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Standard & Poor's Rates SPX Corp. Bank Loan 'BB'

25 September 1998

Standard & Poor's Rates SPX Corp. Bank Loan 'BB'; General Signal Off Watch

    NEW YORK, Sept. 24 -- Standard & Poor's today assigned its
double-'B' rating to SPX Corp.'s $1.65 billion bank credit facility, and also
assigned its double-'B' corporate credit rating to the company.
    At the same time, Standard & Poor's lowered its corporate credit rating on
General Signal Corp. to double-'B' from single-'A', and commercial paper
rating to single-'B' from 'A-1'.  Standard & Poor's also lowered its rating on
General Signal's $50 million medium-term notes (MTNs) to double-'B' from
single-'A'.
    The MTNs are rated the same as SPX's bank debt, as collateral will be
shared equally and ratably. General Signal's ratings are removed from
CreditWatch were they were placed on July 20, 1998 in connection with SPX's
offer to acquire General Signal in a cash and stock deal currently valued at
about $2.4 billion, including assumed debt.  The acquisition is expected to
close in October.
    Ratings reflect the combined entities' above average business position as
a supplier to the capital goods and automotive industries, partially offset by
a highly leveraged capital structure and thin cash flow protection. Going
forward, some improvement of the firm's financial profile is anticipated as
management is expected to balance pursuit of its growth objectives with the
strengthening of the balance sheet.
    SPX is a supplier of warranty repair tools and diagnostic and emissions
testing equipment to auto dealers and repair shops, and provides vehicle
components and technical information services to vehicle manufacturers.  With
General Signal, SPX will nearly triple its size and greatly diversify its
product offerings.  General Signal is a leading manufacturer of process and
electrical controls, and also makes telecommunications equipment.
    The combined entities' operations are cyclical, but product, end-market,
and customer diversity, together with a good portion of more stable service
and aftermarket business, mitigate earnings and cash flow volatility.  While
products are mature, increased outsourcing by vehicle manufacturers, and the
potential to increase overseas market penetration, bolsters growth prospects.
SPX is also expected to achieve sizable cost reduction benefits.  Earnings
before interest, taxes, depreciation, and amortization (EBITDA) margins and
pretax return on permanent capital are expected to average in an acceptable
low-to-mid teens percent range.
    Pro forma for the deal, SPX has a highly leveraged balance sheet, with
total debt to capital of 75%, and total debt to EBITDA of 3.4 times (x), and
cash flow protection is thin.  Also, the firm has a very heavy debt maturity
schedule with the debt structure consisting almost entirely of bank debt.
Going forward, a portion of free cash flow and potential asset sales are
expected to be allocated for debt reduction.  Over  the next few years, total
debt to EBITDA is expected to average between 2x to 3x, and funds from
operations to total debt should average between 15%-20%, acceptable levels for
the ratings.
    The bank debt is rated the same as the corporate credit rating.  The
facility is secured by substantially all of the company's assets, which should
provide some measure of protection to lenders.  However, based on Standard &
Poor's simulated default scenario, it is not clear that a distressed
enterprise value would be sufficient to cover the entire loan facility.

    OUTLOOK: POSITIVE
    Ratings could be raised within three years if the firm can make meaningful
debt reduction and take steps to lengthen maturities, Standard & Poor's said.
-- CreditWire