Stanadyne Automotive Corp. Assigned Ratings by S&P
26 November 1997
Stanadyne Automotive Corp. Assigned Ratings by S&P
NEW YORK, Nov. 26 -- Standard & Poor's today assigned its
single-'B' rating to Stanadyne Automotive Corp.'s $100 million senior
subordinated notes due 2007, and its double-'B' rating to the firm's
$60 million bank credit facility maturing in 2003. A single-'B' rating was
assigned to Stanadyne Automotive Holding Corp.'s $25 million senior discount
debentures due 2008, which are effectively subordinated to liabilities at
Holdings' subsidiaries. A double-'B'-minus corporate credit rating also was
assigned to both entities. Proceeds from the debt issues, being sold in
accordance with SEC Rule 144A with registration rights, are being used in
connection with the acquisition of the company by American Industrial Partners
Capital Fund II, L.P.
The ratings outlook is stable.
Ratings reflect Stanadyne's position as a leading independent manufacturer
of precision engine components for diesel and gasoline engines, and a weak a
financial profile.
The company sells its products to roughly 25 original equipment
manufacturers for use in a variety of applications, including automobiles and
light trucks, agricultural and construction equipment, industrial products,
and marine equipment. Although the product line is narrow, operations are
diversified to some extent by customer, end-market, and geography. End-
markets are cyclical, but diversity, a fair amount of more stable aftermarket
sales, and limited capital intensity mitigate earnings and cash flow
volatility. Growth in the worldwide market for diesel engines, as well as the
development of gasoline engines requiring more hydraulic valve lifters,
creates solid internal growth prospects for Stanadyne.
Stanadyne's respectable business profile is tempered by high financial
risk. Cash flow protection is thin, reflecting a heavy debt burden, and
financial flexibility is limited. Debt usage is aggressive, although gradual
debt reduction is expected. Over the next three years, total debt to earnings
before interest, taxes, depreciation, and amortization (EBITDA) is expected to
average about 4 times (x), and EBITDA interest coverage should average between
2x-3x, absent major deterioration in its markets. In an economic downturn,
interest coverage is expected to remain positive, and modest capital spending
requirements could be further reduced.
The bank credit facility, consisting of a $30 million term loan and
$30 million revolving credit, is rated one notch higher than the corporate
credit rating. A security interest in all property and assets of the borrower
and each of its domestic subsidiaries offers reasonable prospects for full
recovery of principal. Under Standard & Poor's business enterprise analysis,
Stanadyne's cash flows were severely discounted to simulate a default and
capitalized by an EBITDA multiple reflective of its peer group. The company
would retain sufficient value as a business enterprise to pay off the bank
loan in the event of a default.
OUTLOOK: STABLE
A favorable business outlook, disciplined growth strategy, and manageable
debt maturity schedule should enable the firm to maintain credit quality. --
CreditWire
SOURCE Standard & Poor's CreditWire