with a Qualified Bidder other than the
Stalking Horse Bidder, or otherwise if an alternative transaction
is accomplished through a chapter 11 plan following the termination
of the Stalking Horse Agreement on account of pursuing an
alternative Sale or transaction. The Bid Protections will be an
allowed administrative expense.
If a Stalking Horse Bidder is selected prior to the Bid
Deadline, result in value to the Debtors' estates that, in the
Debtors' reasonable business judgment after consultation with the
Consultation Parties, is more than the aggregate of the value of
the sum of: (A) the cash purchase price of the Stalking Horse
Agreement; plus (B) the Stalking Horse Bidder’s assumed
liabilities in an estimated amount determined by the Debtors in
consultation with the Consultation Parties; plus (C) the sum of the
Bid Protections, if any; plus (D) $100,000.
c. Deposit: (x) 10% of the cash purchase price of the bid, and
(y) $1,000,000 that will constitute liquidated damages to the
Debtors if the Qualified Bidder will default with respect to its
offer
d. Auction: Unless a separate notice is served by the Debtors,
the Auction will take place on July 27, 2020 at 1:00 p.m. (CT) at
the offices of counsel for the Debtors, Weil, Gotshal & Manges LLP,
700 Louisiana Street, Suite 1700, Houston, TX 77002 or at such
other place and time as the Debtors, after consulting the
Consultation Parties, will select.
e. Bid Increments: $100,000
f. Sale Hearing: July 31, 2020 at 10:30 a.m. (CT)
g. Sale Objection Deadline: July 30, 2020 at 5:00 p.m. (CT)
h. Agents Credit Bid Deadline: July 23, 2020 at 5:00 p.m.
(CT)
In accordance with the Bid Procedures, the Debtors may enter into a
Stalking Horse Agreement, subject to higher or otherwise better
offers at the Auction, with any Stalking Horse Bidder that submits
a Qualified Bid acceptable to the Debtors to establish a minimum
Qualified Bid at the Auction.
The Stalking Horse Agreement may provide for payment of break-up
fees and/or expense reimbursements, subject to entry of the
Stalking Horse Order.
In the event the Debtors select a Stalking Horse Bidder, they will
file a Stalking Horse Agreement with the Court and provide four
days' notice of the designation and Bid Protections to the parties
specified in the Bid Procedures. After such notice, and absent
objection, the Debtors may submit an order to the Court under
certification of counsel approving the selection of the Stalking
Horse Bidder and the Bid Protections.
The form of Sale Notice is approved. Within seven days after the
entry of the Order, the Debtors will serve the Sale Notice and the
Order, including the Bid Procedures, upon all Notice Parties. In
addition, within seven days after the entry of the Order or as soon
as reasonably practicable thereafter, the Debtors will serve the
Sale Notice upon the Sale Notice Parties. The Debtors are directed
to post the Sale Notice on their case information website at
https://dm.epiq11.com/case/gavilan/info.
The form of Post-Auction Notice is approved. The Debtors will
serve the Post-Auction Notice on the counterparties to the Desired
365 Contracts, the Sale Notice Parties, and all parties entitled to
notice, as soon as practicable, and in no event later than July 28,
2020.
The Assumption and Assignment Procedures are approved. The
Assumption and Assignment Notice is approved.
The Assumption and Assignment Notice Deadline is July 22, 2020.
The Contract Objection Deadline is July 30, 2020 at 5:00 p.m.
(CT).
Any time after the Assumption and Assignment Notice Deadline and
before the date one business day prior to the Sale Hearing, the
Debtors reserve the right, and are authorized but not directed, to
(i) add previously omitted Desired 365 Contracts as contracts to be
assumed and assigned to a Successful Bidder in accordance with the
definitive agreement for a Sale Transaction, (ii) remove a Desired
365 Contract from the Desired 365 Contract List that a Successful
Bidder proposes be assumed and assigned to it in connection with a
Sale Transaction, or (iii) modify the previously stated Cure Amount
associated with any Desired 365 Contract.
At the Sale Hearing, the Debtors will ask Court approval of the
assumption and assignment to the Successful Bidder of the Desired
365 Contracts.
Notwithstanding Bankruptcy Rules 6004(h), 6006(d), 9014, or
otherwise, the Court, for good cause shown, orders that the terms
and conditions of the Order will be immediately effective and
enforceable upon its entry.
A hearing on the Motion was held on June 9, 2020 at 10:00 a.m.
A copy of the Bidding Procedures is available at
https://tinyurl.com/y7sm4t6w from PacerMonitor.com free of charge.
About Gavilan Resources
Gavilan Resources, LLC, established in July 2016, is a private
equity backed independent exploration and production (E&P) company
headquartered in Houston, Texas, whose production is singularly
focused on the Eagle Ford Shale.
Gavilan Resources, LLC, and three affiliates sought Chapter 11
protection (Bankr. S.D. Tex. Lead Case No. 20-32656) on May 15,
2020.
Gavilan was estimated to have $1 billion to $10 billion in assets
and $500 million to $1 billion in liabilities as of the bankruptcy
filing.
The Hon. Marvin Isgur is the presiding judge.
The Debtors tapped WEIL, GOTSHAL & MANGES LLP as attorneys; VINSON
& ELKINS, LLP as co-counsel; LAZARD FRERES & CO. LLC as investment
banker; and HURON CONSULTING SERVICES LLC as restructuring advisor.
EPIQ CORPORATE RESTRUCTURING, LLC, is the claims agent.
GEORGIA DIRECT: Auction Sale of Remaining Personal Properties OK'd
------------------------------------------------------------------
Judge Robin L. Moberly of the U.S. Bankruptcy Court for the Sothern
District of Indiana authorized the sale by Georgia Direct Carpet,
Inc., and its debtor-affiliates of all their remaining personal
property at public auction, including but not limited to all
remaining flooring inventory and supplies, 2004 GMC Box Truck W45,
2011 Ford Transit 2007 RPA REM Trailer, 2016 GMC Sierra 1500, 2015
Ford Transit Con, carpet roll cutter, two Crown fork lifts, CAT
fork lift, pallet racking, warehousing equipment, air compressors,
kitchen and bath displays, all other display furniture and
fixtures, laptops, computers, IT equipment, printers, office
furnishings, TVs, side chairs, tools, etc. and any and all other
tangible personal property located at the Debtors' premises, with
the exception of the 2013 GMC Sierra 1500.
The sale will be free and clear of all interests, liens, claims and
encumbrances.
Within 10 days of the conclusion of the auction, Key Auctioneers
will remit all proceeds from the auction, less the Auctioneer's
fees and expenses, directly to West End Bank, S.B.
The Auctioneer's fees and expenses are subject to final approval by
the Court, and the Auctioneer will hold its fees and expenses
deducted from the sale proceeds in escrow pending final approval by
the Court.
The Debtors will file a Report of Sale within 14 days that the
private sale takes place pursuant to Fed. R. Bankr. 6004-3(d).
About Georgia Direct Carpet
Georgia Direct Carpet, Inc., also known as Georgia Carpet Direct,
owns and operates a carpet and flooring store in Richmond, Ind. It
offers carpets, hardwoods, laminate flooring and ceramic tile
floor
products.
Georgia Direct Carpet and its affiliates sought Chapter 11
protection (Bankr. S.D. Ind. Lead Case No. 19-06316) on Aug. 26,
2019. In the petition signed by Anthony Bledsoe, president,
Georgia
Direct Carpet estimated assets and liabilities at $1 million to
$10
million. The Hon. Robyn L. Moberly is the case judge.
The Debtors tapped Mattingly Burke Cohen & Biederman LLP as their
legal counsel; Mattingly Burke Cohen & Biederman LLP, as special
counsel; and Barron Business Consulting, Inc. as their financial
advisor.
The Office of the U.S. Trustee appointed creditors to serve on the
official committee of unsecured creditors on Oct. 9, 2019. The
committee is represented by Mercho Caughey.
GGI HOLDINGS: Gold's Gym Woodinville Appointed as Committee Member
------------------------------------------------------------------
The Office of the U.S. Trustee on June 16, 2020, appointed Gold's
Gym Woodinville as new member of the official committee of
unsecured creditors in the Chapter 11 cases of GGI Holdings, LLC
and its affiliates.
The bankruptcy watchdog had earlier appointed Encino Pinnacle Owner
II LP, Les Mills United States Trading, JVRC Associates LLP and
Gold's Gym Woodbridge, VA, court filings show.
Gold's Gym Woodinville can be reached through:
Michael Williams
Gold's Gym Woodinville
18600 Woodinville Snohomish Road, N.E.
Suite 100
Woodinville, WA 98072
Phone: (206) 679-6453
Email: mike@goldsgym1965.com
About GGI Holdings
Founded in 1965, GGI Holdings, LLC and its affiliates, including
Gold's Gym International, Inc. and Golds Holding Corp, operate a
network of company-owned and franchised fitness centers. They own
and operate approximately 95 gyms domestically, and hold franchise
agreements for more than 600 gyms domestically and internationally.
The majority owner -- TRT Holdings, Inc. -- acquired the business
in 2004.
GGI Holdings and affiliates sought Chapter 11 protection (Bankr.
N.D. Texas Lead Case No. 20-31318) on May 4, 2020. GGI Holdings
was estimated to have assets and debt of $50 million to $100
million
The Hon. Harlin Dewayne Hale is the case judge.
Debtors tapped Dykema Gossett PLLC as bankruptcy counsel. BMC
Group Inc. is the claims agent.
The Office of the U.S. Trustee appointed a committee to represent
unsecured creditors in Debtors' bankruptcy cases. The committee is
represented by Kilpatrick Townsend & Stockton, LLP.
GI DYNAMICS: Gets Two-Week Extension of 2017 Note Maturity Date
---------------------------------------------------------------
Crystal Amber Fund Limited, GI Dynamics Inc.'s major stockholder,
has agreed to extend the maturity date of the June 2017 Note from
June 15, 2020 to June 29, 2020. This further extension follows the
recent extensions announced by the Company on May 4, 2020 and May
18, 2020.
Ongoing Fundraising Efforts and Potential Wind Up
The Company also advises that it is continuing to have discussions
with potential investors regarding a potential bridge loan and/or a
more substantial fundraising. The Company advises that it has not
yet agreed to any financing arrangements with any third party and
may not be able to do so. The Company will provide an update to
the market on these efforts before the end of this week.
The Company continues to advise that it may not be possible for it
to raise any additional funds either as a bridge loan and/or as a
more substantial fundraising. If the Company is unable to raise
additional funds by June 19, 2020, then the Company will be
required to take steps to wind up the Company under Delaware law.
About GI Dynamics
Founded in 2003 and headquartered in Boston, Massachusetts, GI
Dynamics, Inc. (ASX:GID) is a developer of EndoBarrier, an
endoscopically-delivered medical device for the treatment of type 2
diabetes and the reduction of obesity. EndoBarrier is not approved
for sale and is limited by federal law to investigational use only.
EndoBarrier is subject to an Investigational Device Exemption by
the FDA in the United States and is entering concurrent pivotal
trials in the United States and India.
GI Dynamics reported a net loss of $17.33 million for the year
ended Dec. 31, 2019, compared to a net loss of $8.04 million for
the year ended Dec. 31, 2018. As of March 31, 2020, the Company
had $5.65 million in total assets, $8.71 million in total
liabilities, and a total stockholders' deficit of $3.06 million.
Wolf and Company, P.C., in Boston, Massachusetts, the Company's
auditor since 2019, issued a "going concern" qualification in its
report dated March 26, 2020 citing that the Company has suffered
losses from operations since inception and has an accumulated
deficit and working capital deficiency that raise substantial doubt
about the Company's ability to continue as a going concern.
GREENSKY HOLDINGS: S&P Rates $75MM Tranche B-2 Term Facility 'B+'
-----------------------------------------------------------------
S&P Global Ratings assigned its 'B+' issue-level rating and '3'
recovery rating to point-of-sale financing and payment technology
company GreenSky Holdings LLC's $75 million tranche B-2 term
facility due 2025. The '3' recovery rating indicates S&P's
expectation for meaningful (50%-70%; rounded estimate: 50%)
recovery for lenders in the event of payment default. The new debt
ranks pari passu with the company's existing first-lien secured
debt and has substantially the same terms.
The additional debt increased GreenSky's adjusted leverage to about
3.6x from 3.0x for the 12-months ended March 31, 2020. S&P does not
net cash from its leverage calculation. Proceeds of the debt will
be accumulated onto the company's unrestricted cash balance. While
S&P forecasts that the company's leverage will exceed 7x in 2020,
the rating agency expects the company's free operating cash flow
(FOCF)-to-debt ratio to remain in the rating agency's expected
range of the mid- to high-teens percent area, which is a key rating
consideration. As S&P noted in its previous research update, the
rating agency expects GreenSky's credit metrics to weaken over the
next 12 months because of margin pressures and the pandemic-related
disruption in its transaction volume. Despite these headwinds, S&P
expects the company to continue to generate a healthy level of FOCF
(the rating agency forecasts about $70 million in 2020). GreenSky's
$75 million debt raise will provide it with a greater liquidity
cushion in case its business and macroeconomic-related pressures
persist.
The negative outlook on GreenSky reflects S&P's expectation that it
will face continued execution risks in 2020 amid a weak
macroeconomic backdrop and uncertain alternative funding strategy.
S&P notes that the company faced several funding commitment issues
over the last year and that the company is currently pursuing
alternative sources of funding (such as from non-bank financial
institutions). S&P could lower its rating on GreenSky if the
company's business model faces additional pressure or its FOCF
declines materially below the rating agency's expectations for 2020
and beyond.
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
-- S&P's simulated default scenario assumes a default occurring in
2023 because of the loss of a bank partner or pricing pressure due
to increased competition from banks or technology companies with
greater resources.
Simulated default assumptions
-- Simulated year of default: 2023
-- EBITDA at emergence: $53.4 million
-- EBITDA multiple: 5.5x
Simplified waterfall
-- Net enterprise value (after 5% administrative costs): $279
million
-- Valuation split (obligors/nonobligors): 100%/0%
-- Collateral value available to secured creditors: $279 million
-- Secured first-lien debt: $543 million*
-- Recovery expectations: 50%-70% (rounded estimate: 50%)
*All debt amounts include six months of prepetition interest. Note:
S&P does not account for the company's $500 million asset-based
lending revolver in the rating agency's recovery analysis. That
debt is nonrecourse to GreenSky and only backed by the cash flow
from the consumer loans it helps underwrite.
GRUBHUB INC: S&P Keeps 'B+' Issuer Credit Rating on Watch Negative
------------------------------------------------------------------
S&P Global Ratings kept all of its ratings on Grubhub Inc.,
including the 'B+' issuer credit rating, on CreditWatch based on
its expectation that the enhanced business scale and
Netherlands-based Just Eat Takeaway.com's (JET) profitable
operating track record could support Grubhub's credit assessment.
The CreditWatch is based on the uncertain impact and credit support
of the JET transaction. It reflects severe deterioration in
Grubhub's credit measures in 2020, and likely 2021, as it makes
significant investments in its restaurant and customer network, and
logistic capabilities in newer markets. Grubhub recently
communicated in a letter to its employees that it intends to
continue its strategy to run its U.S. operations at break-even for
years as it competes as aggressively as it needs to gain or expand
upon its market leadership positions. Nevertheless, the company has
not provided earnings estimates since it withdrew its public
guidance in May 2020, and the company is subject to certain
conditions precedent, including operating performance conditions,
contained in its merger agreement which could limit investment
spending.
The U.S. online food delivery market remains fiercely competitive
as market participants continue to sacrifice profits to quickly
capture market share. Absent a consolidation in the U.S. market S&P
believes operating conditions and weak profit trends will persist.
Industry consolidation, which could potentially improve pricing
discipline, is further complicated by recent media reports of
excessive online food delivery fees and political backlash. Many
local governments have implemented temporary fee caps to support
restaurants during the current economic recession and COVID-19
pandemic. Doordash, Postmates, and Uber Eats are the key large
competitors in the U.S. market. JET does not currently operate in
the U.S.
The combined company is expected to be the second-largest online
food company in the world based on 2019 pro forma revenues of $3
billion. It will operate with leading market positions in its key
markets--U.S., U.K., Netherlands, and Germany. At transaction close
the company will be headquartered in the Netherlands and Jitse
Groen, CEO and founder of JET, will lead the combined company. Both
companies use a hybrid operating model that focuses on order demand
generation and is indifferent if restaurants utilize their own
delivery services or the company's services. S&P views this model
as supportive for its more profitable independent restaurant end
markets, and the group's longer-term profitability. S&P expects the
merger will provide modest immediate synergy benefits given its
view that local market scale and network density is more important
to profitability than global scale. Nevertheless, synergy benefits
from shared technology and marketing investments, customer support,
and best practices should support efficiency over time.
The combined company has about $1.1 billion of outstanding debt
following JET's recent bond raise in April 2020, of which about
$500 million was outstanding at Grubhub. The merger is unlikely to
trigger a change of control event and a mandatory repayment under
Grubhub's senior note indenture. Therefore, information regarding
possible repayment or additional parent guarantees is important to
S&P's ratings assessment. JET has historically operated with low
cash balances and the senior notes could potentially be repaid from
expected healthy cash balances at the transaction close.
"We will resolve the CreditWatch once the business combination
closes or when additional information is provided on key
transaction details including debt repayment or parent guarantees,
capital allocation, financial policies, and earnings forecasts. We
will also continue to meet with management to discuss the risks and
benefits to the combined company's competitive position, strategic
plans, and transaction details, which will help us determine how
much, if any, the ratings could be lowered. Our discussions could
also result in a reassessment of our rating outlook," S&P said.
"We could lower our rating on Grubhub by one or more notches if the
merger transaction falls through and we expect large ongoing
investments, cash flow deficits, or forecast leverage to be
sustained above 5x," the rating agency said.
HELIX GEN: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
----------------------------------------------------------
S&P Global Ratings affirmed its 'BB-' rating on Helix Gen Funding
LLC (Helix) and revised the outlook to stable from negative.
The Ravenswood Generating Station is a 2,000 megawatt (MW) combined
power plant located in New York City (NYC; Zone J of the NYISO).
The site includes a 248 MW combined-cycle power plant (CCGT), 51 MW
of gas turbine peakers, and 1,716 MW of steam turbine generation.
The plant has dual–fuel capability to run on oil. The project is
100% owned by funds controlled by LS Power Corp., is ring-fenced,
and complies with S&P Global Ratings' definition of a project
financing.
Recent improvements in both cleared and projected Zone J capacity
prices through 2023 will increase Helix's gross margin and cash
flow available for debt service (CFADS), resulting in better DSCRs
through S&P's forecast period.
Higher cleared and projected Zone J capacity prices translate to
higher CFADS and improved DSCRs. In April 2020, S&P increased its
forecast for Zone J capacity prices--forecasted summer capacity
prices increased by an average of 17% through 2023, while
forecasted winter capacity prices increased by an average of 36%
over the same period. Subsequently, summer 2020 capacity prices
cleared at $18.36/kilowatts per month (kw-mo), 8% higher than in
S&P's previous forecast. Because Helix generates about 70% to 80%
of its gross margin from capacity payments, and because the
increase in capacity payments has no corresponding increase to
operating expenses, these forecasted price changes materially
improve Helix's forecasted cash flow. Although energy prices and
load remains somewhat depressed in Zone J, a small decline in
energy revenue does not materially affect S&P's forecast. S&P now
forecasts CFADS to be $15 million, $13 million, and $57 million
higher in 2020, 2021, and 2022, respectively. These improvements
directly result in higher DSCRs through S&P's coverage period and
higher expected debt paydown, strengthening the project's credit
profile.
The ability of the project to repay its term loan via excess cash
flow sweep is less of a problem than S&P previously considered. A
key factor in S&P's previous view of Helix was whether the project
could repay its term loan debt through the excess cash flow sweep
mechanism in the project's credit agreement. S&P now expects the
project to pay down about $60 million on the term loan B in 2020
and about $70 million in 2021. Although Helix has not yet
demonstrated a track record of repaying debt via this mechanism,
S&P now has much more visibility into summer 2020 capacity prices
since its last review and has more certainty that 2020 sweep
expectations will be realized. Additionally, the increase in S&P's
forecast for CFADS is sufficiently great that the project should
continue to generate DSCRs above 1.5x even if it sweeps less cash
than expected over the next few years.
"The stable outlook reflects our view that Helix will continue to
generate solid DSCRs for its rating level over the next few years.
We continue to expect the project to maintain operations consistent
with historical performance and expect DSCRs to average about 2.0x
through 2022, with a minimum DSCR of 1.59x in 2020," S&P said.
"We could lower the rating if DSCRs fall below 1.4x in any year.
This would likely be caused by operational outages at Ravenswood,
NYISO capacity cleared capacity prices that fail to meet our
forward-looking assumptions, or lower-than-expected realized energy
margins, leading to higher debt outstanding at refinancing," the
rating agency said.
S&P could consider a higher rating if it expects DSCRs to be
greater than 1.8x in each year of its forecast.
HOOVER GROUP: S&P Downgrades ICR to 'CCC-'; Outlook Negative
------------------------------------------------------------
S&P Global Ratings lowered its ratings on Houston-based container
rental company Hoover Group Inc., including the issuer credit
rating and issue-level rating on the first-lien debt to 'CCC-' from
'CCC'. S&P's '3' recovery rating (rounded estimate: 65%) on the
first-lien debt is unchanged.
Hoover's first-lien credit facilities ($240 million outstanding at
March 31, 2020) mature in January 2021, and S&P believes the
company's internal liquidity is insufficient to repay the maturity.
"In our view, a distressed restructuring or a payment default
appears increasingly likely within the next six months, considering
we forecast leverage will be above 7x over the next 12 months.
Although Hoover is pursuing external financing options, we believe
the company may undertake a distressed restructuring given its high
leverage and exposure to the challenged upstream oil and gas end
market," S&P said.
S&P expects onshore and offshore oil and gas (O&G) exploration
activity to slow considerably in 2020 as a result of weak demand
and strong supply. Hoover's upstream O&G customers will likely
reduce demand in 2020 and into 2021 as a result. Although the
company will cut costs, likely benefiting profitability somewhat,
the rating agency forecasts lower volumes will increase adjusted
debt leverage above 7x this year. S&P believes the company's high
leverage and substantial exposure (more than 60% of revenue) to
declining drilling activity will significantly impede its ability
to access financial markets in the near term.
"We could view an extension of the first-lien maturities or the
repurchase of debt below par as a default. Hoover could enter into
negotiations with its debtholders which result in extension of the
debt maturities or in lenders receiving less than par. Although
this would benefit Hoover's capital structure, creditors could
likely receive less than the original promise if the company were
to restructure its debt, which we could consider a default," S&P
said.
The January maturity leaves Hoover with a material liquidity
deficit over the next 12 months. S&P forecasts Hoover will
generate modest funds from operations (FFO) over the next 12
months. Combined with cash of $40 million at March 31, 2020, this
will be insufficient to repay the first-lien facilities at maturity
in January.
Hoover may breach its financial covenants during 2020. The
company's first-lien credit facility is subject to a consolidated
first-lien secured leverage ratio of 5.5x and its second-lien
credit facility is subject to a consolidated total leverage ratio
of 6.5x. Although S&P forecasts Hoover will remain in compliance
with the covenant on its first-lien credit facility, it sees an
elevated risk that the company could violate the covenant on its
second-lien debt.
The negative outlook reflects the heightened risk that Hoover could
default on its debt obligations or pursue a distressed debt
restructuring within the next six months.
"We could lower our rating on Hoover if we believe a default is a
virtual certainty or if the company announces or undertakes a
distressed restructuring or bankruptcy filing," S&P said.
"Although highly unlikely given our expectations for challenged
operating performance and the company's limited access to capital
markets over the next 12 months, we could raise our ratings on
Hoover if it addresses its near-term maturities in a manner we do
not view as distressed and if we expect the company will not face
any subsequent liquidity issues over the next 12 months," the
rating agency said.
HORIZON THERAPEUTICS: S&P Alters Outlook to Positive
----------------------------------------------------
S&P Global Ratings affirmed its 'BB-' issuer credit rating on
Horizon Therapeutics PLC as well as the 'BB+' issue level rating on
the company's senior secured term loan and revised its outlook to
positive from stable.
The outlook revision follows the announcement of the redemption of
$400 million of structurally subordinated exchangeable senior
notes. S&P expects noteholders will exchange their notes for
ordinary shares and for the exchange to be completed by the end of
July 2020.
Although S&P views this as positive for creditworthiness, it is
lowering the issue-level rating on the $600 million of unsecured
notes due 2027 by one notch to 'B+' from 'BB-', and revising the
recovery rating to '5' from '4', to reflect weaker recovery
prospects on this debt, in the event of a hypothetical default,
stemming from the shift in proportion of debt with differing
priorities within the capital structure following the elimination
of the structurally subordinated debt.
"Our outlook revision reflects a lower adjusted leverage between 2x
and 3x after debt redemption. The positive outlook reflects our
view that we will raise the rating if the company demonstrates a
sustained commitment to generally maintain leverage below 3x. This
follows a trajectory of substantial deleveraging and a two-notch
rating upgrade in 2019," S&P said.
Given the company's substantial cash balance (which S&P doesn't net
against debt) and good cash flow generation, Horizon could still
conduct sizable acquisitions expand and diversify its product
portfolio and pipeline, while generally maintaining leverage below
3x. S&P would like to see a track record of a discipline in
maintaining leverage below 3x before considering another rating
upgrade.
Prospects for the company's business are generally favorable,
highlighted by strong product demand and cash flows. KRYSTEXXA
(approximately 26% of total net sales in the first quarter of 2020)
sales grew 78% in the first three months of 2020 (compared to the
prior-year period) due to volume growth and higher net pricing. S&P
expects COVID-19 will only modestly affect Horizon, as limits on
physician-patient interaction may slow new patient onboarding. The
company noted there is a high patient retention rate as well as a
growing backlog of patients. Also, TEPEZZA, which was approved
earlier in the year for treating thyroid eye disease, had a strong
launch, achieving $23 million of sales in the first quarter, well
ahead of the company's expectations of $30 million to $40 million
for the whole year. Company now expects TEPEZZA sales to exceed
$200 million for 2020.
Product concentration, limited development pipeline, and exposure
to increased scrutiny of high drug pricing remain the key risks in
Horizon's operations. Volumes are increasing in Horizon
Therapeutics' top two products with stable pricing, and S&P
believes this will continue for several years given their patent
profile, untreated patient populations, growing set of safety and
efficacy data, and increased marketing efforts. The recent approval
of TEPEZZA provides an additional source of revenue growth, but S&P
believes Horizon still has high product concentration and expect it
to increase. In 2020, S&P expects the top three products will
represent over 50% of revenue, and the rating agency believes it
will increase closer to 70% by 2024.
