Fitch Affirms GenCorp IDR; Places Subordinated Debt on Watch.
Based on the proposed transaction, Fitch affirms the following ratings:
-- Issuer Default Rating (IDR) at 'B-';
-- Senior Secured Debt affirmed at 'BB-'/ Recovery Rating (RR) 'RR1';
-- Senior Subordinated Notes affirmed at 'BB-/RR1'.
In addition, Fitch is placing the following issues on Rating Watch:
-- 5.75% Subordinated Convertible Notes due 2007 on Rating Watch Positive -- with the expectation of raising the ratings to 'BB-/RR1' from 'B-/RR4' should the transaction close as proposed.
-- 4% Contingent Convertible Subordinated Notes and 2.25% Contingent Convertible Subordinated Debentures, both due 2024 on Rating Watch Negative -- with expectation of lowering the ratings to 'CCC+/RR5' from 'B-/RR4'.
The Outlook remains Stable. Approximately $624 million in debt is affected by these actions.
GY is obligated per its senior credit agreement to cash collateralize the 5.75% notes by January 2007 if they have not been redeemed by then. The ratings of these notes will benefit from GY's stated intention to immediately cash collateralize these notes upon funding. Fitch expects GY to use the cash collateral to retire these notes when they mature in April 2007. The ratings of the remaining subordinated debt, however, will be lowered due to the lower likelihood of recovery as senior secured debt increases.
GY plans to replace its $98.5 million senior secured credit-linked facility that is part of its senior credit agreement with a new $154.5 million senior secured credit-linked facility. The new facility is expected to consist of an $80 million letter of credit sub-facility (an increase of $35.7 million), with a $20 million optional but uncommitted accordion feature, and a $74.5 million term loan (an increase of $20.3 million). The $80 million senior secured revolving credit facility under the senior credit agreement is to remain unchanged.
GY is taking these actions in order to enhance liquidity and to comply with the terms of its senior credit agreement. Presently, the company has approximately $18 million to $25 million of letters of credit (LC) outstanding related to environmental obligations issued under the $80 million revolver. Increasing the LC sub-facility will allow the company to utilize the LC facility instead, increasing availability under the revolver.
The recovery ratings and notching of the debt tranches reflect Fitch's recovery expectations under a scenario in which distressed enterprise value is allocated to the various debt classes. The analysis was based on a liquidation analysis due to the significant real estate holdings and utilized conservative real estate values based on unentitled land values. Should the land become entitled or GY receive a significant cash infusion from a buyer of (or partner for) some of these holdings and utilize these monies to retire debt, Fitch would anticipate raising the ratings. It should be noted that GenCorp issued a request for proposals to developers earlier this year, but results have yet to be announced.
Exclusive of the planned cash collateralization of the 5.75% subordinated convertible notes ('RR1' expected due to cash collateral), the recovery ratings benefit from the value of GY's lands with the senior secured credit facility and the senior subordinated debt expected to see 100% recovery ('RR1').
Due to the expected increase in the size of the senior secured facility, the uncollateralized convertible subordinated notes and contingent convertible subordinated notes are now expected to see recovery in the 11% to 30% range ('RR5'), whereas they had previously been expected to see recovery in the 31% to 50% range.
Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.
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|Date:||Jun 9, 2006|
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