SC Int'l Svcs Sr Sub Nts Rtd 'B' by S&P;Outlk to Pos.NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 8/18/97--Standard & Poor's today assigned its single-'B' rating to SC International Services Inc.'s $240 million senior subordinated notes due 2007.
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 American Airlines
Major U.S. airline. American was created through a merger of several smaller U.S. airlines and incorporated in 1934. It continued to buy the routes of other airlines, becoming an international carrier in the 1970s; its routes include South America, the 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 LSG Logistic(s) Support Group
LSG Lufthansa Service GMBH
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LSG Levert Sweat and Gill 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 downgrading
A reduction in the quality rating of a security issue, generally a bond. A downgrading may occur for various reasons including a period of losses, or increased debt service required by restructuring a firm's capital to include more debt and less of food services food services Hospital services A 24/7 department in a hospital that provides for the nutritional needs of inpatients–eg, those needing special diets, preparing meals and transporting them to the floor and, through the cafeteria, the hospital staff and in the early 1990s, Sky Chefs successfully restructured its operations and reduced annual operating costs operating costs npl → gastos mpl operacionales 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 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 ) to interest coverage in the mid-2 times (x) area and total debt to EBITDA (adjusted for operating leases Operating Lease
A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset.
An operating lease is not capitalized it is accounted for as a rental expense. ) 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
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