The positive outlook reflects S&P's expectation to raise the rating
if the company demonstrates a sustained commitment to maintain
leverage below 3x, despite competing priorities including
debt-funded acquisitions to diversify and expand its product
portfolio and shareholder returns. This is supported by the
company's strong cash balance (not netted against debt) and good
free cash flow generation which allows for a moderate level of M&A
without incurring substantial further debt.
"We could consider a higher rating if company shows track record of
sustaining leverage between 2x and 3x. This assumes a moderate
level of M&A activities," S&P said.
"We may revise the outlook back to stable if the company fails to
demonstrate a commitment to maintain adjusted debt leverage below
3x," the rating agency said.
HUNTSMAN CORP: Egan-Jones Lowers FC Senior Unsecured Rating to BB
-----------------------------------------------------------------
Egan-Jones Ratings Company, on June 10, 2020, downgraded the
foreign currency senior unsecured rating on debt issued by Huntsman
Corporation to BB from BB+.
Headquartered in Texas, Huntsman Corporation is a global
manufacturer and marketer of differentiated and specialty
chemicals.
HYTERA COMMUNICATIONS: U.S. Trustee Appoints Creditors' Committee
-----------------------------------------------------------------
The Office of the U.S. Trustee on June 15, 2020, appointed a
committee to represent unsecured creditors in the Chapter 11 cases
of Hytera communications America (West) Inc. and its affiliates.
The committee members are:
1. Motorola
c/o Chad J. Husnick, P.C.
Kirland & Ellis LLP
500 W. Monroe Street, Suite 4400
Chicago, IL 60661-3781
2. Exhibivent LLC
Richard Prioletti
7322 Gleneagle Circle
Village of Lakewood, IL 60014
3. SAF Technika
Janis Bergs
24a Ganibu dambis
Riga LV-1005
Latvia
4. Samlex America, Inc.
Michael Hamanishi
#103 Loxells Ave.
Burnaby, BC V5A OC6
Canada
5. Service Communications
Rachel M. Romero
100 Henderson Rd.
Lafayette, LA 70508
Official creditors' committees serve as fiduciaries to the general
population of creditors they represent. They may investigate the
debtor's business and financial affairs. Committees have the right
to employ legal counsel, accountants and financial advisors at a
debtor's expense.
About Hytera Communications America
Hytera communications America (West), Inc. is a global company in
the two-way radio communications industry. It has 10 international
R&D Innovation Centers and more than 90 regional organizations
around the world. Forty percent of Hytera employees are engaged in
engineering, research, and product design. Hytera has three
manufacturing centers in China and Spain. For more information,
visit https://www.hytera.us
On May 26, 2020, Hytera sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. C.D. Calif. Lead Case No. 20-11507). At
the time of the filing, Debtor had estimated assets of between $10
million and $50 million and liabilities of between $500 million and
$1 billion.
Judge Erithe A. Smith oversees the cases.
Debtors tapped Pachulski Stang Ziehl & Jones, LLP as bankruptcy
counsel; Steptoe & Johnson, LLP as corporate and special counsel;
and Imperial Capital, LLC as financial advisor.
IFRESH INC: Delays Filing of Annual Report Due to COVID-19
----------------------------------------------------------
iFresh Inc. disclosed in a Form 8-K filed with the Securities and
Exchange Commission that as a result of the global outbreak of the
COVID-19, the Company is unable to meet the filing deadline its
Annual Report on Form 10-K for the year ended March 31, 2020.
The Company's business and stores are located in the states of New
York, Florida, Massachusetts and Maryland. In order to avoid the
risk of the virus spreading, the Company has been following the
recommendations of local health authorities to minimize exposure
risk for its employees and customers for the past two and an half
months, including the temporary closures of its stores and
corporate offices, having employees work remotely and travel
restrictions or suspension. As such, the Annual Report was not
completed by the filing deadline, due to insufficient time to
facilitate the internal and external review process.
The Company filed the Current Report pursuant to an order issued by
the SEC dated on March 25, 2020 (Release No. 34-88465), providing
conditional relief to public companies that are unable to timely
comply with their filing obligations as a result of the outbreak of
COVID-19. Therefore, the Company is relying on the SEC Order to
extend the due date for the filing of the Annual report until Aug.
13, 2020 (45 days after the original due date).
About iFresh Inc.
Headquartered in Long Island City, New York, iFresh Inc. --
http://www.ifreshmarket.com/-- is an Asian American grocery
supermarket chain and online grocer on the east coast of U.S. With
nine retail supermarkets along the US eastern seaboard (with
additional stores in Glen Cove, Miami and Connecticut opening
soon), and two in-house wholesale businesses strategically located
in cities with a highly concentrated Asian population, iFresh aims
to satisfy the increasing demands of Asian Americans (whose
purchasing power has been growing rapidly) for fresh and culturally
unique produce, seafood and other groceries that are not found in
mainstream supermarkets. With an in-house proprietary delivery
network, online sales channel and strong relations with farms that
produce Chinese specialty vegetables and fruits, iFresh is able to
offer fresh, high-quality specialty produce at competitive prices
to a growing base of customers.
iFresh reported a net loss of $12 million for the year ended March
31, 2019, compared to a net loss of $791,293 for the year ended
March 31, 2018. As of Dec. 31, 2019, the Company had $103.37
million in total assets, $104.38 million in total liabilities, and
a total shareholders' deficiency of $1 million.
Friedman LLP, in New York, the Company's auditor since 2016, issued
a "going concern" qualification in its report dated June 28, 2019,
citing that the Company incurred operating losses and did not meet
the financial covenant required in its credit agreement. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern.
J.C. PENNEY: Seeks to Hire Katten Muchin as Special Counsel
-----------------------------------------------------------
J.C. Penney Company, Inc., and its debtor-affiliates seek authority
from the U.S. Bankruptcy Court for the Southern District of Texas
to employ Katten Muchin Rosenman LLP, as special counsel to the
Debtors.
J.C. Penney requires Katten Muchin to:
(1) review the Debtors' insurance policies to determine the
possibility of coverage for our fees and costs or for the
claim asserted against the Debtors;
(2) notify the Debtors' insurance carriers about a matter;
(3) advise the Debtors' disclosure obligations concerning a
matter under the federal securities laws or any other
applicable law; and
(4) advise the Debtors about tax issues that relate to a
matter.
Katten Muchin will be paid at these hourly rates:
Partners $770 to $1,555
Of Counsel $895 to $1,475
Associates $460 to $970
Paraprofessionals $195 to $580
On May 1, 2020, the Debtor paid $200,000 to Katten Muchin. Prior to
the Petition Date, Katten Muchin provided services to the
Independent Directors of J. C. Penney Corporation Inc. for total
fees and expenses of $225,051. Katten Muchin has applied the fee
deposit for its pre-petition work, and written off $25,051 for time
spent and expenses incurred before the Petition Date.
Katten Muchin will also be reimbursed for reasonable out-of-pocket
expenses incurred.
Steven J. Reisman, partner of Katten Muchin Rosenman LLP, assured
the Court that the firm is a "disinterested person" as the term is
defined in Section 101(14) of the Bankruptcy Code and does not
represent any interest adverse to the Debtors and their estates.
Katten Muchin can be reached at:
Steven J. Reisman, Esq.
Katten Muchin Rosenman LLP
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
Tel: (212) 940-8800
About J.C. Penney
J.C. Penney Corporation, Inc., is an American retail company,
founded in 1902 by James Cash Penney and today engaged in marketing
apparel, home furnishings, jewelry, cosmetics, and cookware. The
company was called J.C. Penney Stores Company from 1913 to 1924,
when it was reincorporated as J.C. Penney Co.
On May 15, 2020, JCPenney announced that it has entered into a
restructuring support agreement with lenders holding 70% of
JCPenney's first lien debt. The RSA contemplates agreed-upon terms
for a pre-arranged financial restructuring plan that is expected to
reduce several billion dollars of indebtedness. To implement the
Plan, the Company and its affiliates on May 15, 2020, filed
voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code (Bankr. S.D. Tex. Lead Case No. 20-20182).
Kirkland & Ellis LLP is serving as legal advisor, Lazard is
serving
as financial advisor, and AlixPartners LLP is serving as
restructuring advisor to the Company. Prime Clerk is the claims
agent, maintaining the page http://cases.primeclerk.com/JCPenney
J.C. PENNEY: Seeks to Hire Kirkland & Ellis as Counsel
------------------------------------------------------
J.C. Penney Company, Inc., and its debtor-affiliates seek authority
from the U.S. Bankruptcy Court for the Southern District of Texas
to employ Kirkland & Ellis LLP and Kirkland & Ellis International
LLP, as attorney to the Debtors.
J.C. Penney requires Kirkland & Ellis to:
a. advise the Debtors with respect to their powers and duties
as debtors in possession in the continued management and
operation of their businesses and properties;
b. advise and consult on the conduct of these chapter 11
cases, including all of the legal and administrative
requirements of operating in chapter 11;
c. attend meetings and negotiating with representatives of
creditors and other parties in interest;
d. take all necessary actions to protect and preserve the
Debtors' estates, including prosecuting actions on the
Debtors' behalf, defending any action commenced against the
Debtors, and representing the Debtors in negotiations
concerning litigation in which the Debtors are involved,
including objections to claims filed against the Debtors'
estates;
e. prepare pleadings in connection with these chapter 11
cases, including motions, applications, answers, orders,
reports, and papers necessary or otherwise beneficial to
the administration of the Debtors' estates;
f. represent the Debtors in connection with obtaining
authority to continue using cash collateral and
postpetition financing;
g. advise the Debtors in connection with any potential sale of
assets;
h. appear before the Court and any appellate courts to
represent the interests of the Debtors' estates;
i. advise the Debtors regarding tax matters;
j. take any necessary action on behalf of the Debtors to
negotiate, prepare, and obtain approval of a disclosure
statement and confirmation of a chapter 11 plan and all
documents related thereto; and
k. perform all other necessary legal services for the Debtors
in connection with the prosecution of these chapter 11
cases, including: (i) analyzing the Debtors' leases and
contracts and the assumption and assignment or rejection
thereof; (ii) analyzing the validity of liens against the
Debtors; and (iii) advising the Debtors on corporate and
litigation matters.
Kirkland & Ellis will be paid at these hourly rates:
Partners $1,075 to $1,845
Of Counsel $625 to $1,845
Associates $610 to $1,165
Paraprofessionals $245 to $460
On April 4, 2020, the Debtors paid Kirkland & Ellis $500,000.
Subsequently, the Debtors paid Kirkland & Ellis additional advance
payment retainer totaling $10,390,956 in the aggregate.
Kirkland & Ellis will also be reimbursed for reasonable
out-of-pocket expenses incurred.
In accordance with Appendix B-Guidelines for Reviewing Applications
for Compensation and Reimbursement of Expenses Filed under 11
U.S.C. Sec. 330 for Attorneys in Larger Chapter 11 Cases, the
following is provided in response to the request for additional
information:
Question: Did you agree to any variations from, or
alternatives to, your standard or customary billing
arrangements for this engagement?
Response: No.
Question: Do any of the professionals included in this
engagement vary their rate based on the geographic
location of the bankruptcy case?
Response: No.
Question: If you represented the client in the 12 months
prepetition, disclose your billing rates and
material financial terms for the prepetition
engagement, including any adjustments during the 12
months prepetition. If your billing rates and
material financial terms have changed postpetition,
explain the difference and the reasons for the
difference.
Response: Kirkland & Ellis represented the Debtors during the
five-month period before the Petition Date, using
the hourly rates listed above.
Question: Has your client approved your prospective budget
and staffing plan, and, if so for what budget
period?
Response: Pursuant to the DIP Order, professionals proposed
to be retained by the Debtors are required to
provide bi-weekly estimates of fees and expenses
incurred in these chapter 11 cases.
Joshua A. Sussberg, the president of Joshua A. Sussberg, P.C., a
partner of Kirkland & Ellis LLP, and a partner of Kirkland & Ellis
International LLP, assured the Court that the firm is a
"disinterested person" as the term is defined in Section 101(14) of
the Bankruptcy Code and does not represent any interest adverse to
the Debtors and their estates.
Kirkland & Ellis can be reached at:
Joshua A. Sussberg, P.C.
KIRKLAND & ELLIS LLP
KIRKLAND & ELLIS INTERNATIONAL LLP
601 Lexington Avenue
New York, NY 10022
Tel: (212) 446-4829
E-mail: Joshua.sussberg@kirkland.com
About J.C. Penney
J.C. Penney Corporation, Inc., is an American retail company,
founded in 1902 by James Cash Penney and today engaged in marketing
apparel, home furnishings, jewelry, cosmetics, and cookware. The
company was called J.C. Penney Stores Company from 1913 to 1924,
when it was reincorporated as J.C. Penney Co.
On May 15, 2020, JCPenney announced that it has entered into a
restructuring support agreement with lenders holding 70% of
JCPenney's first lien debt. The RSA contemplates agreed-upon terms
for a pre-arranged financial restructuring plan that is expected to
reduce several billion dollars of indebtedness. To implement the
Plan, the Company and its affiliates on May 15, 2020, filed
voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code (Bankr. S.D. Tex. Lead Case No. 20-20182).
Kirkland & Ellis LLP is serving as legal advisor, Lazard is
serving
as financial advisor, and AlixPartners LLP is serving as
restructuring advisor to the Company. Prime Clerk is the claims
agent, maintaining the page http://cases.primeclerk.com/JCPenney
JETBLUE AIRWAYS: S&P Lowers New Term Loan Due 2024 Rating to 'B+'
-----------------------------------------------------------------
S&P Global Ratings lowered its issue-level rating on JetBlue
Airways Corp.'s proposed senior secured term loan due 2024 to 'B+'
from 'BB-' following the company's announcement that it plans to
increase the offering size to $750 million from the original
proposed $500 million. S&P also revised its recovery rating to '3'
from '2', indicating its expectations of meaningful recovery
(50%-70%; rounded estimate: 55%) in a default scenario. S&P's
issuer credit rating on JetBlue is unchanged at 'B+'.
ISSUE RATINGS – RECOVERY ANALYSIS
Simulated default assumptions
-- S&P's simulated default scenario assumes a default in 2024,
likely triggered by adverse industry conditions and a prolonged
recession, coupled with a significant increase in fuel costs that
forces the airline to reorganize.
-- S&P values JetBlue on a going-concern basis and use a discrete
asset valuation approach.
-- S&P's valuations reflect its estimate of the value of the
various assets at default based on net book value for current
assets and appraised value for aircraft and slots, after adjusting
for expected realizations rates in a distressed scenario.
Simplified waterfall
-- Net enterprise value (after 5% administrative costs): $3.6
billion
-- Valuation split in % (obligors/nonobligors): 100/0
-- Collateral value available to the proposed term loan backed by
domestic slots: $340 million
-- Additional recovery value available through deficiency claims:
$45 million
-- Estimated term loan claims at default: $643 million
-- Recovery expectations: 50%-70% (rounded estimate: 55%)
Ratings List
JetBlue Airways Corp.
Issuer Credit Rating B+/Negative/-- B+/Negative/--
Ratings Lowered; Recovery Ratings Revised
To From
JetBlue Airways Corp.
Senior Secured B+ BB-
Recovery Rating 3(55%) 2(80%)
KLAUSNER LUMBER: July 17 Auction of Substantially All Assets Set
----------------------------------------------------------------
Judge Karen B. Owens of the U.S. Bankruptcy Court for the District
of Delaware authorized Klausner Lumber One, LLC's bidding
procedures in connection with the auction sale of substantially all
assets.
The Debtor is authorized, but not directed, in consultation with
the Consultation Parties, to execute one or more APA(s) with a
Stalking Horse Purchaser(s) not later than June 29, 2020, provided
that the Debtor, with the agreement of the Consultation Parties,
may extend the Stalking Horse Designation Deadline through July 1,
2020, without further order of the Court. In the event the Debtor
enters into any Stalking Horse APA, within two business days of the
Stalking Horse Designation Deadline, the Debtor will file with the
Court and serve on the Stalking Horse Notice Parties a Stalking
Horse Notice. The Stalking Horse Objection Deadline is seven
calendar days after service of the Stalking Horse Notice as
contemplated in the Order.
The Debtor is authorized, but not directed, in consultation with
the Consultation Parties, to provide in any Stalking Horse APA a
break-up fee and an expense reimbursement for the documented and
reasonable expenses incurred by a Stalking Horse Purchaser for any
such Stalking Horse Purchaser that is not the Successful Bidder;
provided that (i) in the aggregate, any Break-Up Fee will not
exceed 2% of any Stalking Horse Purchase Price, (ii) the aggregate
amount of any Expense Reimbursement will not exceed 1% of any
Stalking Horse Purchase Price, and (iii) such Stalking Horse
Purchaser is not an insider of the Debtor as that term is
defined in section 101(31) of the Bankruptcy Code.
The APA is approved. Any schedules to the APA must be filed no
later than 14 days prior to the Sale Objection Deadline.
On July 1, 2020, the Debtor will file with the Court and serve on
each counterparty to an Assumed Contract an Assumption Notice.
Within two business day of the Stalking Horse Designation Deadline,
the Debtor will provide the Adequate Assurance Information for any
Stalking Horse Purchaser to all Counterparties whose Assumed
Contracts are included in the Stalking Horse APA and that are the
subject of the Assumption Notice. The Contract Objection Deadline
is July 16, 2020 at 4:00 p.m. (ET).
By the earlier of (a) five business hours after the close of the
Auction, or (b) noon the day after the close of the Auction, the
Debtor will file with the Court the Notice of Successful Bidder.
In the event any Stalking Horse Purchaser is not the Successful
Bidder, the Counterparties will file any Contract Objections solely
on the basis of adequate assurance of future performance not later
than July 21, 2020 at 4:00 p.m. (ET).
The Sale Notice is approved. Within three business days of the
entry of the Order, the Debtor will serve the Sale Notice on the
Sale Notice Parties.
The salient terms of the Bidding Procedures are:
a. Bid Deadline: July 13, 2020 at 5:00 p.m. (ET)
b. Initial Bid: In the event that there is a Stalking Horse
Purchaser, the aggregate consideration proposed by the Qualifying
Bidder must equal or exceed the sum of the amount of (A) any
Stalking Horse Purchase Price, (B) any Break-Up Fee, (C) any
Expense Reimbursement, and (D) $100,000.
c. Deposit: 10% of the purchase price
d. Auction: The Debtor will conduct the Auction on July 17,
2020 at 10:00 a.m. (ET), at the offices of Morris, Nichols, Arsht &
Tunnell LLP, 1201 N. Market Street, 18th Floor, Wilmington, DE
19801.
e. Bid Increments: $100,000
f. Sale Hearing: July 23, 2020 at 10:30 a.m. (ET)
g. Sale Objection Deadline: July 16, 2020 at 4:00 p.m. (ET)
h. Closing: No Later Than July 31, 2020
The DIP Lender will have the continuing right to use the amounts
then outstanding under the DIP Credit Facility, or any part
thereof, to credit bid with respect to the Assets. The Debtor
will have until July 22, 2020 at Noon (ET) to file and serve a
reply to any objection filed in connection with the Sale, including
any Sale Objection or Contract Objection.
The Order will be effective immediately upon entry, and any stay of
orders provided for in Bankruptcy Rules 6004(h) or 6006(d) or any
other provision of the Bankruptcy Code, the Bankruptcy Rules or the
Local Rules is expressly waived. The Debtor is not subject to any
stay in the implementation, enforcement or realization of the
relief granted in the Order, and may, in its sole discretion and
without further delay, take any action and perform any act
authorized or approved under the Order.
The requirements set forth in Local Rules 6004-1, 9006-1 and 9013-1
are satisfied or waived.
A copy of the Order will be served on the Sale Notice Parties.
A copy of the Bidding Procedures is available at
https://tinyurl.com/yayftv9y from PacerMonitor.com free of charge.
About Klausner Lumber One
Klausner Lumber One, LLC is a privately held company in the lumber
and plywood products manufacturing industry. It is 100% owned by
non-debtor Klausner Holding USA, Inc.
Klausner Lumber One sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D. Del. Case No. 20-11033) on April 30,
2020. At the time of the filing, Debtor disclosed assets of
between $100 million and $500 million and liabilities of the same
range.
The Debtor tapped Westerman Ball Ederer Miller Zucker & Sharfstein,
LLP as bankruptcy counsel; Morris, Nichols, Arsht & Tunnell, LLP as
local counsel; Asgaard Capital, LLC as restructuring advisor; and
Cypress Holdings, LLC as investment banker.
KOSMOS ENERGY: Fitch Cuts LongTerm IDR to 'B', Outlook Negative
---------------------------------------------------------------
Fitch Ratings has downgraded Kosmos Energy Ltd.'s Long-Term Issuer
Default Rating to 'B' from 'B+'. The Outlook on the Long-Term IDR
is Negative. The agency has also downgraded Kosmos' 7.125% USD650
million senior unsecured notes due 2026 to 'B'/'RR4' from
'BB'/'RR2'.
The downgrade of Kosmos' IDR reflects Fitch's expectation of
elevated funds from operations net leverage above 4.0x in
2020-2021, which implies a breach under the company's financial
covenants in 4Q20 limiting access to committed liquidity sources
throughout 2020.
Fitch views subsequent deleveraging to acceptable levels being
contingent on the successful execution of farm-down transactions,
cost reductions as per management's plans, and an uninterrupted
recovery in oil and gas prices through 2022. All of these factors,
along with securing a covenant waiver in a timely manner, carry
significant uncertainty, and a material underperformance on any of
the aforementioned factors may yield further downside to the
rating, supporting the Negative Outlook.
The downgrade of the senior unsecured rating was also driven by
lower recovery prospects, which resulted in the revision of the
Recovery Rating to 'RR4' from 'RR2'.
KEY RATING DRIVERS
Elevated Leverage: Following the downturn in oil and gas prices
starting in 1Q20 on the back of a spike in OPEC+ volumes and
COVID-19 lockdown, Fitch expects 2020 cash flows to be
significantly lower than 2019 levels, resulting in a proportionate
increase in FFO net leverage to 5.5x in 2020. While Fitch expects a
recovery in the market during 2021, the resulting FFO net leverage
of 4.1x is still above its negative rating sensitivity of 4x for
the 'B' rating. Fitch expects that FFO net leverage will only
normalise to below 4.0x (assuming successful farm-down
transactions) during 2022, but the prolonged deleveraging process
and material uncertainties around it warrant a Negative Outlook.
Covenant Levels in Focus: Fitch expects Kosmos' net debt-to-EBITDAX
to reach 3.9x in 4Q20, which represents a breach of the 3.5x
covenant level. The unremedied covenant breach constitutes an event
of default and will limit access to the company's committed debt
facilities as well as potentially leading to the acceleration of
outstanding amounts under the company's reserve-based lending (RBL)
and corporate revolver, absent a waiver from lenders.
Financial Policy Actions Positive: Kosmos has responded to the low
hydrocarbon price environment by implementing a comprehensive set
of financial-policy measures, including the suspension of its
dividend as well as capex and opex cuts, aimed at alleviating cash
flow pressure during 2020, with total savings from these
initiatives exceeding USD300 million. Fitch views the policy
package as credit-positive, and execution of the plan as a
pre-requisite for Kosmos to maintain leverage and liquidity at
levels that are commensurate with the 'B' rating.
Liquidity in Question: Committed liquidity of USD577 million at
end-1Q20 is sufficient for Kosmos to comfortably weather the
remainder of 2020 with significant near-term stabilisation coming
from the recently completed borrowing base re-determination under
its RBL. However, the company is expected to maintain a minimal
cushion under its net debt-to-EBITDAX covenant governing its RBL
and corporate revolver throughout 2020. With a breach of the
covenant being likely during 4Q20 it limits Kosmos' ability to
access committed liquidity sources.
RBL Amortisation Raises Liquidity Risks: While Kosmos has no
material near-term debt maturities, its RBL begins amortising in
2022, which makes the refinancing of existing debt and/or the
bolstering of internal liquidity more urgent. Fitch also notes that
the RBL may be re-determined again during 2020, on an off-cycle
basis, which may result in a further borrowing-base reduction
before the broader-based economic recovery expected in 2021.
Unsuccessful farm-down transactions will add to capex leading to
negative free cash flow from 2021, which will add to funding
requirements.
Farm-Down Execution Critical: Kosmos has stated that it will rely
on farm-down transactions on its gas assets in Mauritania and
Senegal as well as in non-core areas to cover the capex burden
associated with most of its larger undeveloped assets. Fitch views
the viability of this strategy as increasingly questionable given a
drop in demand from potential buyers following the onset of the oil
and gas price downturn, as well as diminished availability of
financing as financial institutions and sponsors pare back their
exposure to the oil & gas industry. Absent successful farm-downs,
capex may increase substantially in 2021 versus its base case,
which may lead to adverse revisions in its expectation of FCF
generation, liquidity, and leverage.
Hedge Restructuring Positive: Prior to the oil & gas price
downturn, the majority of Kosmos' hedge book for 2020 and 2021 was
structured to include sold (short) put options, which led to a
decline in hedge effectiveness as soon as oil prices declined below
USD50/bbl, and yielded significantly diminished cash flow below
USD35/bbl. Since the downturn, it pro-actively restructured its
hedge book by unwinding unfavourable hedges and entering into more
plain-vanilla swaps. Overall, Kosmos' 2020 hedge book includes now
15% of volumes hedged with sold put options, down from 66%, leading
to much more robust cash flow protection and representing a
materially more balanced approach to hedging.
DERIVATION SUMMARY
Fitch rates Kosmos in line with Ithaca Energy Ltd (B/Rating Watch
Negative), as Ithaca's slightly higher production volumes of around
75kboepd, lower capital intensity, lower leverage of around 2x, and
stronger cash flow generation resulting from more robust hedging
are offset by Kosmos' significantly higher proved reserve life of
11 years (four years for Ithaca) and a more liquids-weighted
production mix leading to higher long-term margins. While Fitch
expects adverse impact on Kosmos' liquidity profile from potential
covenant breach and weaker credit metrics, Fitch sees the potential
pressure for Ithaca due to liquidity issues experienced by its 100%
parent, Delek Group.
Compared with Seplat Petroleum Development Company Plc
(B-/Positive) Kosmos has a smaller reserve base, lower reserve life
(Seplat: 30 years on a 2P basis), and higher leverage, which is
offset by a more diversified asset base versus Seplat's high
exposure to areas characterised by geopolitical risk.
KEY ASSUMPTIONS
- Brent crude price of USD35/bbl in 2020, USD45/bbl in 2021,
USD53/bbl in 2022 and USD55/bbl thereafter.
- Henry Hub price of USD1.85/mcf in 2020, USD2.45/mcf in 2021 and
thereafter.
