Fitch Affirms GenTek's `B+' Senior Subordinated Debt Rating
26 September 2000
Fitch Affirms GenTek's `B+' Senior Subordinated Debt Rating
CHICAGO--Sept. 26, 2000--Fitch has affirmed GenTek's senior subordinated debt rating of `B+' and has assigned a senior secured rating of `BB.' The outlook is stable. The senior subordinated debt rating applies to $200 million in outstanding notes.The rating recognizes GenTek's leading niche market positions, favorable demand trends in telecommunications equipment and wiring systems, automobile valve-train componentry, and personal care chemicals that should result in strong growth in operating cash flows. Double digit operating margins in all three reporting segments and a diversified product lineup also work to support the current use of leverage.
GenTek has made 11 acquisitions since the beginning of 1999 including, (1) Krone AG, a producer of telecommunications connectivity equipment; (2) the Digital Communications Group of Prestolite Wire Corporation, a manufacturer of copper and fiber optic cable for telecom applications; (3) Noma Industries, a manufacturer of wire and cable harnesses; and (4) Defiance Inc., a producer of bearings principally for automobile camshaft components. These key acquisitions have resulted in an improved product offering of automotive engine components through the combination of complementary product lines and have established a telecommunications voice/data cabling products and services business that is positioned to take advantage of favorable market trends, namely growing popularity of digital subscriber lines (DSL) and expanded consumer choice in local telephone service due to the increasing presence of competitive local exchange carriers (CLECs).
Recently, the company completed a $250 million tack-on to the existing senior secured credit facility. Proceeds were used to fund the Prestolite ($90 million) and Vigilant ($12 million) acquisitions, with remaining funds used to reduce the revolver balance. The company currently has $825 million in total debt outstanding and has approximately $200 million available under the $300 million revolver. The senior secured credit facility contains various restrictions and covenants, including financial tests as measured by total debt-to-EBITDA (<5.0 times) and EBITDA-to-interest (>2.5 times).
Longer-term debt-to-EBITDA levels are expected to range between 3 times and 4 times and are currently expected to be between 3 times and 3.5 times in 2000. EBITDA-to-interest coverage is expected to be approximately 3 times in 2000.
Rating concerns focus mainly on the use of significant financial leverage. Also of note is the operational exposure to the automotive component supplier business, which remains a significant fraction of the company's manufacturing segment, whose margins are sensitive to the purchasing patterns of the Big Three auto companies. Economic pressures and/or auto industry supplier competition could result in sales and margin weakness for the manufacturing segment. Other reporting segments benefit from wider diversification, as is the case with the performance products chemicals segment, or stronger intermediate-term fundamentals, as is the case with the telecommunications equipment segment.
Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.