TEXT-S&P cuts Hawker Beechcraft rating to 'D'
Overview -- In an 8-K filed with the SEC on April 2, 2012, Hawker Beechcraft Inc. stated that it did not make the April 2, 2012, interest payment on its unsecured and subordinated notes. -- We are lowering our corporate credit rating on the business jet manufacturer to 'D' and the issue ratings on the affected securities to 'D', per our criteria. Rating Action On April 3, 2012, Standard & Poor's Ratings Services lowered its corporate credit rating on Hawker Beechcraft Inc. to 'D'. We also lowered the issue ratings on the company's unsecured and subordinated notes to 'D' from 'C'. The recovery ratings on these issues remain '6', indicating likely negligible (0-10%) recovery for noteholders, pending a further review of lenders' recovery prospects. The 'D' issue rating and '4' recovery rating on the company's secured credit facility are unchanged. Rationale Hawker Beechcraft did not make the approximately $28 million of interest payments due April 2, 2012, on its unsecured and subordinated notes, as it reported in an 8-K filed with the SEC yesterday. The indentures governing the notes allow for a 30-day grace period for interest payments, but not paying on the due date is a default under our criteria. In the filing, the company also stated that it was not in compliance with the covenants in its secured credit facility as of Dec. 31, 2011, and that it did not file its 10-K for 2011 on time because of problems with its internal financial reporting systems. It also stated that it expects the audit opinion in the 10-K will express concerns by its auditors about the company's ability to continue as a going concern. Finally, the company expects to report a net loss of $482 million in 2011, including more than $300 million of restructuring and asset impairment charges. We had lowered the corporate credit rating to 'SD' (selective default) on April 2, 2012, because we believed Hawker Beechcraft did not make the scheduled interest payment due March 30, 2012, on its secured credit facility. On March 27, the company announced that it had reached a forbearance agreement with 70% of its lenders that defers any interest or other payments due on its secured credit facility through June 29, 2012. Although some of the lenders had opted to not receive the scheduled interest payment, our criteria considers this a default. Related Criteria And Research -- Hawker Beechcraft Downgraded To 'SD' (Selective Default) After Likely Missed Interest Payment On Its Credit Facility, April 2, 2012 -- Hawker Beechcraft Downgraded To 'CC' On Forbearance Agreement; Outlook Negative On The Likelihood Of A Selective Default, March 29, 2012 -- Timeliness of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD' Ratings, Dec. 23, 2010 -- Key Credit Factors: Methodology And Assumptions On Risks In The Aerospace And Defense Industries, June 24, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List Downgraded; Recovery Ratings Unchanged To From Hawker Beechcraft Inc. Corporate credit rating D/-- SD/-- Hawker Beechcraft Acquisition Co. LLC Senior unsecured D C Recovery rating 6 6 Subordinated D C Recovery rating 6 6 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.