- Total net production of around 62kbbl/d in 2020 and around
61kbbl/d in 2021.
- Self-funded Tortue Ahmeyim project from farm-out proceeds.
- Capex as guided by the company.
- No dividend payments through 2023.
Fitch's Key Assumptions for Recovery Analysis:
The recovery analysis assumes that Kosmos would be reorganised as a
going-concern in bankruptcy rather than liquidated.
The going-concern EBITDA estimate reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level upon which it bases
the enterprise valuation.
Kosmos' going-concern EBITDA is based on 2019 EBITDA from the Gulf
of Mexico assets (before collapse in oil prices) as the bonds and
the revolver are guaranteed on a senior, unsecured basis by the
Gulf of Mexico subsidiaries. Fitch applied a slightly steeper
discount of 34% than the previous 25% to reflect weaker market
dynamics and higher volatility.
A 4.5x multiple is used to calculate a post-reorganisation EV,
reflecting a mid-cycle multiple for the sector.
The notes rank pari passu with Kosmos' USD400 million corporate
revolver, but are subordinated to the company's USD1.5 billion RBL
with respect to the Ghana and Equatorial Guinea assets. The notes
and revolver benefit from joint and several senior unsecured
guarantees from restricted subsidiaries owning the recently
acquired assets in the Gulf of Mexico. They are guaranteed on a
subordinated unsecured basis by the restricted subsidiaries that
guarantee the RBL.
After deducting 10% for administrative claims, its principal and
interest waterfall analysis generated a ranked recovery in the
'RR4' band, indicating a 'B' instrument rating. The waterfall
analysis output percentage on current metrics and assumptions was
50%. The decline in recovery is explained by the decline in
going-concern EBITDA while the debt level remains unchanged.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- As the rating is on Negative Outlook, a positive rating action
is unlikely in the short-term. However, increasing internal
liquidity sources and/or further cost reductions implemented such
that covenant headroom becomes ample, allowing for free usage of
committed liquidity sources as well as FFO net leverage falling
below 4x would result in a revision of the Outlook to Stable.
- FFO net leverage declining below 3.0x on a sustained basis may
support a positive rating action.
- Continued strong and timely execution of farm-down transactions
such that medium-term capex requirements for Mauritania & Senegal
assets are fully covered could also be positive for the rating.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Un-remedied covenant breach.
- Failure to execute on farm-down transactions effectively,
leading to negative FCF generation.
- A reduction of the borrowing base under the RBL leading to a
borrowing base deficiency in excess of USD100 million.
- FFO net leverage above 4.0x on a sustained basis.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Tightening Liquidity: At end-March 2020, Kosmos had around USD577
million of liquidity, consisting of USD127 million of cash, USD100
million availability under its RBL facility, which matures in March
2025, along with USD350 million of availability under its USD400
million revolver, which matures in May 2022. While committed
liquidity sources are substantial, Fitch expects tightening
headroom under the 3.5x net debt-to-EBITDAX covenant to limit the
company's ability to access liquidity sources. Furthermore, under
Fitch's base-case assumptions, Kosmos breaches the net leverage
covenant in 4Q20 which, if left uncured and without obtaining a
waiver from lenders, could result in an acceleration of outstanding
amounts under the company's RBL and corporate revolver.
At end-March 2020, Kosmos' indebtedness stood at USD2.1 billion,
including USD1.4 billion drawn under the USD1.5 billion RBL, USD50
million drawn under the USD400 million revolver as well as USD650
million of senior notes. The company has no maturities until 2022,
when the USD400 million revolver matures and the RBL starts
amortising. Although Fitch expects Kosmos to be FCF-negative in
2020, its modelling suggests that it will return to FCF generation
in 2021-2023. Sell-down proceeds from the Tortue asset as well as
additional farm-out inflows will support the company's liquidity
further.
SUMMARY OF FINANCIAL ADJUSTMENTS
Cash interest has been adjusted upward by USD28 million to reflect
capitalised interest expense. Capex has been reduced by the same
amount.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
The highest level of ESG credit relevance, if present, is a score
of 3. This means ESG issues are credit-neutral or have only a
minimal credit impact on the entity(ies), either due to their
nature or to the way in which they are being managed by the
entity(ies).
LANDS' END: S&P Downgrades ICR to 'CCC' on Refinancing Concerns
---------------------------------------------------------------
S&P Global Ratings lowered its ratings on Lands' End Inc.,
including the issuer credit rating to 'CCC' from 'B-'. S&P also
placed the ratings on CreditWatch with developing implications.
S&P believes Lands' End may face increased difficulty refinancing
its $385 million term loan at par as maturity approaches in April
2021.
"The downgrade reflects our view that Lands' End faces a sizable
maturity within the next 12 months and that its ability to address
the maturity at par depends upon favorable market and economic
conditions," S&P said.
It is S&P's view Lands' End depends on favorable economic
conditions to refinance its term loan at par, and sufficient market
volatility remains to complicate efforts.
The company's $385 million term loan B matures in less than 12
months, in April 2021. While Lands' End mentioned on its
first-quarter earnings call that it seeks to refinance the term
loan, it has not yet announced a clear path.
"It is our view that allowing the term loan to become current
increases the refinancing risk significantly. We believe as time to
maturity evaporates, the likelihood increases of a refinancing that
does not provide lenders with the original promise of the
security," S&P said.
Refinancing is further complicated by economic and market
conditions. While these appear to have sequentially improved since
the coronavirus pandemic largely closed markets in March, there is
still significant uncertainty around the pace of economic recovery
and potential negative impacts.
"Given the maturity is now only about 10 months away, it is our
view that Lands' End may have insufficient time to absorb
unforeseen negative developments and complete the refinancing at
par. We also anticipate refinancing, even at par, would likely
result in a materially higher interest rate, suppressing free
operating cash flow generation," S&P said.
Lands' End's position as a largely e-commerce retailer has
moderated the hit to operating performance from the COVID-19
pandemic relative to brick-and-mortar apparel peers, although S&P
still expects a leverage jump in 2020.
The company recently reported e-commerce sales rebounded in
mid-April and accelerated into May, with global e-commerce up in
the double-digit percentages. Management also put out guidance for
global e-commerce revenue growth for the remainder of the fiscal
year.
"This channel represents about 75% of total sales, the other 25%
coming from its outfitters and retail store business that we
continue to expect to be down dramatically for the fiscal year. We
expect total sales will decline in the mid- to high-single–digit
percentage range in 2020, as better than previously anticipated
performance in global e-commerce partially offsets persisting
weaker trends in other channels for the remainder of the fiscal
year. We continue to forecast an S&P Global Ratings-adjusted EBITDA
margin decline for the year as heightened promotional activities in
the first quarter led to a decline in gross margins, and selling,
general, and administrative expenses deleveraged on lower sales
year over year," the rating agency said.
Environmental, social, and governance (ESG) factors for this credit
rating change:
-- Health and safety factors
"We expect to resolve the CreditWatch when we have greater
visibility into Lands' End's plans to address its term loan
maturity, which we anticipate over the next several months. We
could raise the ratings, potentially by more than one notch, if it
completes an at-par refinancing with adequately extended maturity
and performance continues to recover in line with our expectations.
We could lower the rating if market conditions worsen and it
appears increasingly unlikely Lands' End will complete an at-par
refinancing, or if the company announces refinancing plans that we
believe don't provide lenders with the full original promise of the
term loan," S&P said.
LEVEL 3 FINANCING: S&P Rates New $1BB Senior Unsecured Notes 'BB'
-----------------------------------------------------------------
S&P Global Ratings assigned its 'BB' issue-level rating and '4'
recovery rating to Level 3 Financing Inc.'s proposed $1 billion
senior unsecured notes due 2028. Level 3 is a wholly owned
subsidiary of Monroe, La.-based diversified telecommunications
provider CenturyLink Inc. The '4' recovery rating indicates S&P's
expectation for average (30%-50%; rounded estimate: 45%) recovery
in the event of a payment default. Similar to the other unsecured
debt at Level 3, the notes will have a downstream guarantee from
Level 3 Parent LLC and an upstream guarantee from its primary
operating subsidiary Level 3 Communications LLC.
S&P expects the company to use the net proceeds from these notes,
along with cash on hand, to repay its $840 million 5.375% senior
notes due 2022 and $160 million 5.625% senior notes due 2023.
Because the transaction does not affect CenturyLink's credit
metrics, S&P's 'BB' issuer credit rating and stable outlook on the
company remain unchanged. S&P's current base-case forecast assumes
a sharp double-digit percent decline in the company's small- and
mid-size business (SMB) revenue and low- to mid-single-digit
percent revenue declines in both its enterprise and international
segments. Notwithstanding the realization of additional cost
synergies, S&P expects CenturyLink's EBITDA to decline by 4%-6% in
2020 and anticipate its discretionary cash flow will be about $300
million-$400 million lower than the $2 billion it generated in
2019. Given the incremental pressure on the company's business, S&P
does not expect any improvement in the company's leverage this year
(adjusted debt to EBITDA was 4.1x in 2019). Instead, S&P forecasts
that CenturyLink will resume deleveraging in 2021 and improve its
debt to EBITDA to the high-3x area. Nonetheless, S&P believes the
company's credit metrics (including adjusted leverage of less than
4.5x) will continue to support the current rating.
MAINES PAPER: Hires Getzler Henrich as Financial Advisor
--------------------------------------------------------
Maines Paper & Food Service, Inc., and its debtor-affiliates seek
authority from the U.S. Bankruptcy Court for the District of
Delaware to employ Getzler Henrich & Associates LLC, as financial
advisor to the Debtors.
Maines Paper requires Getzler Henrich to:
a. work collaboratively with the Debtors' Board of Directors,
legal counsel and other professionals and employees of the
Debtors;
b. guide the Debtors, in conjunction with counsel, through the
chapter 11 process;
c. direct and manage, in conjunction with Debtors' counsel,
the preparation of pleadings and motions, internal and
external communications, schedules of assets and
liabilities, statements of financial affairs, and monthly
operating reports;
d. assist in the overall coordination and tracking of
administrative and filing preparation and helping keep to
established timeframes;
e. for real property leases which the Debtors plan to reject,
prepare real estate lease damage claim analyses and work
with counsel to prepare rejection motions;
f. review all executory contracts with the Debtors' operating
management to determine which contracts to assume, reject
or attempt to renegotiate and work with counsel to prepare
rejection motions;
g. assist the Debtors' management in renegotiating agreements;
h. coordinate internal and external communications related to
the Chapter 11 Cases among employees, customers, and
vendors;
i. help manage relationships, communications, and negotiations
with the Debtors' DIP Lender;
j. support the Debtors in pursuing a chapter 11 plan to
potentially effectuate an asset sale restructuring or an
equitization restructuring;
i. coordinate management of the information flow and
communication with various creditors and interested
parties;
j. provide financial resources required to develop financial
models to support the various strategic alternatives,
restructuring initiatives, reporting requirements, and the
adequate control of cash; and
k. perform other tasks and duties related to this engagement
as are directed by the Debtors and their counsel that are
reasonably acceptable to Getzler Henrich.
Getzler Henrich will be paid at these hourly rates:
Principal/Managing Director $515 to 695
Director/Specialists $455 to 550
Associate Professionals $150 to 445
Prior to filing these Chapter 11 Cases, the Debtors provided
Getzler Henrich with a retainer of $100,000. After deducting fees
and expenses Getzler Henrich will hold the balance of the retainer
in the amount of $7,318 in the Firm's trust account.
Getzler Henrich will also be reimbursed for reasonable
out-of-pocket expenses incurred.
David Campbell, partner of Getzler Henrich & Associates LLC,
assured the Court that the firm is a "disinterested person" as the
term is defined in Section 101(14) of the Bankruptcy Code and does
not represent any interest adverse to the Debtors and their
estates.
Getzler Henrich can be reached at:
David Campbell
GETZLER HENRICH & ASSOCIATES LLC
295 Madison Avenue, 20th Floor
New York, NY 10017
Tel: (212) 697-2400
Fax: (212) 697-4812
About Maines Paper & Food Service
About Maines Paper & Food Service, Inc. -- http://www.maines.net/
-- is an independent foodservice distributor. The Company
distributes meat, fruits, vegetables, dairies, beverages, and
seafood. The company's customers include restaurants, convenience
stores, delis, bars, pizzerias, educational institutions,
healthcare facilities, cruise lines, concessionaires, and camps.
Maines Paper & Food Service, Inc., based in Conklin, NY, and its
debtor-affiliates, filed a Chapter 11 petition (Bankr. D. Del. Lead
Case No. 20-11502) on June 10, 2020.
The petition was signed by John C. DiDonato, chief restructuring
officer. In its petition, the Debtor was estimated to have $1
million to $10 million in assets and $100 million to $500 million
in liabilities.
PACHULSKI STANG ZIEHL & JONES LLP, KLEHR HARRISON HARVEY BRANZBURG
LLP, as counsels. HURON CONSULTING SERVICES LLC, as restructuring
advisor. GETZLER HENRICH & ASSOCIATES LLC, is the financial
advisor. STRETTO, is the claims and noticing agent.
MAINES PAPER: Hires Stretto as Claims and Noticing Agent
--------------------------------------------------------
Maines Paper & Food Service, Inc., and its debtor-affiliates seek
authority from the U.S. Bankruptcy Court for the District of
Delaware to employ Stretto, as claims and noticing agent to the
Debtors.
Maines Paper requires Stretto to:
(a) assist the Debtor with the preparation and distribution of
all required notices and documents in accordance with the
Bankruptcy Code and the Bankruptcy Rules in the form and
manner directed by the Debtor and/or the Court, including:
(i) notice of any claims bar date, (ii) notice of any
proposed sale of the Debtor's assets, (iii) notices of
objections to claims and objections to transfers of
claims, (iv) notices of any hearings on a disclosure
statement and confirmation of any plan of reorganization,
including under Bankruptcy Rule 3017(d), (v) notice of the
effective date of any plan, and (vi) all other notices,
orders, pleadings, publications and other documents as the
Debtor, Court, or Clerk may deem necessary or appropriate
for an orderly administration of this chapter 11 case;
(b) maintain an official copy of the Debtor's schedules of
assets and liabilities and statements of financial affairs
(collectively, the "Schedules"), listing the Debtor's
known creditors and the amounts owed thereto;
(c) maintain (i) a list of all potential creditors, equity
holders and other parties-in-interest and (ii) a "core"
mailing list consisting of all parties described in
Bankruptcy Rule 2002(i), (j) and (k) and those parties
that have filed a notice of appearance pursuant to
Bankruptcy Rule 9010; update and make said lists available
upon request by a party-in-interest or the Clerk;
(d) furnish a notice to all potential creditors of the last
date for filing proofs of claim and a form for filing a
proof of claim, after such notice and form are approved by
the Court, and notify said potential creditors of the
existence, amount and classification of their respective
claims as set forth in the Schedules, which may be
effected by inclusion of such information (or the lack
thereof, in cases where the Schedules indicate no debt due
to the subject party) on a customized proof of claim form
provided to potential creditors;
(e) maintain a post office box or address for receiving claims
and returned mail, and process all mail received;
(f) maintain an electronic platform for purposes of filing
proofs of claim;
(g) for all notices, motions, orders or other pleadings or
documents served, prepare and file or cause to be filed
with the Clerk an affidavit or certificate of service
within seven days of service which includes (i) either
a copy of the notice served or the docket number(s) and
title(s) of the pleading(s) served, (ii) a list of persons
to whom it was mailed (in alphabetical order) with their
addresses, (iii) the manner of service, and (iv) the date
served;
(h) process all proofs of claim received, including those
received by the Clerk, check said processing for accuracy,
and maintain the original proofs of claim in a secure
area;
(i) maintain the official claims register (the "Claims
Register") on behalf of the Clerk; upon the Clerk's
request, provide the Clerk with a certified, duplicate
unofficial Claims Register; and specify in the Claims
Register the following information for each claim
docketed: (i) the claim number assigned, (ii) the date
received, (iii) the name and address of the claimant and
agent, if applicable, who filed the claim, (iv) the
address for payment, if different from the notice address;
(v) the amount asserted, (vi) the asserted
classification(s) of the claim (e.g., secured, unsecured,
priority, etc.), and (vii) any disposition of the claim;
(j) provide public access to the Claims Registers, including
complete proofs of claim with attachments, if any, without
charge;
(k) implement necessary security measures to ensure the
completeness and integrity of the Claims Register and the
safekeeping of the original claims;
(l) record all transfers of claims and provide any notices of
such transfers as required by Bankruptcy Rule 3001(e);
(m) relocate, by messenger or overnight delivery, all of the
court-filed proofs of claim to the offices of Stretto,
not less than weekly;
(n) upon completion of the docketing process for all claims
received to date for each case, turn over to the Clerk
copies of the Claims Registers for the Clerk's review
(upon the Clerk's request);
(o) monitor the Court's docket for all notices of appearance,
address changes, and claims-related pleadings and orders
filed and make necessary notations on and/or changes to
the claims register and any service or mailing lists,
including to identify and eliminate duplicative names and
addresses from such lists;
(p) identify and correct any incomplete or incorrect addresses
in any mailing or service lists;
(q) assist in the dissemination of information to the public
and respond to requests for administrative information
regarding this chapter 11 case as directed by the
Debtor or the Court, including through the use of a case
website and/or call center;
(r) if this chapter 11 case is converted to a case under
chapter 7 of the Bankruptcy Code, contact the Clerk's
office within three (3) days of notice to Stretto of
entry of the order converting the case;
(s) 30 days prior to the close of this chapter 11
case, to the extent practicable, request that the Debtor
submit to the Court a proposed order dismissing Stretto as
claims, noticing, and solicitation agent and terminating
its services in such capacity upon completion
of its duties and responsibilities and upon the
closing of this chapter 11 case;
(t) within seven (7) days of notice to Stretto of entry of
an order closing this chapter 11 case, provide to the
Court the final version of the Claims Register as of
the date immediately before the close of the case; and
(u) at the close of these chapter 11 cases, (i) box and
transport all original documents, in proper format, as
provided by the Clerk's office, to (A) the Philadelphia
Federal Records Center, 14700 Townsend Road, Philadelphia,
PA 19154-1096 or (B) any other location requested by the
Clerk's office, and (ii) docket a completed SF-135 Form
indicating the accession and location numbers of the
archived claims.
Stretto will be paid at these hourly rates:
Director of Solicitation $210
Solicitation Associate $190
COO and Executive VP No charge
Director $175-$210
Associate/Senior Associate $65-$165
Analyst $30-$50
Prior to the Petition Date, the Debtors provided Stretto an advance
in the amount of $100,000.
Stretto will also be reimbursed for reasonable out-of-pocket
expenses incurred.
Sheryl Betance, managing director of corporate restructuring of
Stretto, assured the Court that the firm is a "disinterested
person" as the term is defined in Section 101(14) of the Bankruptcy
Code and does not represent any interest adverse to the Debtors and
their estates.
Stretto can be reached at:
Sheryl Betance
STRETTO
410 Exchange, Ste. 100
Irvine, CA 92602
Tel: (714) 716-1872
E-mail: sheryl.betance@stretto.com
About Maines Paper & Food
About Maines Paper & Food Service, Inc. -- http://www.maines.net/
-- is an independent foodservice distributor. The Company
distributes meat, fruits, vegetables, dairies, beverages, and
seafood. The company's customers include restaurants, convenience
stores, delis, bars, pizzerias, educational institutions,
healthcare facilities, cruise lines, concessionaires, and camps.
Maines Paper & Food Service, Inc., based in Conklin, NY, and its
debtor-affiliates sought Chapter 11 protection (Bankr. D. Del. Lead
Case No. 20-11502) on June 10, 2020.
In the petition signed by CRO John C. DiDonato, the Debtor was
estimated to have $1 million to $10 million in assets and $100
million to $500 million in liabilities.
The Debtors tapped PACHULSKI STANG ZIEHL & JONES LLP, KLEHR
HARRISON HARVEY BRANZBURG LLP, as counsel; HURON CONSULTING
SERVICES LLC, as restructuring advisor; and GETZLER HENRICH &
ASSOCIATES LLC, as financial advisor. STRETTO is the claims and
noticing agent.
MEDNAX INC: S&P Affirms 'B+' ICR on Sale of Radiology Business
--------------------------------------------------------------
S&P Global Ratings affirmed its 'B+' long-term issuer credit rating
on U.S. health care staffing company MEDNAX Inc. and its 'B+'
issue-level ratings on its unsecured debt. The recovery rating
remains '4'.
The rating affirmation follows the company's announcement of its
intention to sell MEDNAX Radiology Solutions. The practices were
expected, before the COVID-19 pandemic, to generate approximately
$550 million of revenue and an estimated $90 million of EBITDA for
the year ended Dec. 31, 2020.
Although the sale materially reduces its size and diversification,
S&P continues to view MEDNAX as fundamentally stronger than some
staffing peers due to its high concentration in the high-margin,
relatively stable neonatal segment. The radiology business
accounted for 14% of revenue, or about $490 million, in 2019, with
an estimated EBITDA margin of 20%. The anesthesia business divested
in May accounted for 36% of revenue, or about $1.3 billion, in
2019. However, MEDNAX remains the leader in its core neonatal
business, a segment S&P views as more stable and generating higher
margins. It will also support a less highly leveraged capital
structure. S&P projects adjusted net leverage could fall below 5x
as COVID-19 pressures subside.
S&P views the U.S. health care staffing industry as highly
fragmented, but MEDNAX benefits as the only large, national
provider of neonatology services, with a market share greater than
20%. MEDNAX's leading position in the high-intensity, highly
sensitive neonatology, pediatric care, and high-risk pregnancy
subsectors distinguishes it from other larger staffing players and
insulates the company somewhat more from reimbursement pressures.
In addition to its scale within its subspecialties, MEDNAX also
maintains the largest database of neonatology records, a
competitive advantage in seeking new contracts. Still, MEDNAX has
significant exposure to Medicaid reimbursement. S&P believes the
company is well positioned given its focus on relatively
high-intensity specialties, somewhat flexible cost structure, and
EBITDA margins that remain higher than those of peers.
"Our current base case incorporates the sale of the radiology
business. We expect organic revenue growth of around 3% in 2021,
driven by accelerated sales as MEDNAX focuses on its core products,
tuck-in acquisitions, and offering new adjacent services. We expect
MEDNAX to generate annual free operating cash flow of over $50
million, primarily used to fund acquisitions. This results in debt
to EBITDA of about 4.8x in 2021," S&P said.
The stable outlook on MEDNAX reflects S&P's expectation it will
continue to expand through acquisitions funded through internally
generated cash flow and some incremental debt issuance, maintaining
average leverage above 4.5x over time.
"We could consider a lower rating if we expect leverage sustained
above 7x, most likely due to aggressive reimbursement cuts. This
would likely cause us to reassess the strength of the company's
business positioning," S&P said.
"We believe upside potential for the rating is limited. We could
raise the rating if we believe the company will likely sustain debt
to EBITDA materially below 5x, around 4.5x," the rating agency
said.
MICRO HOLDING: S&P Rates $500MM First-Lien Term Loan 'B'
--------------------------------------------------------
S&P Global Ratings assigned its 'B' issue-level rating and '3'
recovery rating to Micro Holding Corp.'s proposed $500 million
incremental first-lien term loan. The '3' recovery rating indicates
S&P's expectation for meaningful (50%-70%; rounded estimate: 60%)
recovery of principal in the event of a payment default.
Micro Holding plans to use the net proceeds from the term loan to
pay down the outstanding borrowings under its revolving credit
facility and add cash to its balance sheet for future acquisitions.
The maturity of the company's revolving credit facility will be
extended to March 2024 as part of the transaction. Pro forma for
the debt issuance, the company's adjusted leverage was 7.5x as of
March 31, 2020, and S&P expects the company's leverage to decline
to the low-7x area by the end of 2020 due to EBITDA growth. S&P
also expects Micro Holding's free operating cash flow
(FOCF)-to-debt ratio to remain above 5%, despite the increase in
its debt and the modestly negative effects stemming from the
coronavirus pandemic, as its revenue and EBITDA decline by slightly
over 10% in the second quarter of 2020. However, S&P anticipates
that the company's revenue growth will remain positive for the year
and increase by the mid-single digit percent area on steady EBITDA
margins." Pro forma for the issuance, Micro Holding will have over
$567 million of cash and full availability under its $214.25
million total revolving credit facility for acquisitions.
S&P's 'B' issuer credit rating reflects Micro Holding's leading
position in digital health care advertising, the growth prospects
for its software as a service (SaaS) business, its high leverage,
and its history of debt-funded acquisitions and shareholder
returns. The company has demonstrated the strength of its
acquisitive business strategy given its track record of acquiring
companies at high-single digit multiples and leveraging acquisition
synergies to increase its margins and manage its debt burden.
The stable outlook reflects S&P's expectation that Micro Holding's
leverage will remain high but improve to the low-7x area in 2020 as
its FOCF to debt remains above 5% while the company continues to
integrate acquisitions and generate strong, mid-single-digit
percent organic growth in its health and legal businesses. S&P
could lower its issuer credit rating on Micro Holding if its
leverage increases and remains above 7.5x while its FOCF-to-debt
ratio falls below 5% on a sustained basis. S&P believes this could
occur if competitive pressures in the legacy Internet Brands
segments cause its organic growth in its legal and health segments
(excluding WebMD) to slow to the low-single-digit percent area or
if WebMD's advertising revenue growth slows considerably due to an
economic slowdown. This could also occur if the company undertakes
significant leveraging acquisitions.
NASCAR HOLDINGS: S&P Affirms 'BB' ICR; Outlook Negative
-------------------------------------------------------
S&P Global Ratings affirmed its 'BB' issuer credit rating and 'BB'
issue-level ratings on NASCAR Holdings LLC's senior secured credit
facility. S&P removed all ratings from CreditWatch, where it placed
them on March 20 with negative implications.
The rating affirmation incorporates a modest leverage spike in 2020
and S&P's belief that NASCAR's less volatile broadcasting and
sponsorship revenue streams can partly mitigate financial risk and
help improve leverage in 2021 to below 5x, the downgrade threshold
at the current 'BB' rating. S&P's updated base case is for adjusted
debt to EBITDA in the 5x-6x range in 2020, reflecting substantial
decline in admissions revenue and partial loss of sponsorship sales
and marketing revenues, partly mitigated by stable broadcasting
media rights fees. S&P expects leverage to improve to the 4x-5x
area in 2021, driven by stabilization and potential rebound of
sponsorships and marketing revenue, annual escalators of the
broadcasting fees, partial recovery of admissions revenue, and
EBITDA margin improvement.
Over the next several quarters, admissions revenue at NASCAR's
tracks will be low as long as consumers cannot attend events in
substantial numbers or are not confident they can do so safely.
