Firms & Funds

Debt at Carlyle’s Sequa weighs on outlook: Moody’s

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Carlyle Group, Sequa, private equity, aerospace, debt, leverage, Moody's
Workers at South Carolina Boeing work on a 787 Dreamliner for Air India at the plant's final assembly building in North Charleston, South Carolina December 19, 2013. Photo courtesy Reuters/Randall Hill - RTX16PKY
  • Aerospace and metal coating company acquired in 2007
  • Sequa’s adjusted debt-to-EBITDA multiple above 10x
  • Debt maturities loom in 2017; Moody’s cuts rating

 

Sequa Corp, purchased by Carlyle Group in 2007, faces an unsustainable capital structure with $1.7 billion of debt due next year, according to Moody’s Investors Service.

The Palm Beach Gardens, Florida, aerospace and coatings specialist operated at an adjusted debt-to-EBITDA multiple of more than 10x as of March, with a cash balance of $74 million, the debt-research firm said.

“Moody’s views the company as unsustainable,” Eoin Roche, vice president at Moody’s, said in a note.

Sequa, purchased for $2.8 billion by Carlyle’s fifth flagship fund before the financial crisis, is carrying debt including $1.23 billion in senior secured term loans, $350 million in senior unsecured notes and a $175 million senior secured revolver. All are due in 2017.

The company’s Chromalloy unit, which encompasses 60 percent of its roughly $1.3 billion in annual revenue, continues to face headwinds from declining volumes, operational issues at facilities and soft profitability in its repair and new engine businesses, Moody’s said.

“Uncertainty around Sequa’s largest contract” — the KC-10 military airplane —  “which is currently up for rebid, adds a further element of risk,” the Aug. 4 Moody’s report said.

On the plus side, Sequa’s Precoat segment, which accounts for 40 percent of sales, offers a stable track record and a well-established market position within its niche engine segment, Moody’s said.

Moody’s issued a negative outlook on the company and cut its corporate-family rating to Ca from Caa2. Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest, according to Moody’s definitions.

Among recent moves by the company, Sequa in December named aerospace executive Keith Howe chief financial officer. In June 2015, Sequa named Thomas Mepham chief executive. He previously worked as senior vice president of power, controls and sensing systems and president of sensors and integrated systems at United Technologies.

Spokesmen for Sequa and Carlyle declined comment.

Action Item: Sequa: http://sequa.com/

Workers at South Carolina Boeing work on a 787 Dreamliner for Air India at the plant’s final assembly building in North Charleston on December 19, 2013. Photo courtesy Reuters/Randall Hill