Moody’s Investors Service has downgraded Dayton Superior Corp.’s (Nasdaq: DSUP) corporate family rating from B2 to Caa1. It also has reduced ratings on its senior and subordinated debt. Dayton is a Dayton, Ohio-based concrete forming and shoring rental company, which was taken public in late 2006 by private equity backer Odyssey Investment Partners. Odyssey still holds more than 30% of the company’s outstanding shares.
Moody’s Investors Service downgraded Dayton Superior’s (“Dayton”) Corporate Family Rating to Caa1 from B2 and its $100 million senior secured term loan to B3 from B1, and lowered the rating on the company’s $154 million subordinated notes to Caa3 from Caa1. Dayton‘s Probability of Default (PDR) rating has been downgraded to Caa3 from B2. All of the ratings were placed on review for possible downgrade.
The following rating actions and assessment changes have been taken:
$100 million senior secured term loan, downgraded to B3 (LGD3, 33%)
from B1 (LGD3, 32%);
$154.7 million senior subordinated notes, downgraded to Caa3 (LGD5, 83%)
from Caa1 (LGD5, 83%);
Corporate family rating, downgraded to Caa1 from B2;
Probability of Default rating, downgraded to Caa3 from B2.
The company was placed on review for further downgrade.
The ratings downgrade reflects the company’s weak liquidity position due to upcoming debt maturities in the next seven months and slow progress on early refinancing attempts. The ratings downgrade also reflects the anticipated effect of the economic recession on the company’s projected financial performance. The ratings downgrade considers the year over year improvement in the company’s YTD financial performance through September 2008 but overweighs the highly level of uncertainty for the commercial market given that there are already signs of weakening. Importantly, a weakening commercial market could easily offset the short term benefits from increased infrastructure spending.
The rating considers the company’s ABL facility and its priority claim on accounts receivable, inventory, and rental equipment. The rating also considers the company’s leveraged balance sheet and a high level of goodwill and intangible assets. Moody’s believes that it will be difficult for the company to meaningfully de-leverage its balance sheet in the current business environment.
Moody’s views the exchange offer as a distressed exchange and reflects the high likelihood of this event through a Caa3 Probability of Default rating. If the exchange takes place, Moody’s will classify this distressed exchange as a limited default (“LD”) and change the PDR to include a LD designation upon closing of the Exchange Transaction. The going-forward PDR will need to be updated shortly following the closure of the transaction and the recognition that the limited default has occurred.
The company’s ratings have been placed on review for possible further downgrade to reflect the ongoing uncertainty regarding the company’s outstanding debt exchange offer and its ability to refinance its debt maturities on a timely basis. Dayton Superior announced on July 15, 2008 that it had commenced a private offer to exchange its 13% Senior Subordinated Notes due June 15, 2009 in a private placement in exchange for an equal amount of newly issued Senior Secured notes due September 30, 2014. The new notes are being offered with similar interest terms to the maturing securities but result in an extension of the maturity date. The exchange expiration date has been extended until 11:59 p.m. EST, on January 9, 2009.
The last rating action was September 24, 2008 when Moody’s changed the company’s ratings outlook to negative. The principal methodology used in rating Dayton Superior was Global Manufacturing Industry rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory (December, 2007; Report Number: 106352).
Headquartered in Dayton, Ohio, Dayton Superior Corporation (“Dayton“) is the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction, as well as metal accessories used in masonry construction. Dayton provides these specialized products to the non-residential construction market for use in infrastructure, institutional, and commercial projects. Total revenues for the trailing twelve months ended September 30, 2008 were $488 million.