NASCAR's sponsorships, marketing and advertising revenue, and food
and beverage sales also partly rely on live attendance at specific
locations. They are assumed to decline, because some race tracks
remain closed to the public or restrict admissions, or some race
locations will be changed to accommodate NASCAR's schedule
realignment. The recession will also likely pressure admissions and
other revenue to the extent unemployment remains high and corporate
marketing spending is impaired. In 2020, NASCAR is likely to
experience EBITDA margin pressure because costs may not be reduced
as quickly as revenue falls if the company attempts to preserve a
portion of direct labor and corporate staff in anticipation of a
recovery.
"We expect NASCAR to gradually ramp up limited live attendance in
accordance with states' social distancing guidelines, leading to a
partial recovery in 2021. NASCAR recently announced it will allow
1,000 attendees on June 14 at Homestead-Miami Speedway and 5,000
attendees on June 21 at Talladega Superspeedway, which could
provide a template for reopenings at other race tracks. Our base
case for 2021 incorporates a lingering impact from social
distancing measures and the economic downturn that results in only
a partial recovery of admissions revenue compared to 2019," S&P
said.
"We expect broadcasting revenue to partly mitigate revenue decline
in 2020, as long as the realigned race schedule is delivered.
NASCAR also generates a portion of its revenue from national
sponsorships, marketing and advertising, and licensing fees using
the league's and tracks' intellectual property. We believe these
high-margin revenue streams will be mostly retained in 2020
compared to 2019 levels, which helps mitigate leverage
deterioration. NASCAR benefits from its national official status
sponsorships and licensing fees, compared to peer Speedway
Motorsports LLC, which generates track-level sponsorships," the
rating agency said.
S&P assumes rescheduled races will be held and that broadcasting
revenue increases in line with contract terms through 2021. NASCAR
has a 10-year broadcast media rights agreement for three national
touring series with NBC Universal and Fox Corporation through the
2024 season. The agreement provides contractual broadcasting
revenue and annual escalators. This stable, high-margin source of
revenue will account for the majority of total revenue annually
through 2021. NASCAR has modified and realigned race schedules and
locations to enable compliance with local social distancing
regulations among athletes and personnel. In mid-May, NASCAR
restarted races without live audiences on an accelerated schedule
that closely matches the number of races planned before the
coronavirus pandemic. Motorsports are potentially more conducive to
social distancing than other sports that require closer physical
contact between athletes. This gives S&P confidence the realigned
race schedule could be successful. S&P understands that as long as
the realigned race schedule is delivered, broadcasting revenue in
2020 would not be affected and would continue to increase as a
result of the annual escalator.
"We believe NASCAR's liquidity will be strong through 2021. Based
on forecast sources and uses of liquidity, we estimate NASCAR has
more than 24 months of runway. Incorporating its $221 million cash
at the end of 2019, capacity under the revolving credit facility,
broadcasting revenue assuming all rescheduled races are held, and
other revenues, NASCAR would have sufficient liquidity as long as
the race schedule is not significantly disrupted for a prolonged
period. Liquidity uses include operating expenses, capital
expenditure (capex), interest and amortization, and remaining
shareholder payments related to the 2019 acquisition of ISC.
Liquidity benefits from reduced capex in 2020. We believe NASCAR
can comply with its covenants over the coming quarters and will not
require a waiver," S&P said.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
The outlook is negative because S&P could lower the rating if
coronavirus containment is not achieved and revenue does
not begin to partially recover in the second half of 2020, in line
with S&P's base-case assumptions in 2021. Under S&P's base-case
recovery assumption, leverage could be weak in 2021 compared to the
rating agency's 5x leverage downgrade threshold.
"We could lower the rating if we believe leverage will be sustained
above 5x through 2021. This could result if the realigned NASCAR
race schedule isn't delivered, sponsorship and marketing revenue
decline is steeper than we assume, or EBITDA margin decline is more
severe," S&P said.
"We could revise the outlook to stable if revenue and EBITDA
recover under our base-case assumptions, increasing our confidence
that leverage would be sustained below 5x," the rating agency said.
NEENAH INC: Moody's Rates New $200MM Secured Term Loan 'Ba3'
------------------------------------------------------------
Moody's Investors Service has assigned a Ba3 rating to a new $200
million seven-year senior secured term loan being issued by Neenah,
Inc. The company will use net proceeds of the offering to refinance
the $175 million senior unsecured notes due May 2021. Any
additional proceeds will be used for general corporate purposes.
Moody's upgraded the Speculative Grade Liquidity Rating to SGL-2
from SGL-3 and affirmed Neenah's Ba2 Corporate Family Rating and
Ba2-PD Probability of Default rating, and existing instrument
ratings. Moody's will withdraw the rating on the existing senior
unsecured notes once the transaction closes. Moody's also changed
the outlook to stable because the planned debt issuance, if closed
as proposed, will eliminate near-term refinancing risk and improve
the overall liquidity. The stable outlook reflects Moody's
expectations that metrics will deteriorate in 2020, but will
recover in 2021 as it currently does not expect the projected drop
in demand due to the pandemic to be permanent.
The Ba3 rating on the senior secured term loan, one notch below the
Ba2 CFR, reflects its effective subordination to first lien senior
secured revolver in the US and Europe. The term loan is guaranteed
by the company's wholly owned US operating subsidiaries.
Assignments:
Issuer: Neenah, Inc.
Senior Secured Term Loan B, Assigned Ba3 (LGD4)
Affirmations:
Issuer: Neenah, Inc.
Corporate Family Rating Affirmed Ba2
Probability of Default Rating, Affirmed Ba2-PD
Senior Unsecured Regular Bond, Affirmed Ba3 (LGD5)
Upgrades:
Issuer: Neenah, Inc.
Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3
Outlook Actions:
Issuer: Neenah, Inc.
Outlook, Changed To Stable From Negative
RATINGS RATIONALE
The affirmation of Neenah's ratings reflects strong balance sheet
metrics prior to the projected negative impact on financial
performance from the coronavirus pandemic, projected free cash flow
generation even during the economic stress and expected recovery in
metrics in 2021, assuming the refinancing transaction closes as
proposed. Moody's still expects deterioration in credit metrics in
2020 due to a drop in demand for commercial print, printing and
writing paper and weakness in industrial markets as a result of the
coronavirus pandemic. Neenah's technical papers segment (roughly
60% sales) serves various industrial markets, including automotive
and construction, while its fine paper segment (40% of sales) is
heavily reliant on commercial print products, such as promotional
brochures. It also manufactures premium packaging and graphic paper
sold through retailers and distributors. Both segments will be hit
by stay at home orders with gradual recovery in technical papers,
but Moody's expects possibly longer challenges in the fine paper
segment.
Moody's expects that Neenah will control expenses and limit
discretionary spending through the downturn to preserve liquidity
and that metrics will begin to return to levels consistent with the
rating in 2021 as the economy recovers. The affirmation of the Ba2
CFR also reflects Moody's expectation that the company will
maintain its conservative financial policy with the recent change
of the company's leadership. The company historically reinvested
the majority of its operating cash flow in the business, while
maintaining dividend growth and supplementing its organic growth
with acquisitions funded with a combination of cash, free cash flow
and borrowings. Neenah's Ba2 CFR rating reflects the company's
strong brand recognition, long-term growth potential in the
technical products business, strong balance sheet credit metrics
and track record of free cash flow generation. The company's
debt/EBITDA and EBITDA/interest for the twelve months ended March
31, 2020, as adjusted by Moody's, stood at 2.6x and 8.9x,
respectively, and retained cash flow to debt was 22.1%. Moody's
expects leverage to rise close to 4.0 x in 2020 before recovering
to 3.2x in 2021.
The rating is constrained by the company's limited scale and lack
of diversification relative to its peers, exposure to cyclical
inputs and end markets and expectations for continued secular
contraction in demand for printing and writing papers. Neenah is
one of the smallest Ba-rated companies in the paper and forest
products industry. The company is not back-integrated into pulp
used in its paper-making processes and thus is exposed to volatile
softwood and hardwood pulp pricing as well as latex, natural gas,
and rising freight costs.
The SGL-2 speculative grade liquidity rating reflects Neenah's good
liquidity position. The company had $78 million of cash on hand at
March 31, 2020 and is expected to generate free cash flow (after
dividend payments) of about $20 million in 2020, assuming a decline
in earnings and a cut in capital expenditures. Concurrently with
the proposed term loan issuance, the company will amend its
asset-based revolver, reducing its size to $175 million from $225
million due to the carve out of the collateral for the term loan.
The revolver matures in December 2023. The company had $93 million
of borrowings outstanding at March 31, 2020, as it drew on the
revolver as a precautionary measure at the start of the crisis. The
amended facility has a springing fixed charge coverage test set at
1.1 times if availability falls below $20 million or 12.5% of the
maximum aggregate commitments of the revolver. The company would be
in compliance with the covenant now but would not meet the test in
2020. Most of the assets are encumbered by the secured credit
facility leaving limited alternative liquidity available.
Moody's regards the coronavirus outbreak as a social risk under its
ESG framework, given the substantial implications for public health
and safety, as well as the associated economic impact. Neenah's end
market exposure leaves it vulnerable to the effects of the
pandemic. Another social risk for Neenah is the secular decline in
printing and writing paper as consumers and companies move to
digital alternatives. The company has been managing this risk by
closing, divesting assets or repurposing them into higher growth
technical products. Moody's believes the company has established
expertise in complying with moderate environmental and social risks
and has incorporated procedures to address them in its operational
and business models. Governance risks are low as Neenah is a public
company with established and transparent reporting and conservative
financial policies. The company's leadership changed as COO Julie
Schertell succeeded CEO John O'Donnell in May upon his retirement,
but Moody's does not anticipate a change in financial policy.
The stable outlook reflects expectations of weaker earnings and
credit metrics in 2020, but gradual recovery in 2021. The stable
outlook also reflects expectations that the note refinancing closes
as proposed and the company will remain free cash flow positive and
will maintain good liquidity despite the economic stress.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could downgrade the rating if the note refinancing does not
close as proposed, there is a significant deterioration in the
company's operating performance that leads to persistently negative
free cash flow. Moody's could also change the outlook or rating if
the coronavirus pandemic leads to a permanent decline in demand in
Neenah's end markets that impairs its earnings potential.
Specifically, Moody's could downgrade the rating if adjusted
debt/EBITDA exceeds 4x for a sustained period of time, and EBITDA
margins are sustained below 15%, or if there is a prolonged
weakness in some of the company's cyclical markets or changes in
financial management.
Upward rating momentum is unlikely due to the company's limited
scale and diversification. An upgrade could be considered if the
company significantly increases its scale and expands its product
line, improves margins above 18% and demonstrates that they can be
sustained, while also maintaining its strong credit metrics such as
leverage sustained between 2.5-3x.
The principal methodology used in these ratings was Paper and
Forest Products Industry published in October 2018.
Based in Alpharetta, Ga., Neenah, Inc. is a manufacturer of
fiber-based technical products and fine paper and packaging
products. The technical products business accounts for more than
half of consolidated sales and manufactures transportation, water
and other filtration media as well as backings for specialty tapes
and other specialty markets. The fine paper and packaging business
manufacture premium printing, packaging and other papers. The
company has operations in the US (10 sites) and Europe (4 sites), a
small JV in India and reported revenues of approximately $932
million for the 12 months ending March 31, 2020.
NEW GOLD: S&P Alters Outlook to Negative, Affirms 'B' ICR
---------------------------------------------------------
S&P Global Ratings revised its outlook on Toronto-based gold
producer New Gold Inc. to negative from stable. At the same time,
S&P affirmed all its ratings, including 'B' long-term issuer credit
rating, on the company.
S&P also assigned its 'B' issue-level rating and '3' recovery
rating to New Gold's proposed US$400 million senior unsecured notes
due 2027.
The outlook revision reflects S&P's expectation of
higher-than-previously estimated free cash flow deficits and
increased unit costs in 2020. S&P now expects New Gold will
generate more than US$100 million in negative free cash flows in
2020, against the rating agency's previous expectation of close to
neutral, because capital spending and unit costs are expected to
come in above the rating agency's previous estimates. The estimated
capital expenditures (capex) of about US$300 million for 2020 are
higher than S&P's previous expectations (low-US$200 million area)
and include meaningful sustaining capital spending at both the
mines and close to US$100 million of C-zone development spending at
New Afton. S&P expects free cash flow deficits to decline next year
as Rainy River production ramps up and sustaining capital spending
declines while the C-zone development continues.
In addition, consolidated unit cash costs are also forecast to
exceed S&P's previous expectations, which S&P estimates in the
high-US$500 per ounce (/oz) area for 2020 on a byproduct basis. The
increase (about US$100/oz compared with 2019) incorporates
lower-than-expected output due to lower anticipated grades at both
mines and includes the impact of pandemic-related suspension at
Rainy River. Also, year-to-date copper prices have remained below
S&P's price assumption, and reduce its estimates for New Afton
byproduct revenues netted from unit costs.
Gold prices have remained strong (currently about US$1,700/oz) and
well above S&P's price assumptions (US$1,500/oz) this year. The
favorable gold price environment has somewhat compensated for the
negative impact of the above-mentioned operating issues. However,
New Gold has hedged 55% of its gold production in 2020, with a
ceiling of US$1,355/oz for 72,000 ounces of gold production in
first-half 2020 and a ceiling of US$1,415/oz for 96,000 ounces of
gold production in second-half 2020. While hedging provides
downside protection of US$1,300/oz, the company will not realize
the full benefit of the currently strong gold price environment on
its earnings and cash flow.
"In our view, the company will need to establish a track record of
at least meeting our revised expectations for cash flow generation
to avoid further rating pressure. We believe execution risk related
to the ramp-up of Rainy River and C-zone development remains. Our
production and cash costs estimates are also sensitive to potential
downside risk from COVID-19-related disruptions. We need greater
conviction that these assets can generate positive free cash flow
to sustain the business over the longer term," S&P said.
The affirmation is supported by New Gold's improved cash position.
The affirmation primarily reflects the improvement in New Gold's
cash position from recently completed financial transactions. The
company sold its Blackwater project to Artemis Gold Inc. for C$190
million in cash (C$140 million at closing and C$50 million after 12
months of closing), future stream interest, and C$20 million worth
of Artemis shares. The company also sold its 46% free cash flow
interest in New Afton mine to Ontario Teachers' Pension Plan (OTPP)
earlier this year for US$300 million. The cash infusions from these
transactions significantly strengthen New Gold's liquidity. The
improved cash position reduces the financial risks associated with
the Rainy River ramp-up as New Afton C-zone deposit development
spending advances over the next few years. The OTPP transaction
reduces New Gold's long-term value in the asset. However, based on
the New Afton current mine plan and capital spending expectations,
S&P expects the company will not have to make any payments to OTPP
over the next few years as C-zone development advances toward
completion.
S&P believes the company's sizable cash position following these
transactions supports stable-to-lower debt levels and provides a
cushion against operating underperformance and larger-than-expected
free cash flow deficits without negatively affecting leverage.
Under S&P's base-case estimates, New Gold will generate credit
metrics that are consistent with the rating agency's previous
expectations, including adjusted debt-to-EBITDA of about 3.7x in
2020. The proposed refinancing transaction also improves the
company's debt maturity profile by extending the term by several
years.
The negative outlook reflects S&P's view of operational
underperformance at Rainy River and now higher-than-expected
consolidated cash costs compared to the rating agency's previous
expectations. S&P now expects New Gold to generate more than US$100
million in free cash flow deficits in 2020 and estimate limited
prospects for positive free cash flows beyond 2020 during a period
of sizable capital spending at New Afton for C-zone development.
"We could lower the rating if we expect New Gold's earnings and
cash flows to decline due to lower-than-expected production or gold
margins, with elevated development costs. Such a scenario would
likely weaken our view of the company's ability to generate future
positive free cash flow necessary to sustain its business over the
long term. In addition, should the adjusted debt-to-EBITDA ratio
increase to about 5x in 2020 or 2021, this could also lead to a
downgrade," S&P said.
"We could revise the outlook to stable if, over the next 12 months,
New Gold ramps up its Rainy River mine generally in line with or
ahead of our expectations amid a stable or improved gold and copper
price environment. In this scenario, we would also expect the
company to sustainably generate adjusted debt-to-EBITDA about 3x
with greater visibility for positive free cash flow generation and
improved unit costs," the rating agency said.
NEXEO PLASTICS: S&P Downgrades ICR to 'B-' on Higher Leverage
-------------------------------------------------------------
S&P Global Ratings lowered the issuer credit rating on global
plastics distributor and service provider Nexeo Plastics Parent
Inc. to 'B-'.
At the same time, S&P is lowering its issue-level rating on the
company's senior secured notes to 'B-' from 'B'. The '3' recovery
rating remains unchanged, indicating S&P's expectation for
meaningful (50%-70%; rounded estimate: 50%) recovery the event of a
default.
The downgrade follows a significant downward revision in S&P's
macroeconomic expectations for 2020 because of the coronavirus
pandemic. S&P's revised estimates incorporate the ongoing global
economic downturn and related uncertainty in demand brought about
by COVID-19. S&P now expects U.S. and eurozone 2020 GDP to decline
by more than 5% and 7%, respectively, and Asia-Pacific (APAC) GDP
to increase minimally. S&P expects the automotive market will be
particularly hard hit, and project global sales of light vehicles
will decline by about 15% in 2020 to less than 80 million units.
There was limited cushion at the previous rating entering the
recession, with S&P Global Ratings-adjusted debt/EBITDA at or above
7x for the two most recent fiscal quarters. S&P previously expected
the company's revenue and earnings to increase in fiscal 2020 (year
ending September), and therefore reduce leverage; however, given
its updated assumptions on the macroeconomic environment and the
company's end-markets, the rating agency no longer believes this is
the case. S&P expects the company's cost-saving initiatives to only
partially offset the earnings deterioration from the lower demand.
It now expects Nexeo Plastics' S&P Global Ratings-adjusted
debt/EBITDA to be around 7x in fiscal 2020 and be between 6.5x-7.0x
on a weighted-average, forward-looking basis (based on 2020 and
2021), which are more in line with a 'B-' rating. S&P believes the
company's highly variable cost structure, low levels of inventory
kept on hand, low capital expenditure requirements, and ability to
generate free operating cash flow during periods of earnings
weakness, as it demonstrated in fiscal 2019, should somewhat
insulate the company from further credit deterioration beyond what
the rating agency has already considered in its base-case. A key
factor in S&P's projected earnings include the cost savings
initiatives that the company has already implemented.
S&P's assessment of Nexeo Plastics reflects its sizable market
share and strong brand recognition as the No. 1 plastics resin
distributor in the U.S. and No. 2 in Europe. The distribution
market is relatively stable with good growth prospects. S&P
believes plastic distributors, such as Nexeo Plastics, play an
important role in supporting plastic resin producers by addressing
market segments that the plastic producers do not find economical
to serve directly. Nexeo Plastics has strong and long-term
relationships with its suppliers (plastic resin producers). S&P
views the business as inherently more stable than commodity plastic
production and expect its EBITDA margins to remain relatively
stable. The company minimizes the amount of inventory it holds,
which generally helps it maintain somewhat stable unit gross
margins even during periods of pricing volatility.
Nexeo Plastics' key credit risks include its heavy reliance on a
few key suppliers. The company lacks diversity given that its
products are mostly restricted to plastic resins and it is reliant
on a few key suppliers. Changes in the prices for polypropylene or
polyethylene can lead to a material shift in the company's revenue
for a given period. Although its EBITDA margins tend to be stable,
they are very low relative to those of other chemical manufacturing
companies as well as those of broadly diversified distributors,
such as Ravago Holdings America Inc. and Univar Solutions Inc.,
that are able to offset the volatility with their larger scale and
scope.
The stable outlook on Nexeo Plastics reflects S&P's expectation
that the company's credit metrics will remain appropriate for the
rating, with weighted average debt to EBITDA remaining between
6.5x-7.0x. Although S&P expects demand for the company's products
to remain depressed in 2020, the rating agency does not expect
leverage to reach unsustainable levels. Also underpinning the
stable outlook is S&P's expectation for the company to generate
solid free operating cash flow in fiscal 2020, despite the earnings
deterioration, which the rating agency expects will be partially
directed towards repayment of asset-backed lending (ABL)
borrowings. Key factors tempering a decline in EBITDA include the
company's highly variable cost structure and cost reduction actions
taken by the company before the pandemic.
S&P could lower the ratings on Nexeo Plastics in the next 12 months
if its debt to EBITDA approached double digits, which the rating
agency would consider unsustainable. This could happen if a key
supplier unexpectedly outsources its products to a competing
distributor, if demand for the products Nexeo Plastics distributes
declines, or if Nexeo Plastics encounters issues collecting on
receivables, such that EBITDA drops significantly from S&P's
weakened 2020 expectations, or the company is unable to generate
positive operating cash flow to pay down ABL borrowings, as the
rating agency expects it to. S&P could also lower ratings if the
owners take a dividend or pursue acquisitions, causing additional
debt to push leverage to this same level, or if liquidity becomes
strained such that its sources over uses falls below 1.2x.
While unlikely at this time, S&P could take a positive rating
action over the next 12 months if the company maintains debt to
EBITDA below 6.5x. This could happen if EBITDA margins improve over
60 basis points (bps) from the rating agency's 2020 base-case
expectations. S&P could see such improved performance if the
underlying plastics industry grows well beyond its expectations, if
the company maintains strong unit gross margins despite resin
prices falling, or if Nexeo Plastics weathers the macroeconomic
storm caused by the coronavirus with more resilience than the
rating agency expects. Before considering an upgrade, S&P would
also need to believe that management's financial policies would
support maintaining leverage below 6.5x.
NICHOLAS H. NOYES MEMORIAL HOSP: S&P Cuts Rev Debt Rating to 'BB-'
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S&P Global Ratings lowered its long-term rating on Livingston
County Industrial Development Agency, N.Y.'s revenue debt, issued
for Nicholas H. Noyes Memorial Hospital (Noyes) to 'BB-' from 'BB'.
The outlook is negative.
"The lower rating reflects ongoing operating losses in recent
years, the deterioration of the Noyes' financial profile in the
first quarter of fiscal 2020 as a result of the COVID-19 pandemic,
and reduced liquidity and financial flexibility, as well as a
decline in maximum annual debt service coverage, which was
particularly acute in the quarter ending March 31, 2020," said S&P
Global Ratings credit analyst Marc Bertrand. The rating also
reflects Noyes' vulnerable enterprise profile, as seen by the small
service area, and the stable but limited market share in the
primary service area. The rating incorporates a negative adjustment
for the system's very low total operating revenue.
S&P views Noyes' social risk as higher than sector peers, as it
operates within a county with a small population and weaker
economic trends, which could further deteriorate with the ongoing
recessionary pressures. The core mission of health care facilities
is protecting the health and safety of communities, which is
further evidenced by responsibilities to serve the surge in patient
demand as a result of COVID-19. S&P believes this exposes Noyes and
its peers to additional social risks that could present financial
pressure in the short term, particularly should revenues and other
federal and state support be insufficient to cover the increased
equipment and personnel costs stemming from demand. Specifically,
S&P notes that the financial impact of COVID-19 on operating
profits and on maximum annual debt service (MADS) has been
meaningful. Finally, S&P believes environmental and governance
risks are in line with its views of the industry as a whole.
S&P could lower the rating if the financial and economic
repercussions from the COVID-19 pandemic on Noyes are significant
and prolonged, causing continued financial stress that creates a
credit profile that the rating agency views as no longer consistent
with a rating of 'BB-'.
Over the next year, S&P could return the outlook to stable if,
following the COVID-19 pandemic, operating margins return to
positive, days' cash on hand approaches or exceeds 100 days, and
MADS increases to above 2.5x.
NORBORD INC: S&P Affirms 'BB' ICR Despite Higher Leverage
---------------------------------------------------------
S&P Global Ratings affirmed its 'BB' issuer credit rating on
Norbord Inc. and its 'BB+' issue-level rating on the company's
senior secured notes. S&P expected the company's leverage to
improve over the next two years.
"Our rating on Norbord incorporates a high degree of expected
volatility mainly related to OSB price swings, which we believe
reached trough levels last year. Slowing housing starts and wet
weather conditions were key contributors, and underpinned the
increase in the company's adjusted debt-to-EBITDA to over 5x," S&P
Global Ratings said.
"Leverage at this level is high for the rating, and we expect it to
remain above our previous expectations this year at just over 3x.
Nevertheless, we affirmed the rating because we believe material
growth in the company's earnings and cash flow next year, and
continued free cash flow generation that drives lower net debt,
will result in credit measures commensurate with the company
rating," the rating agency said.
In 2020, S&P Global Economics is forecasting U.S. GDP to contract
by 5.2%. In tandem with its weaker economic outlook, S&P Global
Ratings expects housing starts (the largest end use for OSB) to
decline and total about 1.2 million for the year. As a result, S&P
Global Ratings assumes the North American new home construction and
industrial segments will lead shipment declines this year. However,
OSB prices have rebounded through year-to-date 2020, led by
widespread capacity curtailment. S&P Global Ratings believes the
impact of higher average realized prices will more than offset
lower shipments and facilitate modest earnings growth this year,
albeit at relatively low levels.
In 2021, S&P Global Ratings expects a material rebound in Norbord's
earnings and cash flow, led by continued improvement in OSB prices
and growth in shipments. S&P Global Economics expects GDP growth to
sharply improve next year, and S&P Global Ratings believes this
will facilitate stronger demand. S&P Global Ratings expects 1.3
million housing starts in the U.S. during the year, and continued
support from steady repair and remodel demand.
"In our view, steady demand in this segment should act as a
tailwind through the pandemic, in part because DIY improvement
projects have become popular as people spend more time at home.
More important, we do not expect new sources of OSB market capacity
sufficient to limit growth in prices. In Europe, we expect volumes
to increase as the company's Inverness mill continues to ramp up,
with demand growth supported by the substitution of higher-cost
imported plywood for OSB. Based on these factors, we estimate
Norbord's leverage at close to 2x in 2021, well below peak 2019
levels," S&P Global Ratings said.
"We believe the company is well prepared to withstand a sustained
period of economic contraction. In our opinion, Norbord is among
the most efficient OSB producers in the industry, as evidenced by
its EBITDA margins, modest sustaining capital spending
requirements, and low fixed costs," the rating agency said.
Cash manufacturing costs are about 70% variable, allowing the
company to efficiently scale down shipments in line with demand
without absorbing substantial fixed costs. In addition, Norbord has
ample flexibility to lower capital spending, with sustaining
requirements of only US$35 million per year.
