TEXT-S&P cuts Hawker Beechcraft rating to 'D'

Tue Apr 3, 2012 9:42am EDT

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.
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