SC Int'l Svcs Sr Sub Nts Rtd 'B' by S&P;Outlk to Pos.
At the same time, Standard & Poor's revised its outlook on SC International Services to positive from negative, reflecting improved operating performance and financial measures resulting from the successful integration of Caterair International Inc.'s operations ahead of expectations, as well as continued favorable airline passenger growth trends.
The double-'B'-minus corporate credit rating was affirmed.
The ratings reflect the firm's leading position in the airline catering industry, along with management's well defined business strategy and the long-term nature of its contracts with the airlines. These factors are offset by a leveraged financial profile, customer concentration risk, and limited pricing flexibility given its customer base's competitive market conditions.
SC International Services was created to combine Sky Chefs Inc.'s operations with Caterair International Inc.'s in 1995. About two-thirds of revenues are from domestic operations and one-third from international. Long-term contracts with the company's top 10 customers account for about 60% of revenues, of which American Airlines accounts for about 30%, representing some customer concentration risk. SC International Services has about a 46% domestic market share and 16% globally, providing services in most major airports worldwide. SC International's worldwide coverage is further enhanced by its strategic marketing alliance with LSG Lufthansa Service GmbH, the airline catering subsidiary of Lufthansa German Airlines, which increases its global market share to about 26%.
In response to domestic airlines' downgrading of food services in the early 1990s, Sky Chefs successfully restructured its operations and reduced annual operating costs by $46 million, resulting in Sky Chefs becoming the industry's low cost producer. With the acquisition of Caterair in 1995, management faced the same task of restructuring and integrating Caterair's operations. Management has successfully turned around these operations, and realized cost savings of about $55 million over the last two years.
Still, the overall financial profile is highly leveraged, with earnings before interest, taxes, depreciation, and amortization (EBITDA) to interest coverage in the mid-2 times (x) area and total debt to EBITDA (adjusted for operating leases) of over 3x. Financial measures are expected to improve due to further cash flow improvements. Over the next several years, increased capital expenditures are expected as SC International Services continues to invest in growing international markets.
Standard & Poor's expects that SC International Services will maintain its leading position, and that the overall financial profile should strengthen meaningfully over the intermediate term, which could lead to an upgrade over the outlook period. -- CreditWire
CONTACT: Jayne M Ross, New York (1) 212-208-8942
Nicole Delz Lynch, New York (1) 212-208-1970
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|Date:||Aug 18, 1997|
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