Norbord has a history of exercising prudence by limiting
shareholder returns during periods of low cash flow generation, as
facilitated by its variable dividend policy. In light of
pandemic-related uncertainty, the company reduced its dividend to 5
Canadian cents per share for second-quarter 2020, down from 20
Canadian cents per share in the previous quarter, and suspended
share buybacks. S&P Global Ratings has revised its assumptions
accordingly, assuming dividends will not increase from the current
payout rate until Norbord has greater visibility on cash flow in
2021. S&P Global Ratings estimates the company will retain about
US$25 million of additional cash this year. As a result, despite
its expectation for subdued earnings this year, S&P Global Ratings
estimates Norbord will generate positive discretionary cash flow
(DCF). It believes positive DCF generation this year will lead to
higher cash and liquidity, with stable debt levels through the
recession.
S&P Global Ratings expects Norbord's operating results to remain
volatile, but for forecast credit measures to remain commensurate
with the rating. Leverage for 2019 and estimated 2020 leverage are
high for the rating, but S&P Global Ratings does not assume this
will persist long term. Norbord participates in the highly cyclical
North American OSB market, which is very sensitive to demand from
U.S. housing construction. The company is highly exposed to
fluctuations in OSB prices, which contribute to very significant
earnings and cash flow volatility. For example, Norbord's adjusted
EBITDA dropped about 80% year over year in 2019 following a decline
in average benchmark North Central 7/16" OSB prices to US$210 per
thousand square feet (msf), down from about US$350 per msf in the
previous two years. In contrast, the company's adjusted
debt-to-EBITDA ratio was below 1x in 2018 amid much stronger cash
flows. Therefore, S&P's rating incorporates the likelihood for
short-term periods of weaker credit measures that are followed by
material improvement.
The stable outlook reflects S&P Global Ratings' expectation for
Norbord's adjusted debt-to-EBITDA to improve to close to 2x in 2021
from the mid-3x area in 2020. S&P Global Ratings believes an
improvement in global economic conditions next year will support a
recovery in U.S. housing activity, resulting in higher shipments
and realized prices that lead to improving earnings and cash flow.
"We could lower the rating over the next 12 months if we expect
adjusted debt-to-EBITDA to approach 4x in 2021. In such a scenario,
we would attribute a low likelihood to cash flow improving and
leverage decreasing next year, most likely due to persistent
headwinds in the U.S. housing market, resulting in low shipments
and weaker-than-expected OSB prices," S&P Global Ratings said.
"Although unlikely over the next 12 months, we could raise our
rating on Norbord if we believe the company will generate and
maintain adjusted debt-to-EBITDA below 1.5x on a sustained basis.
This could occur if we expected Norbord to improve earnings
stability by meaningfully reducing its exposure to the cyclicality
of the U.S. housing sector, most likely from sustained and
substantial growth in the company's European operations," the
rating agency said.
NORDSTROM INC: Egan-Jones Lowers Senior Unsecured Ratings to B+
---------------------------------------------------------------
Egan-Jones Ratings Company, on June 9, 2020, downgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Nordstrom Incorporated to B+ from BB-.
Headquartered in Seattle, Washington, Nordstrom Inc. Nordstrom,
Inc. is a fashion retailer of apparel, shoes, and accessories for
men, women, and children.
PANOCHE ENERGY: Moody's Hikes Senior Secured Rating to B3
---------------------------------------------------------
Moody's Investors Service has upgraded Panoche Energy Center, LLC's
senior secured notes to B3 from Caa1 and placed the project's
rating under review for further upgrade. The outlook has been
revised to ratings under review, from positive.
RATINGS RATIONALE
Its rating action reflects the majority support by Pacific Gas &
Electric Company's creditors for the utility's proposed Plan of
Reorganization, the approval of the POR by the California Public
Utility Commission, and the expected improvement in off-taker
credit quality following the utility's emergence from bankruptcy.
Throughout the PG&E bankruptcy, the utility has remained current on
obligations owed to power generators including Panoche and the POR
incorporates the utility assuming its power purchase agreements,
including the Panoche PPA. PG&E's bankruptcy and the risk of PPA
rejection in bankruptcy has been the primary risk constraining
Panoche's credit quality since the project derives all of its
operating cash flow from its PPA with PG&E. Panoche's credit
quality also considers the project's position and intrinsic value
from a capacity standpoint as a peaking unit in a high load pocket.
Panoche's operational and financial performance has remained
adequate, but with some forced outages experienced in Q4 2019 and
in Q1 2020 which negatively impacts capacity revenues.
Project level liquidity has been impacted by the future need to
repay a drawn letter of credit (L/C) obligation due in October 2022
and by the ongoing purchases of carbon allowances. The project drew
$16.3 million under its debt service reserve L/C in July of 2019
since the associated credit facility expired and was not extended.
The outstanding debt under the debt service reserve loan is $12.1
million as of FY 2019, as $4.2 million of the debt was repaid
through the project's sale of a PG&E pre-petition claim.
The repayment of any drawn L/Cs ranks pari passu with the senior
secured bonds and is due in October 2022. Additionally, Panoche's
liquidity is impacted by the project's need to satisfy liabilities
associated with carbon emission purchases each year with a large
payment potentially due during 2021. To date, Panoche has been able
to manage its liquidity to meet this ongoing obligation. Remaining
liquidity includes a major maintenance reserve cash funded on a 3
year look forward basis with a balance of $1.9 million as of
12/31/2019. The project also had $4.7 million of cash on its
balance sheet as of 3/31/2020. In addition, Panoche maintains a $36
million L/C fulfilling its requirements under its PPA which was
extended in 2019.
Panoche's review for upgrade will consider the expected emergence
of PG&E from bankruptcy including the confirmation by the
bankruptcy court with emergence occurring thereafter balanced
against the liquidity challenges facing Panoche as it relates to
the ongoing purchase of GMG emission liabilities and the repayment
of the drawn LC obligation due in 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Factors that could lead to an upgrade
The rating could be upgraded upon the utility's emergence from
bankruptcy with an upgrade factoring in the project's ability to
manage the ongoing need to acquire GHG emission credits and to
address an incremental repayment obligation due in 2022.
Factors that could lead to a downgrade
Panoche's rating could be downgraded if PG&E does not emerge from
bankruptcy under the terms of the current POR or the project
operating performance weakens on a sustained basis causing
financial metrics and project level liquidity to decline
appreciably. Panoche Energy Center, LLC owns an approximate 400 MW
natural gas-fired simple-cycle generating facility operating
primarily as an intermediate and peaking generation plant. Panoche
consists of four GE LMS100 turbine units and is located 50 miles
west of the City of Fresno in Firebaugh, California. Panoche is
owned by affiliates of Ares Management, L.P.
The principal methodology used in this rating was Power Generation
Projects published in June 2018.
PARKING MANAGEMENT: Hires Joseph J. Blake as Appraiser
------------------------------------------------------
Parking Management, Inc., seeks authority from the U.S. Bankruptcy
Court for the District of Maryland to employ Joseph J. Blake and
Associates, Inc., as appraiser to the Debtor.
Parking Management requires Joseph J. Blake to perform appraisal of
the Debtor's real property located at 37 New York Avenue, NE,
Washington, DC.
Joseph J. Blake will be paid a flat fee of $5,800.
Thomas Shields, managing partner of Joseph J. Blake and Associates,
Inc., assured the Court that the firm is a "disinterested person"
as the term is defined in Section 101(14) of the Bankruptcy Code
and does not represent any interest adverse to the Debtor and its
estates.
Joseph J. Blake can be reached at:
Thomas Shields
Joseph J. Blake and Associates, Inc.
1054 31st St. NW, Suite 530
Washington, DC 20007
Tel: (202) 342-5577
About Parking Management
Parking Management, Inc. is a parking operator in Washington, DC.
It operates 88 leased or managed properties throughout the
Washington, DC and Baltimore metropolitan areas, specializing in
complex mixed-use properties and has experience in all levels of
commercial and residential parking operations. Visit
https://www.pmi-parking.com/
Parking Management sought protection under Chapter 11 of the
Bankruptcy Code (Bankr. D. Md. Case No. 20-15026) on May 7, 2020.
At the time of the filing, Debtor disclosed assets of between $1
million and $10 million and liabilities of the same range. Judge
Thomas J. Catliota oversees the case. Debtor is represented by
Shulman, Rogers, Gandal, Pordy & Ecker, PA. JW Infinity Consulting,
LLC is Debtor's financial advisor.
PATHWAY VET: S&P Assigns 'B' Issuer Credit Rating; Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings assigned its 'B' issuer credit rating to Pathway
Vet Alliance LLC, a veterinary practice management company, which
has been acquired by private equity firm TSG Consumer Partners for
$2.65 billion. The outlook is stable.
The rating agency is also assigning its 'B' issue-level rating and
'3' recovery rating to the proposed senior secured credit facility.
The '3' recovery rating reflects S&P's expectation for meaningful
recovery (50%-70%; rounded estimate: 55%) in the event of payment
default. The company's second-lien debt is unrated.
S&P's rating reflects its expectation for high adjusted leverage,
but positive free cash generation. Pro forma adjusted leverage is
around 10x and S&P expects it to be sustained above 7.5x due to
Pathway's aggressive, debt-funded acquisition growth strategy.
Despite the high leverage, the rating agency expects Pathway to
generate minimal, but positive, discretionary cash flows through
the end of 2020 and moderate discretionary cash flow totaling
around 3% of debt in 2021 and beyond.
The rating also reflects Pathway's narrow operating focus in animal
health services. Pathway is a leader in the highly fragmented
veterinary practice management (VPM) industry. The company's 282
hospitals compare favorably to rated peers Romulus Intermediate's
(d/b/a PetVet; B/Stable/--) 243 and VetCor's (B/Stable/--) 365, but
are well below market leaders Mars and NVA. Unlike VetCor's
hospitals, which are all general practice, around 40% of Pathway's
hospitals are higher-margin specialty or ER facilities. Pathway
also operates 88 affordable Thrive hospitals including via a joint
venture with Petco, which while not directly accretive, S&P
believes provide a good referral opportunity for an underserved
segment of the pet owner population. Additionally, the rating
agency views Pathway's Managed Service Organization, Veterinary
Growth Partners, as providing a solid runway for future
acquisitions.
"We view the VPM industry as highly attractive because of secular
tailwinds, significant consolidation opportunities to increase
scale, and favorable payment dynamics. Pet ownership continues to
increase in the U.S., and owners are spending more on animal
health. Approximately 89% of veterinary hospitals in the U.S. are
independently owned, providing ample targets for Pathway's
acquisition-driven growth strategy. Most importantly, veterinary
services are primarily cash pay, which means that veterinary
operators lack the reimbursement risk of other health care service
providers," S&P said.
"The impact from the COVID-19 pandemic was significant, but we
expect rapid recovery. While veterinary hospitals were deemed
essential services in every market, industrywide volumes
(particularly at general practice locations) dropped precipitously
in late March, as local governments established shelter-in-place
directives. The industry rebounded quickly during the second half
of April however, supporting our macro-level expectation of low- to
mid-single-digit percent organic growth through the end of 2020,"
the rating agency said.
The stable outlook reflects S&P's expectation that Pathway will
continue generating acquisition-driven, double-digit revenue growth
and that EBITDA margins will expand, allowing the company to
generate moderate free operating cash flows. S&P also expects the
company's aggressive, debt-financed growth strategy will cause
sustained leverage above 7.5x through 2021.
"We could lower the rating if the company's organic revenue
declines at a low-single-digit percentage pace and if planned
acquisitions are nonaccretive, leading to shortfalls to our
base-case projections on revenue growth and EBITDA margins. We
could also consider lowering the rating if we expect that
discretionary cash flow to debt will be in the very
low-single-digit percent range," S&P said.
"Although highly unlikely, we could consider an upgrade if the
company focused on permanent debt reduction, such that it sustains
adjusted leverage below 5.0x. We would also need a clear
demonstration of the company's commitment to maintaining leverage
at that lower level," the rating agency said.
PILGRIM'S PRIDE: Fitch Hikes LT IDR & Sr. Unsecured Notes to BB+
----------------------------------------------------------------
Fitch Ratings has upgraded Pilgrim's Pride Corporation's Long-Term
Issuer Default Rating and senior unsecured notes to 'BB+' from
'BB'. The Rating Outlook is stable.Fitch has also affirmed PPC's
U.S. credit facilities (term loan and revolving credit facilities)
at 'BBB-'. The secured loans are secured by accounts receivable,
inventories and substantially all of its U.S. assets. The secured
loans are rated one notch above the IDR due to its outstanding
recovery prospects.
The upgrade reflects the linkage to parent company, JBS S.A,
through Fitch's Parent and Subsidiary Rating Criteria and the
related upgrade of the LT IDR of JBS to 'BB+, as well as PPC's
strong liquidity and moderate standalone leverage expected in 2020
despite weaker performance expected for this year due to excess
chicken supply. The rating of JBS and PPC are constrained by
various ESG issues, including ongoing litigation at PPC related to
price fixing in the U.S.
KEY RATING DRIVERS
Conservative Leverage: Fitch expects PPC to generate positive FCF
in 2020 and to end the year with a net debt/EBITDA ratio of 2.3x.
The company's EBITDA is projected by Fitch to decline to US$800
million in 2020 from US$974 million due to reduced plant efficiency
from employee absenteeism and a weak pricing environment because of
the disruption caused by the coronavirus pandemic that negatively
impacted demand in the foodservice segment (restaurants, schools).
PPC's performance will benefit from the integration of the Tulip
acquisition in the U.K. and a gradual recovery in the second half
of the year as well as lower feed costs. Fitch expects the company
to generate FCF after dividends of about US$300 million due to
working capital inflow due to lower inventory costs, capex of about
US$300 million to US$350 million, and no dividends.
Resilient Business Profile: PPC's ratings are supported by the
company's resilient business profile as one of the world's largest
chicken processors with a presence in the U.S., Europe and Mexico,
its diversified product portfolio and vertically integrated
operations. Fitch estimates that half of the sales go to food
retailers and the other half to the food service segment (including
quick-service restaurants). U.S. sales represented about 67% of
group sales as of YE19. Product types are fresh chicken products,
prepared chicken products and value-added export chicken products.
Fresh chicken accounted for 58%, 9% and 12% of total U.S., U.K. and
Europe, and Mexico chicken sales in 2019. Fitch estimates that
prepared foods represented about 21% (pro forma including Tulip) of
group sales.
ESG and Ongoing litigation: The rating is tempered by the rating of
JBS, and ongoing litigation. Fitch views PPC's parent linkage with
JBS as moderate because PPC has a degree of ring-fencing from JBS.
PPC has minority shareholders represented by independent board
members who are governed by U.S. law due to its listing on the
Nasdaq Stock Market, and no cross-default, acceleration clauses or
upstream guarantees exist between PPC and its parent. PPC's
dividends are also subject to maintenance of debt covenants
embedded in the senior secured debt facilities, which provide
additional creditor protection. Despite these insulating factors,
JBS controls PPC and influences its business and financial
strategies. Fitch estimates that PPC represented about 27% of JBS's
consolidated EBITDA as of YE 2019. The company is part of ongoing
litigation in the U.S. regarding chicken price-fixing. The ESG
governance score is five due to ownership concentration.
Acquisition Appetite: The rating is tempered by PPC's record of
debt-financed acquisitions, similar to its parent. Fitch expects
the company to pursue acquisitions in the medium long-term towards
more added-value products. The company acquired Tulip Limited in
2019 for US$354 million for cash or 5.4x implied expected EBITDA.
Tulip is a leading integrated prepared pork supplier headquartered
in Warwick, U.K. Tulip operates 14 fresh and value-added
facilities. (46.9% of Tulip sales are in prepared-food). This
acquisition improves PPC geographic and product diversification. In
September 2017, PPC acquired Moy Park, a leading poultry and
prepared foods supplier with operations in the U.K. and continental
Europe for USD$1 billion. In January 2017, PPC acquired GNP
Company, a provider of premium branded chicken products in the
upper Midwest, in an all-cash, US$350 million transaction, and in
2015 acquired Tyson Foods, Inc.'s Mexican operations for US$400
million.
Protein Outlook: U.S. chicken production is expected to be flat in
the USA in 2020, according to the U.S. Department of Agriculture.
Fitch expects the sector to remain challenging due to the weakness
of the consumer environment and the negative impact caused by the
coronavirus pandemic. There has been a shift in demand from
restaurants to retail grocery stores, with consumers eating more at
home due to stay-at-home orders. This shift was not fully
compensated by improved sales in retail stores due to product mix.
Fitch expects PPC performance to gradually improve in the second
half of the year with the reopening of the foodservice segment.
Among significant industry risks are downturns in the economy or
consumer demand, the imposition of increased tariffs and sanitary
risks.
DERIVATION SUMMARY
PC's business profile is in line with the 'BB+' rating category due
to its size, profitability and geographical diversification. The
company operates in the U.S., Mexico and Europe (Moy Park) with
PPC's U.S. operations represent about 67% of sales and 71% of
operating income as of FYE19. PPC has a less diversified product
portfolio than its parent company or Tyson Foods, which exposes the
company to higher industry risks.
It is also smaller than other U.S. peers such as Tyson Foods, Inc.
(BBB/Negative) and Cargill Incorporated (A/Stable), which receive
synergistic benefits from their scale.
The company's credit profile is in line with its rating 'BB+.'
category due to its leverage. PPC reported a total debt/ EBITDA
ratio of about 2.4x as of FYE19, which is better than BRF S.A.
(BB/Stable). Fitch expects PPC leverage to remain stable thanks to
positive FCF in 2020.
Constraining the ratings is the weak corporate governance due to
its shareholder structure and the more aggressive acquisition
strategy of PPC's controlling shareholder and ultimate parent
company, JBS, as well as ongoing litigation issues in the U.S.
regarding chicken price fixing issues.
No country-ceiling or operating environment aspects impact the
rating. Fitch's parent-subsidiary linkage criteria are applicable
due to shareholder ownership.
KEY ASSUMPTIONS
High single-digit revenue growth due to the Tulip acquisition;
EBITDA of about $0.8 billion in 2020;
Capex of US$300 million to US$350 million in 2020;
A certain amount of share buybacks in 2020;
Total net debt/EBITDA about 2.3x in 2020.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
-- An upgrade of JBS's ratings to 'BBB-' could lead to an upgrade
for PPC;
-- Strong FCF.
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
-- Significant debt-financed acquisitions and/or excessive
shareholder distributions;
-- A one-notch downgrade of JBS would not likely trigger a
downgrade of PPC if net leverage is sustained below 3x. A two-notch
downgrade of JBS would most likely result of a downgrade of PPC.
Fitch would not likely exceed a two-notch differential between JBS
and PPC at this level.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Fitch views PPC's liquidity as ample and
supported by adequate cash on hands, revolver availability, strong
cash flow generations, and a comfortable amortization profile. As
of March 29, 2020, PPC had approximately US$511 million of cash and
US$26 million of short-term debt.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Fitch assigns a score of 3 for the factor regarding the use of
animal production; food quality and safety and labor relations. PPC
has an ESG Relevance Score of 5 on governance for ownership
concentration due to the control of the company by JBS S.A. and
ongoing litigation issues. Except for the matters discussed above,
the highest level of ESG credit relevance, if present, is a score
of 3 - ESG issues are credit neutral or have only a minimal credit
impact on the entity(ies), either due to their nature or the way in
which they are being managed by the entity(ies).
PLAINS ALL: Egan-Jones Lowers Senior Unsecured Ratings to BB
------------------------------------------------------------
Egan-Jones Ratings Company, on June 8, 2020, downgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Plains All American Pipeline LP to BB from BB+.
Headquartered in Houston, Texas, Plains All American Pipeline, L.P.
is involved in intrastate crude oil pipeline transportation and
terminalling storage activities.
PLAYERS NETWORK: Case Summary & 20 Largest Unsecured Creditors
--------------------------------------------------------------
Debtor: Players Network
d/b/a The Players Network
d/b/a The Players Network, Inc.
3939 Belmont Street
North Las Vegas, NV 89030
Business Description: Players Network is a privately held company
that operates in the cannabis industry.
Chapter 11 Petition Date: June 17, 2020
Court: United States Bankruptcy Court
District of Nevada
Case No.: 20-12890
Judge: Hon. Mike K. Nakagawa
Debtor's Counsel: Thomas E. Crowe, Esq.
THOMAS E. CROWE PROFESSIONAL LAW CORPORATION
2830 S. Jones Blvd, Suite 3
Las Vegas, NV 89146
Tel: (702) 794-0373
E-mail: tcrowe@thomascrowelaw.com
Total Assets: $496,000
Total Liabilities: $5,252,096
The petition was signed by Mark Bradley, chief executive officer.
A copy of the petition containing, among other items, a list of the
Debtor's 20 largest unsecured creditors is available for free at
PacerMonitor.com at:
https://is.gd/b4wU1U
PLAYPOWER HOLDINGS: S&P Downgrades ICR to 'B-'; Outlook Negative
----------------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on PlayPower
Holdings Inc. to 'B-' from 'B'. S&P has also lowered its rating on
the company's first-lien senior secured debt (which consists of a
$45 million revolver due 2024 and a $400 million term loan due
2026) to 'B-' from 'B'. The recovery rating remains '4'.
The downgrade reflects high leverage and anticipated revenue
declines through 2021 as a result of anticipated decreased demand
for play systems. S&P's base-case forecast incorporates revenue
declines of 15%-20% in 2020 following order fulfillment delays
stemming from COVID-19 containment efforts, a moderate level of
assumed order cancellations, and the rating agency's anticipation
of lowered demand from municipalities and schools as a result of
budget cuts driven by tax revenue declines. S&P believes
municipalities and schools account for about half of PlayPower's
revenue. S&P has assumed further sales declines in 2021 in the
mid-single-digit percentage area as tax revenue and municipal
budgets lag behind its forecasted economic recovery in 2021, and
municipal and school budgets remained depressed. S&P has assumed
declines in municipal spending similar in magnitude to the great
recession, when municipal budgets declined approximately 30% from
peak to trough. It anticipates the long replacement cycle of
playground systems may result in municipalities delaying purchases.
Additionally, S&P believes it is likely many playgrounds will
remain closed while social-distancing measures are in force, and
that parents will be uncomfortable allowing children to visit
public playgrounds until a therapy or vaccine is available for
COVID-19. Subsequently, decreased play system utilization and wear
could result in further elongation of replacement order cycles for
the duration of the pandemic, and potentially beyond. The company's
acquisitions in recent years of assets producing smaller-ticket
items with shorter replacement cycles with a commercial customer
base may partially offset municipal spending decreases. However,
commercial clients are also likely to cut spending in a
recessionary environment. S&P also believes PlayPower's exposure to
European markets, which accounted for approximately 17% of revenue
and declined around 8% in 2019, could result in a steeper revenue
decline in 2020 and potentially a slower recovery in 2021 as these
markets experience a potentially deeper and more prolonged
recession than in the U.S.
Favorable commodities pricing, cost structure flexibility and
expected cost-cutting measures may mitigate some margin compression
from reduced sales.
"In our base-case forecast, we expect 2020 gross margin to remain
stable relative to 2019 levels as a result of favorable oil and
freight pricing. We also anticipate cost-cutting measures in 2020
including reduced staffing and lowered marketing expenditures will
result in selling, general, and administrative savings of about $10
million compared to 2019. We have forecast the company will make
significant cuts to capital expenditures (capex), which we believe
will be about $4 million in 2020, and around $6 million in 2021,"
S&P said.
S&P's outlook is negative because of the company's high anticipated
leverage through 2021, and significant uncertainty around how the
pandemic, recession, and the aftermath will affect municipal and
commercial recreational equipment spending. As a result of
anticipated sales declines, S&P is now forecasting the company's
lease-adjusted leverage to remain above 8x through 2021. Partially
offsetting the company's high leverage is the rating agency's
anticipation that the company will maintain adequate liquidity and
EBITDA coverage of interest above the rating agency's 1.5x
downgrade threshold despite depressed revenue.
"If we believe EBITDA coverage of interest, operating cash flow, or
liquidity will weaken below our current base-case assumptions, we
could lower the rating. Additionally, the risk that play areas
remain closed, or parents avoid allowing children to play on public
play structures in the absence of a vaccine or therapy, or a second
wave of COVID-19 infections creates uncertainty for the company's
revenue and cash flow generation. In this scenario, we would likely
consider a downgrade of one notch or more," S&P said.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety
The negative outlook reflects very high anticipated lease-adjusted
leverage above 8x through 2021, and the possibility S&P could lower
the rating if the company underperforms S&P's base case, cash flow
generation weakens significantly, and the rating agency believes
the capital structure could become unsustainable.
"We could downgrade the company if EBITDA interest coverage falls
below 1.5x, if liquidity comes under pressure, or we believe the
company is likely to generate negative cash flow for a prolonged
period of time," S&P said.
"An upgrade is unlikely at this time given significant uncertainty
around municipal budgets, and the length and duration of the
recession and COVID-19 impacts. To revise our outlook or raise the
rating, we would need to be confident the company can sustainably
maintain leverage below 7x, and EBITDA coverage of interest above
2x," the rating agency said.
QUORUM HEALTH: Judge Grants Mudrick's Motion to File Reply
----------------------------------------------------------
Judge Karen Owens of the U.S. Bankruptcy Court for the District of
Delaware granted Mudrick Capital Management, L.P.'s motion for
leave to file a reply in support of its bid to appoint an equity
committee in the Chapter 11 case of Quorum Health Corp.
The reply will provide the court with important information and
legal authority, including new information learned through
discovery since the filing of the motion. It will also address
Quorum Health's objection to the equity committee appointment.
Meanwhile, Tony Logan, a shareholder of Quorum Health, has
expressed support to the appointment of an equity committee and to
Mudrick's objection to Quorum Health's proposed Chapter 11 plan.
Mr. Logan owns approximately 162,000 shares in Quorum Health.
About Quorum Health Corporation
Headquartered in Brentwood, Tennessee, Quorum Health (NYSE: QHC) --
http://www.quorumhealth.com/-- is an operator of general acute
care hospitals and outpatient services in the United States.
Through its subsidiaries, the Company owns, leases or operates a
diversified portfolio of 24 affiliated hospitals in rural and
mid-sized markets located across 14 states with an aggregate of
1,995 licensed beds. The Company also operates Quorum Health
Resources, LLC, a leading hospital management advisory and
consulting services business.
Quorum Health incurred net losses attributable to the company of
$200.25 million in 2018, $114.2 million in 2017, and $347.7 million
in 2016.
As of Sept. 30, 2019, Quorum Health had $1.52 billion in total
assets, $1.72 billion in total liabilities, $2.27 million in
redeemable non-controlling interest, and a total deficit of $203.36
million.
On April 7, 2020, Quorum Health Corporation and 134 affiliates
sought Chapter 11 protection (Bankr. D. Del. Lead Case No.
20-10766) to seek confirmation of a pre-packaged plan.
