Cytec Industries S&POutlook Now Neg After Fiberite Acq.NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 8/27/97 --Standard & Poor's today revised its outlook on Cytec Industries Cytec Industries is a specialty chemicals and materials technology company with pro-forma sales in 2004, including the Surface Specialties acquisition, of approximately $3.0 billion. Cytec is a result of its spin-off from American Cyanamid Company. Inc. to negative from stable and affirmed its triple-`B' corporate credit rating on the company. The outlook revision follows the announcement of Cytec's agreement to acquire substantially all of the assets and liabilities of Fiberite Inc. in a debt-financed, $344 million transaction. While the purchase of Fiberite should enhance Cytec's position in aerospace adhesives and materials, the outlook revision reflects the meaningful increase in financial risk that would result. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma for the acquisition, both 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 and total debt to total capital would be in the 50% area. However, Standard & Poor's assessment of financial risk also addresses the debt-like characteristics of Cytec's retiree, environmental, and other liabilities other liabilities Small and relatively insignificant liabilities. For financial reporting purposes, firms often combine small liabilities into this single category rather than listing each liability separately. , which totaled $503 million as of June 30, 1997. Taking into consideration these obligations, cash flow coverage of debt would be below 25% and debt leverage would be above 70%, on a pro forma basis. Ratings on West Patterson, N.J.-based Cytec reflect an average business risk profile and a moderate financial philosophy. Cytec holds solid international market positions in specialty chemicals and materials used in such industries as: aerospace, water treatment, paper, automotive coatings, textiles, plastics, and mineral processing mineral processing or ore dressing Mechanical treatment of crude ores to separate the valuable minerals. Mineral processing was at first applied only to ores of precious metals but later came to be used to recover other metals and nonmetallic minerals. . Strategic joint ventures produce catalysts and acrylic materials. The diversity of end-markets served helps to reduce sensitivity to business cycles. The cost position benefits from integrated operations; the company uses more than one-half of its production of building block chemicals internally in the manufacture of specialty products and intermediate chemicals. Fiberite, with anticipated 1997 revenues of $250 million, is a global supplier of advanced composite materials for aerospace, industrial, and recreational applications and offers a good strategic fit with Cytec's existing aerospace adhesives and advanced composites product lines. Though very cyclical, demand for composite materials in aerospace and other markets is currently expanding meaningfully. Credit protection is aided by internal cash flow generation that should continue to exceed capital investment needs and the relatively heavy cash requirements for environmental remediation Generally, remediation means providing a remedy, so environmental remediation deals with the removal of pollution or contaminants from environmental media such as soil, groundwater, sediment, or surface water for the general protection of human health and the environment or from a and retiree medical benefits. In 1997, the company used proceeds from divestitures, in combination with discretionary cash flow Discretionary cash flow Cash flow that is available after the funding of all positive net present value (NPV) capital investment projects; it is available for paying cash dividends, repurchasing common stock, retiring debt, and so on. , to reduce debt and the post-retirement benefits liability by about $90 million, and to fund $42 million of share repurchases. The rating anticipates that management will apply the firm's cash resources to promptly reduce debt and restore financial flexibility. Given the heavy burden of other long-term liabilities Other Long-Term Liabilities A balance sheet item that includes obligations that do not currently require interest payments. Notes: This would include items such as remaining leases, future employee benefits and deferred taxes. , Standard & Poor's considers a debt to capital ratio of 30%-35% appropriate for Cytec. At this leverage level, operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. would adequately cover the firm's obligations and fund ongoing business needs. OUTLOOK: NEGATIVE Ratings could be lowered if management fails to restore the financial profile within the next couple of years, Standard & Poor's said. -- CreditWire CONTACT: Jim Potesky, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of (1) 212-208-1127 For more information on criteria or subscriptions: http://www.ratings.standardpoor.com |
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