Borden Chemicals & Plastics Downgraded, Put on S&PWatch.NEW YORK--(BUSINESS WIRE)--Oct. 28, 1998--Standard & Poor's CreditWire 10/28/98--Standard & Poor's today lowered its corporate credit rating on Borden Chemicals & Plastics Operating L.P. and its rating on the company's $200 million senior notes due 2005 to single-'B'-plus from double-'B'. All ratings are placed on CreditWatch with negative implications. The downgrade and CreditWatch placement reflect the company's continued weak financial performance and the resulting constraints on financial flexibility. The deterioration in credit quality follows severe price declines in the company's three business sectors -- polyvinyl chloride polyvinyl chloride (PVC), thermoplastic that is a polymer of vinyl chloride. Resins of polyvinyl chloride are hard, but with the addition of plasticizers a flexible, elastic plastic can be made. (PVC PVC: see polyvinyl chloride. PVC in full polyvinyl chloride Synthetic resin, an organic polymer made by treating vinyl chloride monomers with a peroxide. ) resins, nitrogen fertilizers, and methanol. Such price declines resulted from overcapacity o·ver·ca·pac·i·ty n. Too great a capacity for production of commodities or delivery of services in relation to actual need: the problem of overcapacity in many large industries. and, in the case of PVC, weakness in exports to Asia. Borden's products serve different end markets and tend to have different supply and demand dynamics, which often can aid credit quality. However, the anticipated countercyclical coun·ter·cy·cli·cal adj. Intended to compensate for immoderate developments in a business cycle: a countercyclical federal aid program. pricing patterns among the three product groups have not been demonstrated over the past year. Consequently, credit protection measures are under increasing pressure, with earnings before interest, taxes, depreciation, and amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. (EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become ) interest coverage declining below 2 times (x) and funds from operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. to total debt dropping to about 5%, versus about 3.5x and 24%, respectively, in 1996 and 1997, which were below-peak years. Although the company had $40 million in cash as of Sept. 30, 1998, financial flexibility has been hampered as the company has borrowed nearly $78 million under its $100 million revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility. The company's ability to make further drawdowns, which is highly likely if the current dismal market conditions persist, is complicated by the need to obtain amendments, for the second time this year, to certain covenants under the facility. Management is currently in discussion with its banks to resolve the covenant issue. Ratings incorporate expectations of a gradual strengthening in cash flow generation and financial flexibility. While the pricing outlook remains gloomy until at least 1999, the company should benefit from lower raw materials costs, leading to somewhat better profitability. Standard & Poor's will monitor near-term developments, including amendment negotiations with banks, changes in market conditions, and potential management actions, to determine the effect on credit quality. |
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