Debtors hired McDermott Will & Emery LLP and Wachtell, Lipton,
Rosen & Katz as legal counsel, MTS Health Partners, L.P. as
financial advisor, and Alvarez & Marsal North America, LLC. as
restructuring advisor. Epiq Corporate Restructuring, LLC, is the
claims agent, maintaining the Web site https://dm.epiq11.com/Quorum
RECESS HOLDINGS: S&P Downgrades ICR to 'B-' on Higher Leverage
--------------------------------------------------------------
S&P Global Ratings lowered its issuer credit rating on Recess
Holdings Inc. (dba PlayCore) to 'B-' from 'B'.
S&P also lowered its rating to 'B-' from 'B' on the company's
first-lien debt (consisting of a $370 million term loan and $50
million delayed-draw term loan due 2024). S&P also lowered its
rating to 'CCC' from 'CCC+' on the company's $145 million
second-lien term loan due 2025. The recovery rating remains '3' on
the first-lien debt and '6' on the second-lien debt.
The downgrade reflects high leverage and anticipated revenue
declines through 2021 as a result of anticipated decreased demand
for play systems. S&P's base-case forecast incorporates revenue
declines of around 15% in 2020 following order fulfillment delays
caused by COVID-19 containment efforts, a moderate level of assumed
order cancellations, and the rating agency's anticipation of
lowered demand from municipalities and schools, which S&P believes
account for around 55% of PlayCore's revenue, as a result of budget
cuts driven by tax revenue declines. S&P anticipates further sales
declines in 2021 in the mid-single-digit percents as tax revenue
and municipal budgets lag behind its forecast economic recovery in
2021, and municipal and school budgets remained depressed. S&P has
assumed declines in municipal spending similar in magnitude to the
great recession, when municipal budgets declined approximately 30%
from peak to trough. It anticipates the long replacement cycle of
playground systems may result in municipalities delaying purchases.
Additionally, S&P believes it is likely many playgrounds will
remain closed while social-distancing measures are in force, and
that parents will be uncomfortable allowing children to visit
public playgrounds until a therapy or vaccine is developed for
COVID-19. Subsequently, decreased play system utilization and wear
could result in further elongation of order cycles for the duration
of the pandemic, and potentially beyond. The company's acquisitions
in recent years of assets producing smaller-ticket items with
shorter replacement cycles with a commercial customer base may
partially offset municipal spending decreases. However, commercial
clients are also likely to cut spending in a recessionary
environment. In addition, it is S&P's understanding that PlayCore
has added private and foundation funding sources in recent years
that may partially offset lower municipal budgets.
Favorable commodities pricing, cost-structure flexibility, and
expected cost-cutting measures may help mitigate margin compression
from reduced sales. In its base-case forecast, S&P expects 2020
gross margin to remain stable relative to 2019 levels as a result
of favorable oil and freight pricing. It also anticipates
cost-cutting measures in 2020 including reduced staffing and
lowered marketing expenditures will result in selling, general, and
administrative savings of about $20 million over 2019. S&P has also
forecast the company will make significant cuts to capital
expenditures (capex), which the rating agency believes will be
around $5 million in 2020, and around $8 million in 2021.
S&P's outlook is negative because of the company's high anticipated
leverage through 2021, and significant uncertainty around how the
pandemic, recession, and the aftermath will affect municipal and
commercial recreational equipment spending. As a result of
anticipated sales declines, S&P now forecasts the company's
lease-adjusted leverage to remain above 8x through 2021. Partially
offsetting the company's high leverage is S&P's anticipation that
the company will maintain adequate liquidity and EBITDA coverage of
interest above its 1.5x downgrade threshold despite depressed
revenue. If it believes EBITDA coverage of interest, operating cash
flow, or liquidity will weaken below its current base-case
assumptions, S&P could lower the rating. Additionally, the risk
that play areas remain closed, or parents avoid allowing children
to play on public play structures in the absence of a vaccine or
therapy, or a second wave of COVID-19 infections creates
uncertainty for the company's revenue and cash flow generation. In
this scenario, S&P would likely consider a downgrade of one notch
or more.
Environmental, social, and governance (ESG) credit factors for this
credit rating change:
-- Health and safety.
"The negative outlook reflects very high anticipated lease-adjusted
leverage above 8x through 2021, and the possibility we could lower
the rating if the company underperforms our base case, cash flow
generation weakens significantly, and we believe the capital
structure could become unsustainable," S&P said.
"We could downgrade the company if EBITDA interest coverage falls
below 1.5x, if liquidity comes under pressure or we believe the
company is likely to generate negative cash flow for a prolonged
period of time," the rating agency said.
RGIS HOLDINGS: S&P Lowers ICR to 'D' on Missed Interest Payment
---------------------------------------------------------------
S&P Global Ratings lowered all ratings on RGIS Holdings LLC to 'D'
including the issuer credit rating and secured credit facilities
from 'CCC-'.
RGIS Holdings LLC did not make the April 30th interest payment on
its term loan. Subsequently, on May 29, 2020, the company obtained
an amendment allowing for a 43-day grace period (ending on June 12)
on $4.1 million of interest payable. At the same time, the company
also received a waiver on its Total Leverage Ratio through June 12,
2020.
"We lowered all ratings to 'D' because it is our belief that,
absent a debt restructuring, the company will fail to pay all or
substantially all of its obligations as they come due and breach
future total leverage ratio tests. We note that since March 31,
2020 the company's cash position has materially increased due to
cost reductions and improved collections on accounts receivables,"
S&P said.
S&P will consider raising the issuer credit ratings on the
defaulted obligations when payments have resumed and/or the terms
are amended and have become legally effective.
RGIS has been severely hit by the fallout from the COVID-19
pandemic resulting in widespread retail store closures stemming
from social distancing mandates that have hindered RGIS' ability to
perform its core inventory counting services, forcing the company
to temporarily close its North American operations. S&P believe
longer-term demand for RGIS' services will be impaired as
brick-and-mortar retailers permanently reduce their footprint
and/or file for bankruptcy.
Environmental, social, and governance (ESG) factors relevant to
this rating action:
-- Health and safety
ROCK CHURCH: Asks Court to Refrain From Appointing Committee
------------------------------------------------------------
Rock Church of the Wabash Valley, Inc., filed a motion with the
U.S. Bankruptcy Court for the Southern District of Indiana to
refrain from appointing a committee of unsecured creditors in its
Chapter 11 case.
"The creation of a creditor committee would be superfulous as there
is only one creditor and would create unnecessary expense and
administration," Rock Church's attorney, B. Scott Skillman, Esq.,
said in court filings.
First Financial Bank, N.A., the sole creditor, holds a judgment of
foreclosure on the real property on which Rock Church operates its
business.
Mr. Skillman holds office at:
B. Scott Skillman, Esq.
Skillman Defense Firm
P.O. Box 9481
Terre Haute, IN 47808-9481
Phone: (765) 780-7545
About Rock Church of the Wabash Valley
Rock Church of the Wabash Valley, Inc. provides religious services
to members and the general public from its location at 8930 E.
Wabash Ave., Terre Haute, Ind.
Rock Church of the Wabash Valley sought protection under Chapter 11
of the Bankruptcy Code (Bankr. S.D. Ind. Case No. 20-80240) on June
16, 2020. At the time of the filing, Debtor disclosed assets of
between $100,001 and $500,000 and liabilities of the same range.
B. Scott Skillman, Esq., at Skillman Defense Firm, is the Debtor's
legal counsel.
SHAKER RD: Voluntary Chapter 11 Case Summary
--------------------------------------------
Debtor: Shaker Rd, LLC
60 Shaker Road
East Longmeadow, MA 01028
Chapter 11 Petition Date: June 17, 2020
Court: United States Bankruptcy Court
Western District of Massachusetts
Case No.: 20-30338
Debtor's Counsel: Andrea M. O'Connor, Esq.
HENDEL, COLLINS & O'CONNOR, P.C.
101 State Street
Springfield, MA 01103
E-mail: aoconnor@hendelcollins.com
Estimated Assets: $1 million to $10 million
Estimated Liabilities: $1 million to $10 million
The petition was signed by Louis Masaschi, manager.
A copy of the petition is available for free at PacerMonitor.com
at:
https://is.gd/2SDa3d
SHIFT4 PAYMENTS: Moody's Hikes CFR to B2 & Alters Outlook to Pos.
-----------------------------------------------------------------
Moody's Investors Service upgraded Shift4 Payments, LLC's Corporate
Family Rating to B2 from B3 and Probability of Default Rating to
B2-PD from B3-PD. The company's first lien senior secured credit
facility rating of B2 was affirmed, and the second lien credit
facility rating was withdrawn. Moody's assigned a Speculative Grade
Liquidity rating of SGL-1. The rating outlook was changed to
positive from stable.
The rating upgrade follows the completion of public and private
equity offerings by Shift4 resulting in net proceeds of $452
million (net of fees and accrued interest), of which $280 million
was used to repay outstanding revolver, the second lien term loan
and a portion of the first lien term loan, and the remainder was
retained as cash balances.
"The significant debt reduction, liquidity enhancement and clearly
articulated financial strategy are strong credit positives and
position Shift4 well as a public company" said Peter Krukovsky,
Moody's Senior Analyst. "After the current macroeconomic
dislocation abates, Shift4's organic growth trajectory may drive
further upward rating evolution."
RATINGS RATIONALE
Shift4's credit profile reflects relatively small revenue scale and
high total leverage. However, the company's differentiated
vertical-specific integrated payments and POS software solutions
position it for solid growth over the medium term. The high
proportion of integrated and subscription-based customer
relationships enhances stability of revenues, and the breadth of
the product offering presents cross-sale growth opportunities.
Prior to the coronavirus outbreak, Shift4's organic growth rate of
14% in 2019 was meaningfully above average for the merchant
acquiring industry.
COVID is impacting Shift4 as payment volumes have declined due to
social distancing and weaker demand driven by high unemployment.
Moody's regards the coronavirus outbreak as a social risk under the
ESG framework. Shift4 is relatively more vulnerable to the COVID
disruption due to high SME and hospitality (restaurants and hotels)
exposure, as well as relatively low e-commerce volumes. However,
Moody's believes that Shift4 continues to gain market share in its
target verticals during the outbreak. Moody's project Shift4's net
revenues to decline by over 30% sequentially in Q2 2020 and
gradually recover in Q3 and Q4, resulting in about 13% organic
decline for 2020. Cost actions and synergies from prior
acquisitions will support margins, but negative operating leverage
will cause EBITDA to decline about 20% for the year. In 2021,
Shift4 is well positioned to rebound solidly as its target
verticals recover, and as differentiated integrated solutions
become even more important as competitive factors after the
outbreak.
The debt repayment following the equity capital raise in June 2020
will result in total leverage declining to about 5x in 2020 even as
EBITDA declines, followed by a material deleveraging in 2021 as
revenues rebound. While FCF is negative in Q2 2020, Moody's expects
it to become positive in Q3 as revenues increase sequentially and
interest expense declines. Liquidity is very strong with a pro
forma cash balance of $233 million as of May 2020 and available
revolver of $90 million. Moody's expects the cash balances to be
utilized to fund organic growth and modestly-sized acquisitions,
and does not expect shareholder distributions over the medium term.
While Moody's believes that Shift4's financial strategy is
consistent with its public company status, the concentrated voting
ownership and affiliation of the majority of the board of directors
with controlling shareholders presents potential risks.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The positive outlook reflects Moody's expectation of a significant
credit profile improvement in the second half of 2020 and into
2021, as revenues recover from the Q2 2020 trough and as debt
balances have been reduced substantially following the equity
transactions in June 2020. The ratings could be upgraded if Shift4
generates consistent organic revenue and FCF growth, and if total
leverage is sustained at about 4.5x and FCF/debt is sustained in
the mid-single digits. The ratings could be downgraded if Shift4
experiences sustained revenue and FCF decline, or if total leverage
is sustained above 6.5x and free cash flow is breakeven.
The following rating actions were taken:
Upgrades:
Issuer: Shift4 Payments, LLC
Probability of Default Rating, Upgraded to B2-PD from B3-PD
Corporate Family Rating, Upgraded to B2 from B3
Assignments:
Issuer: Shift4 Payments, LLC
Speculative Grade Liquidity Rating, Assigned SGL-1
Affirmations:
Issuer: Shift4 Payments, LLC
Senior Secured First Lien Bank Credit Facility, Affirmed B2 (LGD3)
Withdrawals:
Issuer: Shift4 Payments, LLC
Senior Secured Second Lien Bank Credit Facility, Withdrawn,
previously rated Caa2 (LGD5)
Outlook Actions:
Issuer: Shift4 Payments, LLC
Outlook, Changed to Positive from Stable
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
With pro forma net revenues $338 million in 2019, Shift4 is a
provider of integrated payment processing and technology solutions.
STANDARD INDUSTRIES: Moody's Rates New Unsec. Notes Due 2030 'Ba2'
------------------------------------------------------------------
Moody's Investors Service assigned a Ba2 rating to Standard
Industries Inc.'s proposed issuance of senior unsecured notes due
2030. Standard's Ba2 Corporate Family Rating, Ba2-PD Probability of
Default Rating and the existing Ba2 rating on the company's senior
unsecured notes are not impacted by the proposed transaction. The
outlook remains stable.
Moody's views the proposed transaction as credit positive since
proceeds from proposed notes issuance will be used to redeem a
similar amount of the company's senior unsecured notes due 2024.
This transaction will reduce the refunding risk in late 2024.
Moody's expectation is that cash on hand will be used to pay the
call premium, accrued interest and related fees and expenses in a
leverage neutral transaction. Interest savings from the proposed
refinancing will be nominal relative to Standard's total future
cash interest payments, which Moody's estimates will be nearly $225
million per year.
"Standard is proactively chipping away at its wall of maturing debt
that looms large, beginning in late 2024," according to Peter
Doyle, a Moody's VP-Senior Analyst.
The following ratings/assessments are affected by Its action:
Assignments:
Issuer: Standard Industries Inc.
Senior Unsecured Regular Bond/Debenture, Assigned Ba2 (LGD4)
RATINGS RATIONALE
Standard's Ba2 CFR reflects Moody's expectation that the company
will benefit from an economic recovery beginning in late 2020 or
early 2021, even though revenue and earnings will be at lower
levels than the previous year. Moody's believes that roofing repair
products experience less demand volatility than other building
products due to their nondiscretionary nature. The upfront costs
for roof repair or replacement are worth the investment compared to
the potential costs of repairing long-term damage from water and
resulting property damage. Also, many other home repair and
remodeling decisions can be postponed with little risk of marginal
cost.
Further supporting Standard's credit profile is the company's very
good liquidity, including Moody's expectation of free cash flow
(prior to dividends) as the company reduces costs, works though
inventory and reduces capital expenditures. Free cash flow,
significant cash on hand and full availability under the company's
$650 million revolving credit facility is more than sufficient to
contend with ongoing economic uncertainty.
Moody's current forecast includes scenarios in which Standard's
leverage will be in the range of 5.25x -- 5.75x, slightly higher
than the leverage of 5.1x at Q1 2020. Standard Industries has a
debt structure (long-term notes) that does not lend itself to
deleveraging through debt repayment. The company's high leverage is
Standard's greatest credit challenge. Moody's estimate of leverage
is a result of an anticipated revenue decline, earnings
contraction, and repayment of all revolver borrowings.
The rapid and widening spread of the coronavirus outbreak and the
resulting economic contraction are creating a severe and extensive
credit shock, limiting construction activity including the demand
for replacement of residential and commercial roofs. Moody's
regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health and
safety. Governance risks Moody's considers in Standard's credit
profile include an aggressive financial policy, evidenced by its
high leverage, dividends and potential for debt financed
acquisitions. Standard has no independent directors on its Board of
Directors.
The stable outlook reflects Moody's expectation that Standard will
benefit from a recovery in its global end markets and improve
credit metrics while maintaining its very good liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Factors that could lead to an upgrade:
(All ratios incorporate Moody's standard adjustments):
- Debt-to-LTM EBITDA maintained below 3.0x
- A very good liquidity profile is preserved
- Ongoing trends in end markets sustain organic growth
Factors that could lead to a downgrade:
(All ratios incorporate Moody's standard adjustments):
- Debt-to-LTM EBITDA sustained above 4.25x
- EBITA margin trending towards 10%
- The company's liquidity profile deteriorates
Standard Industries Inc., headquartered in Parsippany, NJ, is a
leading manufacturer and marketer of roofing products and
accessories with operations primarily in North America and Europe.
The company manufactures and sells residential and commercial
roofing and waterproofing products, insulation products,
aggregates, specialty construction and other products. Standard
Industries is privately owned and does not disclose financial
information publicly.
The principal methodology used in this rating was Manufacturing
Methodology published in March 2020.
SUPERIOR PLUS: S&P Lowers ICR to 'BB-' on Elevated Leverage
-----------------------------------------------------------
S&P Global Ratings lowered all of its ratings on Superior Plus
Corp. to 'BB-' from 'BB'.
The downgrade reflects S&P's expectation for leverage to remain
above 4x in 2020 and 2021. S&P estimates meaningfully lower cash
flows in 2020 and 2021 because of warmer-than-expected weather
conditions in the first quarter of 2020 and the impact from the
COVID-19 pandemic. Although the company's services are considered
essential, S&P believes propane volumes will be affected by the
reduced economic activity and headwinds the oil and gas sector
faces. At the same time, EBITDA in the chemicals segment has been
affected by weakness in chlor-alkali pricing, resulting from
reduced oil and gas demand. Although the company has announced
about a C$30 million reduction in operating expenses, largely
stemming from savings in wages and travel, these savings will not
be sufficient to offset the topline reduction. As a result, S&P
estimates consolidated EBITDA will decline by 10%-15% in 2020
relative to 2019 reported levels, meaningfully below the rating
agency's previous expectations.
S&P also believes reported debt is unlikely to decrease over its
forecast horizon given management's acquisitive growth strategy.
Superior's debt has been increasing steadily in the recent
past--having increased by 70% since 2017, primarily driven by the
Canwest Propane and NGL Propane acquisitions. Given the company's
focus on increasing its share of the U.S. propane market, S&P
believes Superior will continue doing tuck-in acquisitions, further
supported by the recent announcement of a C$350 million preferred
share investment by Brookfield (the transaction is expected to
close by July 31, 2020). At the same time, S&P expects the company
to continue distributing dividends in line with its target payout
ratio of 40%-60%, albeit at the lower-to-mid range in current
conditions. Accordingly, while it estimates the company will
generate positive free cash flows of C$250 million-C$275 million
annually in 2020 and 2021, S&P believes these cash flows will be
used toward dividends and acquisitions. As a result, S&P doesn't
estimate any debt reductions over its forecast period.
Based on the lower cash flows, S&P estimates leverage will spike to
the mid-4x area in 2020 and modestly improve to the low-4x area in
2021 as the economy improves. Its leverage estimates incorporate
Brookfield's C$350 million preferred shares investment as debt. S&P
believes ownership by a stronger entity might prevent the company
from choosing to defer the preferred shares' dividends to absorb
losses or conserve cash in times of credit stress. In addition, the
preferred share dividends are subject to a step-up provision after
seven years that, despite the perpetual maturity, could incentivize
the company to redeem the instrument earlier.
S&P's business risk assessment continues to reflect Superior's
leading market position in the Canadian propane distribution,
growing presence in the U.S., and stable market position in the
chemicals segment. Superior has a leading market position in
propane distribution in Canada, with an estimated 40% market share.
The company's growth strategy is focused on increasing its presence
in the fragmented U.S. propane distribution business through
ongoing tuck-in acquisitions, as demonstrated by the pace of recent
acquisitions in this market. Specifically, the acquisition of NGL
in 2018 provided the company with a strong platform for growth in
the eastern U.S. The company has also recently been active in
California, having made another acquisition, and has stated its
intention to expand its presence in this region, given good growth
prospects. Margins in the U.S. are also higher due to a higher
proportion of retail volumes, which should contribute to increasing
revenues and operating cash flow. Notwithstanding these factors,
the company's business risk assessment remains constrained by
Superior's weak pricing power and limited organic growth prospects
due to competition from alternative fuel sources (primarily in its
U.S. markets), namely natural gas and electricity.
Superior also has a stable market position in specialty chemicals
(about 25% of EBITDA), although it is relatively smaller in size
and scale compared with other rated global peers.
"We perceive the chemicals segment to be less important to
Superior, given recent attempt to sell the business. In our view,
the company could likely revisit the sale process in the future,
given management's intention to focus on the energy segment," S&P
said.
The stable outlook reflects S&P's expectation that the company will
maintain an adjusted debt-to-EBITDA ratio in the low-to-mid 4x area
in 2020 and 2021. S&P expects Superior to continue making tuck-in
acquisitions, but assumes the company will limit spending within
free cash flow generation. It also believes the current rating
would accommodate any potential disposition of the chemicals
segment, if it occurs during the rating agency's forecast period.
"We could lower the ratings within the next 12 months if we expect
Superior's adjusted debt-to-EBITDA ratio to increase above 5x, with
limited prospects for improvement shortly thereafter. We believe
this could occur if cash flows deteriorated due to lower demand
from warm winters or competitive pressures in the energy services
division, which affect gross margins. In addition, leverage could
also increase from sharp deterioration in profitability at the
specialty chemicals division if product prices declined further. We
could also lower the rating if management pursues more aggressive
financial policies or actions, including predominantly
leverage-financed acquisitions or shareholder returns," S&P said.
"We could raise the ratings if the company meaningfully increased
its size and scale, as well as reduced its leverage position. This
would most likely occur through an acquisition, funded in a
balanced manner such that adjusted debt-to-EBITDA is maintained
below 4x on a sustained basis," the rating agency said.
TARGA RESOURCES: S&P Affirms 'BB' ICR; Outlook Stable
-----------------------------------------------------
S&P Global Ratings affirmed 'BB' issuer credit rating on Targa
Resources Corp. At the same time, S&P affirmed its 'BB' rating on
Targa's senior unsecured debt and its 'B+' rating on the company's
structurally subordinated debt. Its '3' recovery rating on the
unsecured debt and '6' recovery rating on the subordinated debt
remain unchanged.
Decline in volume assumptions across Targa's Gathering and
Processing (G&P) and Logistics and Transportation segments results
in EBITDA that is lower than previous expectations. The recent
volatility in the commodity markets due to the convergence of the
OPEC discord and reduced demand from the COVID-19 pandemic has
affected the global oil and gas industry. This has caused S&P to
revise its volume-related forecasts downward. The decline in
volumes is driven by lower-than-expected drilling activity, coupled
with production shut-ins of oil wells across oil-weighted basins,
including the Permian basin.
"We expect relatively flat adjusted EBITDA in 2020 compared to
2019, driven by lower volumes across Targa's system offset by
growth projects which have recently come online. We expect credit
metrics to be elevated in 2020, with adjusted debt to EBITDA in the
5.5x-6x range, which we had previously expected to be in the mid-5x
area," S&P said.
Targa has taken steps to preserve liquidity and increase its free
cash flow and pay down debt. In March 2020, Targa announced a 90%
reduction to its common dividend payout, which amounts to about
$750 million in annual savings. Additionally, Targa has announced
it is reducing its expected 2020 operating expenses and G&A by
approximately $100 million. The savings come as a result of
reduction to compensation, benefits, and the Targa workforce, as
well as other cost-saving initiatives across the company's two
segments.
The company has also lowered its capital spending plans for 2020
and now expects net growth capital spending of $700 million-$800
million, approximately 40% lower than the company's initial 2020
expectations. Maintenance capital spending is expected to be about
$130 million in 2020. Targa currently estimates net growth capital
spending of approximately $200 million in 2021.
"We expect the company to generate excess free cash flow over the
next year given the actions the company has taken with regards to
its dividend, capital spending, and costs. This will allow the
company to pay down debt over the next year. In fact, in the first
four months of 2020, the company paid down approximately $300
million face-value worth of its senior unsecured notes," S&P said.
S&P assesses Targa's business risk profile as satisfactory,
reflecting its large operating size and scale, good geographic
diversity, and the integration among its assets. It also recognizes
that the company has strong competitive positions in attractive
basins, including the Permian (both Delaware and Midland basins),
Eagle Ford, SCOOP, and STACK plays. S&P believes the company's
business risk has improved over the last few years largely due to
the growth of its Logistics and Transportation segment and the
increase in its fee-based cash flows, which will help mitigate the
volume risk and the commodity risk in its G&P segment.
The stable outlook on Targa reflects S&P's expectation that the
company will maintain leverage of 5.5x-6x in 2020. The company
could face volume headwinds in 2020 relative to six months ago
given the reduction of drilling and shut-ins of wells in the basins
that the company operates in. However, the company has taken steps
to reduce debt including reducing net growth capital spending by
about 40% relative to initial 2020 expectations, reducing operating
and G&A expenses, as well as a 90% reduction to its common dividend
payment.
"We could consider taking a negative rating action if we expected
the company's leverage to remain close to 6x for a sustained
period, which would likely be due to lower-than-expected volumes on
Targa's assets. This could occur if drilling in the Permian
continues to be at very low levels for an extended period," S&P
said.
"We do not anticipate a positive rating action on Targa in the near
term. However, we would consider a positive rating action if we
expected the company to maintain leverage below 4.5x for a
sustained period. This could occur if industry fundamentals improve
significantly and the company maintains a conservative financial
policy," the rating agency said.
TAUBMAN CENTERS: Egan-Jones Lowers FC Sr. Unsecured Rating to BB-
-----------------------------------------------------------------
Egan-Jones Ratings Company, on June 10, 2020, downgraded the
foreign currency senior unsecured rating on debt issued by Taubman
Centers Incorporated to BB- from BB.
Headquartered in Bloomfield Hills, Michigan, Taubman Centers, Inc.
is a real estate investment trust which, through its operating
partnership, the Taubman Realty Group LP, holds interests in and
owns, develops, acquires, and operates regional shopping centers.
TECH DATA: Egan-Jones Hikes Senior Unsecured Ratings to BB+
-----------------------------------------------------------
Egan-Jones Ratings Company, on June 11, 2020, upgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Tech Data Corporation to BB+ from BB.
Headquartered in Clearwater, Florida, Tech Data Corporation is a
wholesale distributor of technology products.
TIMOTHY A. MORRIS: $450K Private Sale of Benson Property Approved
-----------------------------------------------------------------
Judge Joseph N. Callaway of the U.S. Bankruptcy Court for the
Eastern District of North Carolina authorized Timothy A. Morris'
private sale of the real property located at 669 Tarheel Road,
Benson, Johnston County, North Carolina to Freedom Biker Church NC
for $450,000, pursuant to their Offer to Purchase and Contract.
The sale of assets will be free and clear of all the liens, with
the rights of lien creditors and interests being transferred to the
proceeds of the sale.
Any liens or allowed costs will attach to the proceeds of sale
until distribution. The closing attorney will be authorized to pay
costs of sale from the proceeds as set forth in the Motion. The
closing attorney is then directed to pay the lien of the Johnston
County Tax Collector and Branch Banking and Trust Co. Finally, the
closing attorney will then remit the remaining net proceeds to the
counsel for the Debtor to be held in trust pending further orders
of the Court.
All creditors and claimants of the Debtor, and all persons having
an interest of any nature derived through the Debtor, are
permanently enjoined from pursuing any action against the Purchaser
or the property described herein once acquired by the Purchaser.
In order to consummate the sale ofthe Real Property, the Debtor
intends to exercise the Contract. A closing of the sale with the
Purchaser was scheduled to be completed by June 22, 2020. However,
the terms of the Order will not be extinguished based on
any delay to closing and without need for further order of the
Court.
Timothy A. Morris sought Chapter 11 protection (Bankr. E.D. N.C.
Case No. 19-05243) on Nov. 11, 2019. The Debtor tapped J.M. Cook,
Esq., at J.M. Cook, P.A. as counsel.
TITAN INTERNATIONAL: Stockholders Pass All Proposals at Meeting
---------------------------------------------------------------
Titan International, Inc., held its annual meeting of stockholders
on June 11, 2020, at which the stockholders:
(a) elected Richard M. Cashin Jr., Gary L. Cowger, Max A.
Guinn, Mark H. Rachesky, MD, Paul G. Reitz, Anthony L.
Soave, and Maurice M. Taylor, Jr. as directors to serve
one-year terms and until their successors are elected and
qualified;
(b) ratified the selection of Grant Thornton LLP by the Board
of Directors as the independent registered public
accounting firm to audit the Company's financial
statements for the year ending Dec. 31, 2020; and
(c) approved, on a non-binding advisory basis, the 2019
compensation paid to the Company's named executive
officers.
About Titan
Titan International, Inc. -- http://www.titan-intl.com-- is a
global manufacturer of off-highway wheels, tires, assemblies, and
undercarriage products. Headquartered in Quincy, Illinois, the
Company globally produces a broad range of products to meet the
specifications of original equipment manufacturers (OEMs) and
aftermarket customers in the agricultural,
earthmoving/construction, and consumer markets.
Titan reported a net loss of $51.52 million for the year ended Dec.
31, 2019, compared to net income of $13.04 million for the year
ended Dec. 31, 2018. As of March 31, 2020, the Company had $1.06
billion in total assets, $856.33 million in total liabilities, $25
million in redeemable noncontrolling interest, $178.92 million in
total equity.
* * *
As reported by the TCR on Aug. 12, 2019, S&P Global Ratings lowered
its issuer credit rating on Titan International Inc. and its
issue-level ratings on the company's senior secured notes to 'CCC+'
from 'B-'. The downgrade reflects Titan's weak operating prospects
given S&P's expectation that soft demand for the company's
agricultural industry products will reduce profitability and eat
into liquidity.
As reported by the TCR on May 11, 2020, Moody's Investors Service
downgraded its ratings for Titan International, Inc., including the
company's corporate family rating to Caa3 from Caa1. The
downgrades reflect expectations for challenging industry conditions
through 2020 to pressure Titan's earnings and cash flow, resulting
in the company's capital structure remaining unsustainable with
excessive financial leverage above 10x debt/EBITDA likely into 2021
and a weak liquidity profile reliant on external and alternative
funding sources.
TOLL BROTHERS: Egan-Jones Lowers Senior Unsecured Ratings to BB-
----------------------------------------------------------------
Egan-Jones Ratings Company, on June 10, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Toll Brothers Incorporated to BB- from BB.
Headquartered in Horsham, Pennsylvania, Toll Brothers Inc. Toll
Brothers, Inc. builds luxury homes, serving both move-up and empty
nester buyers in several regions of the United States.
TOPAZ SOLAR: Moody's Hikes Rating on Senior Secured Debt to B3
--------------------------------------------------------------
Moody's Investors Service upgraded Topaz Solar Farms LLC's senior
secured debt to B3 from Caa1 and placed the project's rating under
review for upgrade.
RATINGS RATIONALE
The upgrade of Topaz Solar's senior secured bonds to B3 from Caa1
reflects the majority support of Pacific Gas & Electric's (PG&E,
PG&E Corporation-Ba2 stable corporate family rating) creditors for
the utility's proposed plan of reorganization, approval of the
reorganization plan by the California Public Utility Commission,
and its view of PG&E's credit quality upon its emergence from
bankruptcy. PG&E's reorganization plan incorporates the assumption
of the utility's power purchase agreements obligations including
Topaz Solar's PPA. PG&E's bankruptcy and the risk of PPA rejection
in bankruptcy has been the primary risk constraining Topaz Solar's
credit quality since the project derives all of its operating cash
flow from its PPA with PG&E. The B3 rating also considers
additional steps necessary for PG&E to fully emerge from bankruptcy
including a final confirmation order and the successful execution
of its bankruptcy exit financing. While PG&E continues to remain
current on its obligations to Topaz Solar, the B3 rating further
acknowledges actual and alleged technical debt defaults at Topaz
Solar caused by PG&E's bankruptcy. Outside of the credit impacts
from PG&E's bankruptcy and related shocks, Topaz Solar's
operational and financial performance remains strong because of
resource production levels generally at or above the forecasted P50
levels after adjusting for curtailment. Because of the performance
of the solar resource, Topaz Solar's financial performance has
historically been stronger than anticipated and the project has
achieved debt service coverage ratios (DSCR) generally ranging from
1.8x to 2.0x prior to 2019. For 2019, Topaz Solar had DSCR of
around 1.71x with the non-payment of certain pre-petition claims by
PG&E in Q1 2019 being the primary contributor to a DSCR below the
historical range. As of the last twelve months ending March 2020,
the project's DSCR improved to 1.88x.
Topaz Solar's review for upgrade considers the expected emergence
of PG&E from bankruptcy including receipt of a bankruptcy
confirmation by June 30th and emergence thereafter and its
expectation that the technical debt default at Topaz Solar should
be resolved soon thereafter. Under that scenario, Moody's
anticipates Topaz Solar's rating being upgraded multiple notches
and being capped by the off-taker credit quality assuming the
project's standalone operating and financial performance continue
to be robust.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a upgrade
Topaz Solar's rating is likely to be upgraded multiple notches if
PG&E fully emerges from bankruptcy, the project successfully
resolves its technical debt default, and Topaz Solar's operating
and financial performance remains robust.
Factors that could lead to a downgrade
The project's rating could be downgraded if PG&E is unable to
emerge from bankruptcy, if the project's technical defaults leads
to a payment default or if the project severely underperforms.
Topaz Solar Farms LLC, an indirect subsidiary of Berkshire Hathaway
Energy Company (BHE, A3 stable), is a 550 MWac thinfilm
photovoltaic solar generating project in San Luis Obispo County,
California. The project was acquired in 2012 from First Solar,
Inc., who completed construction and remains responsible for
project operations and maintenance. All of the output from the
project is sold to PG&E under a PPA expiring in October 2039.
The principal methodology used in these ratings was Power
Generation Projects published in June 2018.
TOWN SPORTS: Warns of Possible Bankruptcy Filing
------------------------------------------------
In response to recent challenges, Town Sports International
Holdings, Inc.'s board of directors is actively considering all
strategic alternatives, including but not limited to negotiating
with existing lenders, engaging with potential financing sources to
raise capital, or filing for bankruptcy, as disclosed in a Form8-K
filed with the Securities and Exchange Commission. The Company has
also taken prompt action to preserve liquidity during the
interruption of its operations, including by terminating employees
at clubs that have been forced to close and by ceasing lease
payments on its locations.
Town Sports was forced to close approximately 95% of its locations
on March 16, 2020 pursuant to state and local government
stay-at-home orders enacted in response to the outbreak of
COVID-19. By the end of March 2020, the Company was forced to
close 100% of its locations. The Company is actively developing
plans and procedures that will enable safe use of its facilities
when and as its locations are permitted to re-open. Currently,
nine of the Company's clubs in Florida are open to the public.
Furthermore, in reliance on recent announcements from state and
local authorities in California, Connecticut and Washington D.C.,
the Company plans to re-open up to 26 additional clubs in those
jurisdictions in the next several weeks as and when closure orders
applicable to gyms and health clubs are lifted.
However, the scope and duration of the interruption to the
Company's operations has substantially reduced its cash flow.
Moreover, as disclosed in the Company's Annual Report on Form 10-K,
the Company is facing significant debt maturities in the near term.
The Company's 2013 Revolving Credit Facility expires on Aug. 15,
2020 and its 2013 Term Loan Facility is due to mature on Nov. 15,
2020. The Company currently does not have adequate sources of cash
to repay the amounts outstanding thereunder. In the event the
Company files for bankruptcy, the Company expects that it will need
to raise up to approximately $80 million in financing to fund the
costs associated with the bankruptcy filing, professional fees in
connection with the bankruptcy and to cover operating shortfalls.
About Town Sports
Headquartered in Elmsford, New York, Town Sports International
Holdings, Inc. -- https://www.townsportsinternational.com -- is a
diversified holding company with subsidiaries engaged in a number
of business and investment activities. The Company's largest
operating subsidiary has been involved in the fitness industry
since 1973 and has grown to become owner and operator of fitness
clubs in the Northeast region of the United States.
Town Sports recorded a net loss attributable to the company and
subsidiaries of $18.56 million for the year ended Dec. 31, 2019,
compared to net income attributable to the company and subsidiaries
of $77,000 for the year ended Dec. 31, 2018. As of Dec. 31, 2019,
the Company had $794.28 million in total assets, $882.62 million in
total liabilities, and $88.34 million in total stockholders'
deficit.
PricewaterhouseCoopers LLP, in New York, New York, the Company's
auditor since at least 1996, issued a "going concern" qualification
in its report dated March 20, 2020 citing that the Company has a
term loan facility maturing in November 2020 and management has
determined that it does not have sufficient sources of cash to
satisfy this obligation. In addition, the COVID-19 pandemic has
had a material adverse effect on the Company's results of
operations, cash flows and liquidity. These conditions raise
substantial doubt about the Company's ability to continue as a
going concern.
* * *
As reported by the TCR on Nov. 21, 2019, S&P Global Ratings lowered
its issuer credit rating on Town Sports International Holdings Inc.
to 'CCC' from 'B-'. S&P lowered the rating to 'CCC' because Town
Sports' term loan matures in November 2020 and it believes there is
an increased risk of a default over the next 12 months.
TRINITY INDUSTRIES: Egan-Jones Lowers Sr. Unsecured Ratings to BB-
------------------------------------------------------------------
Egan-Jones Ratings Company, on June 10, 2020, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Trinity Industries Inc. to BB- from BB.
Headquartered in Dallas, Texas, Trinity Industries, Inc.
manufactures transportation, construction, and industrial
products.
UFC HOLDINGS: S&P Rates New $150MM First-Lien Term Loan 'B'
-----------------------------------------------------------
S&P Global Ratings assigned its 'B' issue-level rating and '3'
recovery rating to the proposed incremental first-lien term loan of
$150 million to be issued by UFC Holdings LLC.
The proposed term loan is pari passu with the existing first-lien
term loans, with the same maturity and interest spread. UFC also
plans to upsize the revolving credit facility commitment to $212.75
million from $162.75 million. The issue-level rating on the
existing first-lien debt remains 'B' with a '3' recovery rating.
UFC intends to use the proceeds to repay $150 million in
outstanding balances drawn under the revolving credit facility. The
incremental debt modestly lowers recovery prospects for first-lien
lenders in a hypothetical default scenario. The '3' recovery rating
indicates meaningful recovery of principal (50%-70%; rounded
estimate: 50%) for first-lien lenders in the event of a payment
default.
All ratings on UFC, including S&P's 'B' issuer credit rating,
remain on CreditWatch with negative implications. The CreditWatch
reflects very high leverage this year and the possibility of a
downgrade if UFC cannot earn S&P's assumed level of media rights
fee revenue in 2020 if postponed events could not all be
rescheduled and held during the remainder of the year. Although UFC
restarted the production of fights in May in accordance with its
ESPN media rights contract, some uncertainty remains regarding how
sports leagues might respond if coronavirus containment is not
achieved by midyear. UFC also earns a portion of its revenue from
live event ticket sales, which will likely be hurt by reductions in
attendance, government guidelines on gatherings, and a potential
change in consumer sentiment about attending events with large
numbers of spectators.
"We believe UFC implemented cost-cutting measures that would
translate into near-term cash savings. Its ability to produce and
broadcast live bouts at its Las Vegas Apex facility helps mitigate
costs compared to hosting events at arenas and stadiums. We believe
UFC will gradually ramp up live audiences in select geographies if
live ticket demand is sufficient and doing so would generate
incremental EBITDA," S&P said.
"Our updated base case is that UFC's adjusted debt to EBITDA could
modestly spike in 2020, improving to below our 7x downgrade
threshold in 2021. We could remove the ratings from CreditWatch if
we gain greater visibility on revenue and EBITDA recovery through
2021," the rating agency said.
ISSUE RATINGS - RECOVERY ANALYSIS
Key analytical factors
-- S&P's simulated default scenario contemplates a payment default
in 2023 due to a substantial decline in UFC's cash flow because of
a combination of factors. These factors could include an inability
to meet minimum event requirements related to the ESPN media right
agreements, poorly timed production costs and investments,
leveraging cash distributions to shareholders, a failure to retain
or recruit key performers, increased competition from new entrants
or alternative sports categories, and unsuccessful new business
ventures.
-- S&P assumes UFC would reorganize following a default and use an
emergence EBITDA multiple of 6.5x to value the company.
Simulated default assumptions
-- Year of default: 2023
-- EBITDA at emergence: $243 million
-- EBITDA multiple: 6.5x
-- Cash flow revolver: 85% drawn at default
Simplified waterfall
-- Net recovery value (after 5% administrative expense): $1.5
billion
-- Obligor/nonobligor valuation split: 100%/0%
-- Estimated secured commercial debtholder claims: $34 million
-- Estimated first-lien debt claims: $2.78 billion
-- Recovery range: 50%-70% (rounded estimate: 50%)
All debt amounts include six months of prepetition interest.
ULTRA RESOURCES: S&P Assigns 'BB+' Rating to $25MM DIP Facility
---------------------------------------------------------------
S&P Global Ratings assigned its point-in-time 'BB+' issue-level
rating to the $25 million debtor-in-possession (DIP) facility
provided to Ultra Resources Inc., a U.S. oil and gas exploration
and production company.
S&P's 'BB+' issue-level rating on Ultra Resources Inc.'s DIP
facility reflects its view of the credit risk borne by the DIP
lenders, including its view of the company's ability to meet the
financial requirements during bankruptcy through the rating
agency's debtor credit profile (DCP) assessment, the prospects for
full repayment through the company's reorganization and emergence
from Chapter 11 (via the rating agency's capacity for repayment at
emergence [CRE] assessment), and potential for full repayment in a
liquidation scenario (via the rating agency's additional protection
in a liquidation scenario [APLS] assessment), as follows:
"Our DCP of 'b+' reflects the combination of a vulnerable business
risk profile and modest financial risk profile, together with our
consideration of applicable ratings modifiers, on Ultra during
bankruptcy," S&P said.
S&P's CRE assessment of strong coverage of the DIP debt in an
emergence scenario indicates coverage of more than 250%, which
provides an uplift of two notches over the DCP.
"Our APLS assessment indicates greater than 125% total value
coverage in a liquidation scenario, which provides another notch of
uplift over the DCP, resulting in a 'BB+' issue-level rating on the
DIP facility," S&P said.
US SHIPPING: Moody's Confirms B3 CFR, Outlook Negative
------------------------------------------------------
Moody's Investors Service confirmed the ratings of U.S. Shipping
Corp, including the B3 rating on the senior secured first lien
debt, the B3 Corporate Family Rating and the B3-PD Probability of
Default Rating. The outlook is negative. This concludes the review
for downgrade that was initiated on April 1, 2020.
RATINGS RATIONALE
The ratings, including the B3 CFR, reflect USSC's high financial
leverage and Moody's expectation of weak liquidity with looming
debt maturities (a substantial portion matures in June 2021),
amidst recessionary pressures in its cyclical chemical, oil and gas
markets. These conditions will weigh on credit metrics likely into
2021. As well, the company's small size with a fleet of just six
vessels makes its revenue and earnings susceptible to drydocking,
which reduces vessel revenue generating days. The company's fleet
is relatively aged, especially one of its most flexible and
productive vessels, with meaningful capital needed for upgrades or
replacement.
These factors are tempered by the company's primarily contracted
book of business, including time charters on 50% of the fleet that
renewed at higher rates during a stronger pricing environment over
the past year. This should support moderately better credit
metrics, including debt/EBITDA moderating to the mid 6x range
(after Moody's standard adjustments) through 2021, from about 8x,
aided by relatively light drydocking requirements. The leverage
profile is nonetheless elevated given USSC's business risk and the
lingering uncertainty of the timing and effects of the coronavirus
pandemic. The company's good competitive position in its niche
chemical trades and the high barriers to entry afforded by the US
Jones Act support the ratings.
The negative outlook reflects weak liquidity with high refinancing
risk, the company's high debt leverage and Moody's expectation of
earnings headwinds from pressured end-markets in a recessionary and
uncertain environment that is likely to remain for some time.
From a corporate governance perspective, event risk is high given
the company's limited financial flexibility and principal ownership
by private equity and debt investors that could drive a debt
restructuring.
Moody's took the following actions:
Confirmations:
Issuer: U.S. Shipping Corp
Corporate Family Rating, Confirmed at B3
Probability of Default Rating, Confirmed at B3-PD
Senior Secured Bank Credit Facilities, Confirmed at B3 (LGD3)
Outlook Actions:
Issuer: U.S. Shipping Corp
Outlook, Changed To Negative From Rating Under Review
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded absent progress to improve
liquidity, including an inability to refinance or extend debt
maturities in the near term. Downward ratings pressure could also
occur with expectations of a material decline in cash or free cash
flow, or with debt-funded fleet growth that constrains the metrics.
The ratings could also be lowered with weaker than expected
operating performance, including a lack of progress with
meaningfully improving debt/EBITDA towards 6x or Funds From
Operations (FFO)+interest-to-interest to be sustained below 2x, all
metrics inclusive of Moody's standard adjustments.
A ratings upgrade is unlikely in the near term given the company's
small size and until business conditions broadly improve along with
general economic activity. Over time, upward ratings momentum could
develop with material growth in revenues and stronger credit
metrics such that Moody's expects debt/EBITDA to be sustained below
4.5x and FFO + interest-to-interest to remain at or above 3.5x.
The principal methodology used in these ratings was Shipping
Industry published in December 2017.
U.S. Shipping Corp, headquartered in Edison, NJ, owns four modern
articulated tug-barge units and two legacy tankers serving the US
Jones Act chemical and petroleum markets. Revenues approximated
$102 million for the last twelve months ended March 31, 2020.
VAIL RESORTS: Egan-Jones Lowers Senior Unsecured Ratings to BB+
---------------------------------------------------------------
Egan-Jones Ratings Company, on June 9, 2020, downgraded the foreign
currency and local currency senior unsecured ratings on debt issued
by Vail Resorts Incorporated to BB+ from BBB-.
Headquartered in Broomfield, Colorado, Vail Resorts, Inc. operates
resorts in Colorado. The Company's resorts include Vail Mountain, a
ski mountain complex, and Beaver Creek Resort, a family-oriented
mountain resort.
VARSITY BRANDS: S&P Rates $100MM Senior Secured Notes 'CCC+'
------------------------------------------------------------
S&P Global Ratings assigned its 'CCC+' issue-level rating and '3'
recovery rating to Varsity Brands Holding Co. Inc. and Hercules
Achievement Inc.'s (collectively known as Varsity Brands) proposed
$100 million senior secured notes. Varsity Brands will use the
proceeds from these notes to repay the outstanding borrowings under
its asset-based lending (ABL) revolving credit facility. Therefore,
S&P expects the transaction to be leverage neutral. The notes will
rank pari passu with Varsity Brands' existing senior secured
first-lien term loan. The '3' recovery rating indicates S&P's
expectation for meaningful (50%-70%; rounded estimate: 65%)
recovery in the event of a payment default.
All of S&P's existing ratings on Varsity Brands, including its
'CCC+' issuer credit rating and negative outlook, remain unchanged.
While the issuance will materially improve the company's liquidity
position, each of its business segments have been negatively
affected by COVID-19 and S&P expects the company's leverage to
remain very high over the next couple of years. While management
has taken several substantial actions to mitigate the effects of
the pandemic (including headcount reductions and furloughs to
reduce costs and shifting to digital platforms to soften its
revenue losses), S&P does not expect Varsity Brands' revenue to
return to pre-COVID levels in the near term. In addition, a
protracted recession may hurt the company's sales and profits
because reduced tax revenue could lead to lower school funding for
sports and extracurricular activities. S&P could lower its rating
on Varsity Brands over the next 12 months if the rating agency sees
increased risk of a near-term default.
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
After the notes issuance, Varsity Brands' debt structure will
consist of the following:
-- $180 million ABL revolver due 2024 (not rated);
-- $1.395 billion senior secured first-lien term loan due 2024;
-- $100 million of senior secured notes due 2024; and
-- $620 million senior secured second-lien term loan due 2025 (not
rated).
Varsity Brands Holding Co. Inc. and Hercules Achievement Inc. are
co-borrowers under the senior secured term loan and proposed senior
secured notes. The facilities rank equally and are guaranteed by
the borrowers' parent and wholly owned U.S. subsidiaries. Varsity
Brands is headquartered in the U.S. In the event of an insolvency
proceeding, S&P anticipates that the company would file for
bankruptcy protection under the auspices of the U.S. federal
bankruptcy court system without involving other foreign
jurisdictions.
"We believe creditors would receive maximum recovery in a payment
default scenario if Varsity Brands reorganized rather than
liquidated. This is because of the company's well-established
customer and supplier relationships. Therefore, in evaluating the
recovery prospects for its debtholders, we assume Varsity Brands
continues as a going concern and arrive at our emergence enterprise
value by applying a multiple to our assumed emergence EBITDA," S&P
said.
Simulated default assumptions
-- S&P's simulated default scenario contemplates a default
occurring in 2021 due to weak demand for Varsity's products and
services because of the coronavirus pandemic and economic downturn,
increasing prices for metals and other commodities that the company
is unable to pass along to its customers, an accelerated structural
shift away from yearbooks, and escalating competition. These
factors lead to significant EBITDA and cash flow deterioration and
eventually cause a payment default.
-- Simulated year of default: 2021
-- Emergence EBITDA: $195.8 million
-- EBITDA multiple: 6.0x
Simplified waterfall
-- Gross recovery value: $1.175 billion
-- Net recovery value for waterfall after 5% administrative
expenses: $1.116 billion
-- Obligor/nonobligor valuation split: 100%/0%
-- Estimated priority claims: $102.9 million
-- Remaining recovery value: $1.013 billion
-- Estimated first-lien claims: $1.506 billion
-- Value available for first-lien claims: $1.013 billion
-- Recovery expectations: 50%-70% (rounded estimate: 65%)
W.R. GRACE: S&P Alters Outlook to Negative, Affirms 'BB' ICR
------------------------------------------------------------
S&P Global Ratings affirmed the 'BB' issuer credit rating on
specialty chemicals and specialty materials producer W.R. Grace &
Co. and revised the outlook to negative from stable.
At the same time, S&P is affirming the issue-level ratings on the
existing senior secured debt at 'BBB-'. The recovery rating remains
'1', indicating S&P's expectation for very high (90%-100%; rounded
estimate: 90%) recovery in the event of a payment default.
S&P is also affirming the existing unsecured debt issue-level
ratings at 'BB-'. The recovery rating remains '5', indicating S&P's
expectation for modest (10%-30%; rounded estimate: 10%) recovery in
the event of a payment default.
The outlook revision follows a significant downward revision in
S&P's macroeconomic expectations for 2020. S&P's revised estimates
incorporate the ongoing global economic downturn and related
uncertainty in demand brought about by the COVID-19 pandemic. The
rating agency now expects U.S. and Eurozone 2020 GDP to decline by
more than 5% and 7%, respectively, and Asia-Pacific (APAC) GDP to
increase minimally. If the virus is not contained, the
macroeconomic impact could be more severe than we're factoring in
S&P's 2020 assumptions.
S&P expects the recession and the government-mandated quarantine to
have a material impact on end-market demand in the refinery,
petrochemical, and larger chemical industries, which will reduce
demand for Grace's products. S&P expects the company's refining
customers to be particularly affected by lower demand for
transportation fuels in the second quarter of 2020. It believes
this contraction will reduce EBITDA for 2020 and 2021 relative to
the rating agency's previous expectation, and ultimately weaken
credit metrics. However, S&P anticipates Grace's funds from
operations (FFO) to total debt will remain appropriate for the
rating, although cushions under this ratio will be very thin
(compared with 2019), leaving the company vulnerable to greater
earnings shocks than those the rating agency factors in its
ratings.
S&P continues to believe that W.R. Grace's business strengths
include its leading market positions within niches in specialty
chemicals and specialty materials. The company holds a top one or
two market position for most of its offerings. The company also
continues to maintain strong long-term relationships with top-tier
customers, and S&P does not believe there to be any significant
customer concentration. W.R. Grace continues to benefit from good
geographic diversity, as the company operates and/or sells to
customers in over 60 countries, with most sales coming from outside
the U.S. Additionally, S&P expects that stricter emission laws
under which refiners operate, including International Maritime
Organization (IMO) 2020 standards, to sustain demand for Grace's
products. Partially offsetting some of the company's strengths is
some propensity for raw material cost fluctuations and exposure to
volatile end-markets given the sizable portion of the company's
revenue that comes from petroleum refiners and the polyolefin
industry.
The negative outlook reflects the potential for weakening EBITDA
and credit measures in excess of what S&P has modeled into its base
case. S&P's base case factors in a global recession in 2020, which
should have an impact across all of Grace's businesses. S&P expects
the company to sustain weighted average FFO to debt in the 12%-20%
range.
S&P could lower the ratings over the next 12 months if the
coronavirus pandemic has a significantly more material and
long-lasting effect on the company's EBITDA prospects and credit
measures. In such a downside scenario, S&P would expect both
revenues and EBITDA margins to decline by an additional 200 basis
points (bps) beyond the rating agency's current expectations, and
remain at these levels, causing pro forma weighted-average FFO to
debt to drop below 12% without near-term prospects for improvement.
S&P could also lower the ratings if it believed the company's
financial policy would no longer support its current credit
quality. That could occur if the company pursued a large
debt-funded acquisition or used debt to fund significant
shareholder rewards.
S&P could revise the outlook to stable within the next 12 months if
the macroeconomic environment recovers quickly from the coronavirus
pandemic with limited signs of permanent demand destruction, such
that weighted average FFO to debt were to improve and remain more
solidly in the 12%-20% range on a sustainable basis.
WATCO COS: S&P Affirms 'B-' Issuer Credit Rating; Outlook Stable
----------------------------------------------------------------
S&P Global Ratings affirmed its 'B-' issuer credit rating on
U.S.-based shortline railroad operator Watco Cos. LLC. At the same
time, S&P assigned its 'B-' issue-level rating and '4' recovery
rating (35% rounded estimate) to the proposed notes.
The stable outlook reflects S&P's expectations that Watco's credit
metrics will remain stable over the next 12 months, as incremental
debt mostly offsets gains from improved margins and the full-year
contribution from new business and recent acquisitions.
Watco plans to issue $500 million in unsecured notes to refinance
its $400 million unsecured notes and repay a portion of its
revolving credit facility.
S&P expects lower economic activity in the U.S. will pressure
Watco's operating results in 2020. It forecasts the U.S. economy
to contract 5.2% in 2020 before improving by 6.2% in 2021. S&P
expects this will result in lower demand for freight
transportation, as consumer and industrial demand fall. Lower oil
prices and excess capacity should also lead to increased
competition for railroads from trucking on certain hauls. Through
June 6, 2020, total North American rail traffic declined about 12%.
In addition to affecting Watco's short-line operations, S&P expects
that lower overall rail traffic will lead to decreased demand for
the company's railcar repair services, but result in higher demand
for its railcar storage facilities.
The stable outlook reflects S&P's expectation that Watco's credit
metrics will decline slightly in 2020, as the company's revenues
are pressured from lower demand for freight transportation due to
lower economic growth amid the COVID-19 pandemic. However, S&P
believes the company will benefit from recent acquisitions and a
more favorable commodity mix than its larger Class I railroad
peers. Including preferred equity, S&P forecasts debt to EBITDA
will increase to the high-8x area in 2020 from around 8x in 2019
before improving slightly to the low-8x area in 2021. It also
forecasts funds from operations (FFO) to debt will remain mostly
stable from 2019 levels in the 7% area.
S&P could lower its rating on Watco over the next 12 months if it
came to view the company's capital structure as unsustainable over
the long term, or if it came to view the company's liquidity as
less than adequate. S&P believes this could occur if:
-- The company experienced a greater-than-expected impact from the
coronavirus pandemic and economic disruption, such as significantly
lower volumes in its rail and terminal operations, significant
contract attrition, or customer bankruptcies;
-- The company's debt to EBITDA metric increased to 10x and FFO to
debt fell to the low-single-digit percent area on a sustained
basis; or
-- The company engages in more debt-funded acquisitions than S&P
currently anticipates.
Although unlikely over the next 12 months, S&P could raise its
ratings if Watco's debt to EBITDA fell below 6.5x and FFO to debt
increased above 9% on a sustained basis. S&P believes this could
occur if:
-- Demand for freight transportation recovers faster than S&P
currently expects, leading to higher rail and terminal volumes;
-- The company realizes greater-than-expected improvement in
contract pricing; or
-- Management's financial policy changes and S&P expects it to
become less acquisitive.
WG PARTNERS: Moody's Reviews B1 Senior Secured Rating for Upgrade
-----------------------------------------------------------------
Moody's Investors Service placed WG Partners Acquisition, LLC's B1
senior secured bank facility rating under review for upgrade. The
outlook was changed to ratings under review from positive.
RATINGS RATIONALE
Its rating action reflects the majority support of PG&E Corporation
(PG&E, Ba2 stable corporate family rating) creditors for the
utility's Plan of Reorganization, the approval of the POR by the
California Public Utilities Commission and its view of PG&E's
credit quality upon its emergence from bankruptcy. The risk of
contract rejection due to PG&E's bankruptcy is a constraint for
WGP's credit profile since two of WGP's six portfolio companies,
the Three Sisters and the Five Brothers, have power purchase
agreements with PG&E that expire in 2020 and 2022, respectively.
The two projects collectively amount to roughly 10% of WGP's total
cash flows through the debt maturity in November 2023.
The rating action also acknowledges recent operational issues at
Hobbs, a 604-megawatt power plant in New Mexico, which had an
extended outage in July 2019 that has since been repaired. This
outage resulted in a cash trap at Hobbs restricting 2019
distributions that Moody's expects to resolve in 2020. Despite
forgoing the Hobbs distribution WGP has maintained a minimum debt
service coverage ratio above its 1.1x senior debt covenant.
RATING OUTLOOK
WGP's review for upgrade incorporates credit implications that may
follow from the expected emergence of PG&E from bankruptcy under a
POR that incorporates an assumption of the Three Sisters and the
Five Brothers PPAs.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
WGP's rating could be upgraded if PG&E assumes its contracts upon
its exit from bankruptcy and the portfolio continues to operate as
expected.
FACTORS THAT COULD LEAD TO A DOWNGRADE
WGP's rating could be downgraded should PG&E does not emerge from
bankruptcy under the terms of the POR, impacting cash flow
generation at the Three Sisters or Five Brothers. A downgrade could
also occur if operational issues at any of the WGP portfolio
companies causes distribution shortfalls such that consolidated
DSCR metrics fall below 1.1x for a sustained period.
PROFILE
Western Generation Partners, a holding company, owns a 1,502 MW
portfolio of twelve operating power generation plants spread over
four US states and the Republic of Trinidad and Tobago. The assets
consist of the 604 MW Hobbs power plant in New Mexico, the 225 MW
Trinity power plant in Trinidad and Tobago, the 72 MW Waterside
power plant in Connecticut, the 230 MW Borger plant in Texas, and a
net 371 MW portfolio of eight plants in California. All of the
projects are contracted with a portfolio weighted average remaining
life of around 10 years. The projects reached commercial operations
from 1988 through 2008 and use proven utility scale technology.
Hobbs, Waterside, Borger, and the Three Sisters assets had $239
million of operating company level debt at the end of 2019. WGP is
indirectly owned by a joint venture of funds managed by Harbert
Management Corporation (51%), UBS Asset Management (32%), and
Northwestern Mutual (17%).
RATING METHODOLOGY
The principal methodology used in these ratings was Power
Generation Projects published in June 2018.
WMG ACQUISITION: Moody's Rates $900MM Sr. Secured Notes 'Ba3'
-------------------------------------------------------------
Moody's Investors Service assigned Ba3 ratings to WMG Acquisition
Corp.'s proposed senior secured notes offering totaling US$900
million in aggregate. The stable outlook remains unchanged.
Following is a summary of its rating actions:
Assignment:
Issuer: WMG Acquisition Corp.
Senior Secured Euro Notes due 2028, Assigned Ba3 (LGD3)
Senior Secured Notes due 2030, Assigned Ba3 (LGD3)
The assigned ratings are subject to review of final documentation
and no material change in the size, terms and conditions of the
transaction as advised to Moody's. Acquisition Corp. is an indirect
wholly-owned subsidiary of Warner Music Group Corp., which is the
ultimate parent and financial reporting entity that produces
consolidating financial statements. The new notes, which will
consist of a euro tranche and dollar tranche, will be pari passu
with Acquisition Corp.'s existing senior secured notes and senior
secured credit facilities, and guaranteed on a senior secured basis
by WMG and its wholly-owned domestic restricted subsidiaries that
guarantee the existing senior secured debt obligations.
RATINGS RATIONALE
The transaction is leverage neutral since Moody's expects
Acquisition Corp. to use the net offering proceeds plus cash to
repay the $300 Million 5% Senior Secured Notes due August 2023,
EUR311 Million 4.125% Senior Secured Notes due November 2024 and
$220 Million 4.875% Senior Secured Notes due November 2024 via
redemption notices and a tender offer for the 5% Notes, plus the
associated premiums, fees, expenses and accrued and unpaid
interest. Moody's views the transaction favorably given the
extension of the debt maturities and expected lower annual interest
expense. Upon full extinguishment of the three notes, Moody's will
withdraw their ratings.
Acquisition Corp.'s Ba3 Corporate Family Rating is forward looking
and supported by the parent's, Warner Music Group Corp., resilient
business model driven by digital revenue, which accounts for
approximately 60% of total revenue. Moody's expects WMG will
experience 7%-9% average annual digital revenue growth driven by
continued strong secular adoption of paid digital music streaming
services by consumers, especially in underpenetrated overseas
markets. As a result of the continuing shift to streaming platforms
combined with its attractive and extensive music catalog, WMG has
demonstrated an ability to more than offset secular declines in
digital downloads and physical media.
The rating is further supported by Moody's expectation that the
economic impact arising from the novel coronavirus pandemic and
related economic recession on WMG's profitability will be
manageable given its license-based revenue model, in which the
company licenses its music content to the leading digital streaming
platforms via 1-3-year contracts. The US music streaming industry
experienced low to mid-single declines for three consecutive weeks
during the early phase of the nationwide shutdown in late-March and
early April. Since then, it has rebounded and realized weekly
growth as streaming platforms offered new analytics to engage with
fans via targeted online marketing strategies, and artists shifted
to live streaming events and participated in increased
collaboration with media organizations and social media platforms
to connect with listeners during stay-at-home measures.
WMG recently completed an IPO of just under 14% of its common
shares, which raised $1.9 billion from selling shareholders and
valued the company's equity at roughly $12.8 billion compared to
around $6.4 billion pre-IPO. While WMG will continue to be a
controlled company (Access Industries is the majority shareholder),
the public listing gives it access to an additional source of
capital. Moody's views the IPO positively because: (i) WMG will no
longer rely exclusively on the debt or private capital markets for
investment and growth opportunities; (ii) the market value of its
shares provides a substantial equity cushion for debt investors;
and (iii) corporate governance will likely improve given the
expected accountability to public shareowners.
At LTM March 31, 2020, WMG's total debt to EBITDA was 4.5x (as
calculated by Moody's), which excludes the following one-time
non-recurring costs incurred in the March quarter: (i) $164 million
of non-cash stock based variable compensation paid to senior
management resulting from WMG's increased equity valuation related
to the proposed IPO; (ii) $4 million of legal and consulting costs
related to the IPO; and (iii) $3 million of bad debt provisions
associated with COVID-19 supply chain disruptions of physical media
deliveries. While Moody's typically includes stock-based
compensation expense in its adjusted EBITDA calculations, in this
instance it was excluded due to the substantial step up in WMG's
equity value arising from the anticipated IPO. The variable
compensation plan was subsequently amended and going forward will
be settled in equity rather than cash. Moody's projects WMG will
improve financial leverage and operate with total debt to EBITDA in
the 4x area (as calculated by Moody's, excluding one-time costs) by
the end of fiscal 2021 (ending 30 September), buoyed by EBITDA
growth and adjusted EBITDA margins improving to the upper end of
the 16%-20% range (as calculated by Moody's, excluding one-time
costs). The company will benefit from extending into new markets
for licensing music content, expanding global scale and improving
operating efficiencies.
The Ba3 rating is bolstered by WMG's position as the world's third
largest music industry player. WMG is experiencing share gains
supported by an extensive recorded music library and music
publishing assets, which drive recurring revenue streams. The
company benefits from the music industry's fifth consecutive year
of growth in 2019 as listeners globally increasingly subscribe to
on-demand music streaming services and streaming platforms grow
their demand to license WMG's music content. The company's business
model, in which the bulk of revenue is generated by proven artists
or its music catalog (less volatile) combined with ongoing
investments in new recording artist and songwriter development to
institutionalize a pipeline of recurring hit songs, helps moderate
recorded music volatility. WMG maintains an attractive music
catalog, with over 1.4 million copyrights from more than 80,000
songwriters and composers, and good geographic diversity and
monetization characteristics.
The rating is constrained by WMG's historically variable and
seasonal recorded music revenue (about 85% of revenue), albeit
increasingly less cyclical in large digital streaming markets,
coupled with low visibility into results of upcoming release
schedules as well as anticipated deceleration and/or declines in
certain revenue segments (i.e., physical media and digital
downloads). Potential headwinds include the slow transition from
physical to digital among a few large countries and the music
industry's revenue challenges that prevent full maximization of
content value from user-uploaded videos to WMG's songwriters and
rights holders.
Moody's expects that WMG will maintain good liquidity supported by
cash levels of at least $150 million (cash balances totaled $484
million at March 31, 2020), access to the unrated $300 million
revolving credit facility maturing April 2025 (currently undrawn)
and free cash flow generation of $150-$200 million over the next 12
months.
The stable outlook reflects Moody's view that WMG's digital license
revenue model and operating profitability will remain fairly
resilient during the ensuing economic recession and generate
positive free cash flow. The outlook considers Moody's expectation
for continued improvement in recorded music industry fundamentals
combined with WMG's position as the world's third largest music
content provider with global diversification and an enhanced
recorded music repertoire. The company's scale and market position
will help offset and cushion the impact from declines in physical,
ad-supported, artists services and expanded rights revenue as a
result of tour postponements and reduced merchandising and
sponsorship revenue. Potentially higher leverage, rising to 5x
(Moody's adjusted, excluding one-time costs) due to moderating
EBITDA in fiscal 2020 and then declining to around 4x in fiscal
2021, is also factored in the stable outlook. Moody's projects a
decline in economic activity in the wake of the coronavirus
outbreak, with G-20 countries' GDP growth contracting 4% in 2020,
followed by a 4.8% rebound next year. Moody's projects EBITDA
growth in fiscal 2021 to be driven by improved margins as a result
of robust streaming revenue growth, increasing value of WMG's music
content, realization of synergies and solid returns from: (i)
investments in artists and marketing, branding and merchandising;
(ii) enhancements to the company's IT systems infrastructure and
analytics; and (iii) declines in lower margin physical media.
ESG CONSIDERATIONS
The rapid and widening spread of the coronavirus outbreak,
deteriorating global economic outlook, falling oil prices, and
asset price declines are creating a severe and extensive credit
shock across many sectors, regions and markets. The combined credit
effects of these developments are unprecedented. The recorded music
and music publishing sectors have been some of the sectors affected
by the shock given its sensitivity to consumer demand and
sentiment. More specifically, the weaknesses in WMG's credit
profile, including its exposure to the global economy, have left it
vulnerable to shifts in market sentiment in these unprecedented
operating conditions and WMG remains somewhat vulnerable to the
outbreak's continuing spread. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the
substantial implications for public health and safety.
A social impact that Moody's considers in WMG's credit profile is
consumers' increasing usage of on-demand music streaming services.
Given that WMG is one of a handful of leading providers of highly
desirable music content, the streaming providers have no other
choice but to license WMG's content for their platforms to remain
competitive and ensure listeners have access to their favorite
songs. This will continue to benefit WMG and support solid revenue
and EBITDA growth fundamentals over the next several years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade is unlikely over the near-term, however over time
an upgrade could occur if WMG exhibits sustained revenue growth in
the recorded music business, EBITDA margin expansion, continued
decrease in earnings volatility and higher returns on investments.
Upward pressure on ratings could also occur if Moody's expects
total debt to EBITDA will be sustained below 3.5x (Moody's
adjusted) with free cash flow to debt of at least 7.5% (Moody's
adjusted).
Ratings could be downgraded if competitive or pricing pressures
lead to a decline in revenue or higher operating expenses (e.g.,
increased artist and repertoire investments), EBITDA margin
contraction or sizable debt-financed acquisitions increases debt to
EBITDA to above 4.5x (Moody's adjusted) for an extended period of
time. There would also be downward pressure on ratings if EBITDA or
liquidity were to weaken resulting in free cash flow to debt
sustained below 5% (Moody's adjusted).
With headquarters in New York, NY, WMG Acquisition Corp. is a an
indirect wholly-owned subsidiary of Warner Music Group Corp., a
leading music content provider operating domestically and overseas
in more than 70 countries. WMG's current catalog includes 13 of the
top 50 best-selling albums of all time in the US and a library of
over 1.4 million copyrights from more than 80,000 songwriters and
composers across a diverse range of genres. Access Industries,
Inc., a privately-held industrial group, acquired WMG for
approximately $3.3 billion in July 2011. Revenue totaled $4.5
billion for the twelve months ended March 31, 2020.
The principal methodology used in these ratings was Business and
Consumer Service Industry published in October 2016.
YOUNG MEN'S: U.S. Trustee Unable to Appoint Committee
-----------------------------------------------------
The Office of the U.S. Trustee on June 15, 2020, disclosed in a
court filing that no official committee of unsecured creditors has
been appointed in the Chapter 11 case of The Young Men's Christian
Association of Topeka, Kansas.
About Young Men's Christian Association
The Young Men's Christian Association of Topeka, Kansas, is a
tax-exempt organization that is focused on youth development,
healthy living and social responsibility. For more information,
visit https://www.ymcatopeka.org/.
Young Men's Christian Association sought protection under Chapter
11 of the Bankruptcy Code (Bankr. D. Kan. Case No. 20-20786) on May
21, 2020. At the time of the filing, Debtor disclosed $4,850,289
in assets and $5,490,339 in liabilities. Judge Dale L. Somers
oversees the case. Debtor is represented by Hinkle Law Firm, LLC.
[^] Recent Small-Dollar & Individual Chapter 11 Filings
-------------------------------------------------------
In re Galloway Orthopedics, LLC
Bankr. M.D. Fla. Case No. 20-04443
Chapter 11 Petition filed June 10, 2020
See https://is.gd/mk0NlI
represented by: Justin M. Luna, Esq.
LATHAM LUNA EDEN & BEAUDINE LLP
E-mail: jluna@lathamluna.com
In re Rutabaga Cafe/Soiree Catering, LLC
Bankr. N.D. Fla. Case No. 20-40247
Chapter 11 Petition filed June 10, 2020
See https://is.gd/2kBoPd
represented by: Charles M. Wynn, Esq.
CHARLES WYNN LAW OFFICES, P.A.
E-mail: court@wynnlaw-fl.com
In re 2136 Fulton Realty LLC
Bankr. E.D.N.Y. Case No. 20-42296
Chapter 11 Petition filed June 10, 2020
See https://is.gd/HtnV76
represented by: Eric H. Horn, Esq.
A.Y. STRAUSS LLC
E-mail: ehorn@aystrauss.com
In re 2836 West Realty LLC
Bankr. E.D.N.Y. Case No. 20-42297
Chapter 11 Petition filed June 10, 2020
See https://is.gd/LZpLOh
represented by: Eric H. Horn, Esq.
A.Y. STRAUSS LLC
E-mail: ehorn@aystrauss.com
In re Billy Ray Austin and Robert Derrell Gibson, Jr.
Bankr. N.D. Fla. Case No. 20-40246
Chapter 11 Petition filed June 10, 2020
represented by: Charles M. Wynn, Esq.
In re The Perfectly Green Corp.
Bankr. E.D. Tex. Case No. 20-41349
Chapter 11 Petition filed June 11, 2020
See https://is.gd/hUTBou
represented by: Robert T DeMarco, Esq.
DEMARCO MITCHELL, PLLC
E-mail: robert@demarcomitchell.com
In re Foundations Learning Center of St. Johns County, LLC
Bankr. M.D. Fla. Case No. 20-01807
Chapter 11 Petition filed June 11, 2020
See https://is.gd/wP9Vn5
represented by: Felecia L. Walker, Esq.
EDWARDS & EDWARDS, P.A.
E-mail: FWalker@EdwardsEdwardsLaw.com
In re Salil P. Manilal
Bankr. S.D.N.Y. Case No. 20-11393
Chapter 11 Petition filed June 11, 2020
represented by: Sanford Rosen, Esq.
In re Michael Joseph Tiernan
Bankr. E.D. Va. Case No. 20-50704
Chapter 11 Petition filed June 11, 2020
represented by: Jaime Meyers, Esq.
In re Edward Mervin Allen, Jr. and Michelle Renee Allen
Bankr. E.D.N.C. Case No. 20-02222
Chapter 11 Petition filed June 11, 2020
represented by: Danny Bradford, Esq.
In re IDAVM Multi Group Enterprises, Inc.
Bankr. N.D. Ill. Case No. 20-12336
Chapter 11 Petition filed June 12, 2020
See https://is.gd/WZn8yZ
represented by: Ben Schneider, Esq.
SCHNEIDER & STONE
E-mail: ben@windycitylawgroup.com
In re Marinov Enterprises, Inc.
Bankr. N.D. Ill. Case No. 20-12337
Chapter 11 Petition filed June 12, 2020
See https://is.gd/UquYy7
represented by: Ben Schneider, Esq.
SCHNEIDER & STONE
E-mail: ben@windycitylawgroup.com
In re Marinov IM Power, Inc.
Bankr. N.D. Ill. Case No. 20-12338
Chapter 11 Petition filed June 12, 2020
See https://is.gd/uvS2oI
represented by: Ben Schneider, Esq.
SCHNEIDER & STONE
E-mail: ben@windycitylawgroup.com
In re Marinov IM Empire, Inc.
Bankr. N.D. Ill. Case No. 20-12339
Chapter 11 Petition filed June 12, 2020
See https://is.gd/QVgtsQ
represented by: Ben Schneider, Esq.
SCHNEIDER & STONE
E-mail: ben@windycitylawgroup.com
In re Valrite Enterprises, Inc.
Bankr. N.D. Ill. Case No. 20-12341
Chapter 11 Petition filed June 12, 2020
See https://is.gd/Mmgw2E
represented by: Ben Schneider, Esq.
SCHNEIDER & STONE
E-mail: ben@windycitylawgroup.com
In re Valmar Enterprises, Inc.
Bankr. N.D. Ill. Case No. 20-12340
Chapter 11 Petition filed June 12, 2020
See https://is.gd/x4zFlr
represented by: Ben Schneider, Esq.
SCHNEIDER & STONE
E-mail: ben@windycitylawgroup.com
In re Electronic Tech, Inc.
Bankr. W.D.N.C. Case No. 20-30595
Chapter 11 Petition filed June 12, 2020
See https://is.gd/Z8K1ne
represented by: Cole Hayes, Esq.
MOON WRIGHT & HOUSTON, PLLC
E-mail: chayes@mwhattorneys.com
In re Barett Evan Scherman and Susan Averbach Scherman
Bankr. N.D. Calif. Case No. 20-30473
Chapter 11 Petition filed June 12, 2020
represented by: Merle Meyers, Esq.
In re Jose R. Figueroa and Katherine L. Figueroa
Bankr. D. Ariz. Case No. 20-07100
Chapter 11 Petition filed June 12, 2020
represented by: Allen Thomas, Esq.
ALLEN BARNES & JONES, PLC
E-mail: tallen@allenbarneslaw.com
In re Jigar Shah and Reshma Konjier
Bankr. D. Ariz. Case No. 20-07116
Chapter 11 Petition filed June 12, 2020
represented by: Pernell W. Mcguire
DAVIS MILES MCGUIRE GARDNER, PLLC
E-mail: pmcguire@davismiles.com
In re Emad Youhanna Mousa
Bankr. S.D. W.Va. Case No. 20-20223
Chapter 11 Petition filed June 12, 2020
represented by: John Leaberry, Esq.
In re Ruth Reiko Tanaka
Bankr. D. Hawaii Case No. 20-00680
Chapter 11 Petition filed June 12, 2020
represented by: Steven Guttman, Esq.
In re 7701 SW 120th Street LLC
Bankr. S.D. Fla. Case No. 20-16512
Chapter 11 Petition filed June 15, 2020
See https://is.gd/XNww47
represented by: Chad Van Horn, Esq.
VAN HORN LAW GROUP, P.A.
E-mail: chad@cvhlawgroup.com
In re Arete Dental, LLC
Bankr. D. Nev. Case No. 20-50597
Chapter 11 Petition filed June 15, 2020
See https://is.gd/zTExD2
represented by: Nathan R. Zeltzer, Esq.
THE LAW OFFICE OF NATHAN R. ZELTZER, LTD
E-mail: nrzbk@yahoo.com
In re Malinki Slonik LLC
Bankr. E.D.N.Y. Case No. 20-72239
Chapter 11 Petition filed June 15, 2020
See https://is.gd/W2LPzl
represented by: Rafi Hasbani, Esq.
HASBANI & LIGHT, P.C.
E-mail: rhasbani@hasbanilight.com
In re A&A Dispsosal, Inc.
Bankr. W.D. Ky. Case No. 20-10495
Chapter 11 Petition filed June 15, 2020
See https://is.gd/IyDHtK
represented by: Robert C. Chaudoin, Esq.
HARLIN PARKER
E-mail: chaudoin@harlinparker.com
In re S & S 126 Investment, LLC
Bankr. C.D. Cal. Case No. 20-11069
Chapter 11 Petition filed June 15, 2020
See https://is.gd/jWxeLf
represented by: Matthew Abbasi, Esq.
ABBASI LAW CORPORATION
E-mail: matthew@malawgroup.com
In re Jose Salvador Martinez, Jr. and Lori Anne Martinez
Bankr. N.D. Cal. Case No. 20-50906
Chapter 11 Petition filed June 14, 2020
represented by: Marc Voisenat, Esq.
In re Alan S. Bills
Bankr. D. Nev. Case No. 20-50596
Chapter 11 Petition filed June 15, 2020
represented by: Nathan Zeltzer, Esq.
In re Gilbert C. Ramirez, Jr. and Patricia M. Ramirez
Bankr. C.D. Cal. Case No. 20-14160
Chapter 11 Petition filed June 15, 2020
represented by: Leonard Cravens, Esq.
In re Dennis C. Randall Holman and Dona K. Holman
Bankr. D.N.M. Case No. 20-11199
Chapter 11 Petition filed June 15, 2020
represented by: George Giddens, Esq.
In re Carol Paige Strain and Abigail Strain
Bankr. W.D. Ky. Case No. 20-31599
Chapter 11 Petition filed June 15, 2020
represented by: David Cantor, Esq.
In re Rock Church of Wabash Valley, Inc
Bankr. S.D. Ind. Case No. 20-80240
Chapter 11 Petition filed June 16, 2020
See https://is.gd/frcsAh
represented by: Scott B. Skillman, Esq.
SKILLMAN DEFENSE FIRM
E-mail: skillmandefensefirm@gmail.com
In re Billy James Phillips
Bankr. N.D. Cal. Case No. 20-41036
Chapter 11 Petition filed June 16, 2020
In re Helen Weatherby
Bankr. C.D. Cal. Case No. 20-11725
Chapter 11 Petition filed June 16, 2020
represented by: Bert Briones, Esq.
In re Amado Navarro Elizalde
Bankr. D.P.R. Case No. 20-02301
Chapter 11 Petition filed June 16, 2020
represented by: Homel Mercado Justiniano, Esq.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than $3 per
share in public markets. At first glance, this list may look like
the definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
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liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
On Thursdays, the TCR delivers a list of recently filed
Chapter 11 cases involving less than $1,000,000 in assets and
liabilities delivered to nation's bankruptcy courts. The list
includes links to freely downloadable images of these small-dollar
petitions in Acrobat PDF format.
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then-ending.
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