TEXT-S&P: Waupaca Foundry loan rating unchanged at 'BB-'
Nov 12 - Standard & Poor's Ratings Services said today that its 'BB-' issue-level rating and '2' recovery rating on Waupaca, Wis.-based casting supplier Waupaca Foundry Inc.'s term loan are unchanged. The company downsized its term loan B to $225 million from $260 million and also benefitted from improved pricing. The '2' recovery rating indicates our expectation that lenders would receive substantial (70% to 90%) recovery in the event of a payment default. The corporate credit rating on Waupaca is 'B+' and the rating outlook is stable. The ratings reflect what we consider to be Waupaca's "weak" business risk profile and "aggressive" financial risk profile. Our business risk assessment reflects the company's exposure to cyclical auto production levels, the fragmented nature of the castings industry, and Waupaca's reported leading share in its end markets. We base our financial risk assessment on our expectations for sustained positive free cash flow generation over the next two years, tempered by the potential for volatility in the face of high operating leverage in a cyclical sector and the company's private-equity ownership. Following the amendment, we estimate leverage to decline to about 3.0x from 3.5x at the close of the original transaction in July (our adjustments to debt include over $140 million for pension and other postemployment benefit obligations). The improvement in leverage also stems from lower debt as well as higher EBITDA for the 12 months ended Sept. 30, 2012. We assume modest improvements over the next two years as the company benefits somewhat from lower interest expenses and price increases it has already implemented on the majority of its contracts, given some shortage in existing capacity within the castings industry in North America. Our stable outlook reflects our belief that Waupaca can sustain positive discretionary cash flow into 2013 with sustained year-over-year improvement in EBITDA margins and liquidity (cash and bank facility availability) of at least $50 million to $70 million. RELATED CRITERIA AND RESEARCH -- Waupaca Foundry Inc. Assigned 'B+' Credit Rating On Leveraged Buyout; Outlook Stable; Term Loan Rated 'BB-', July 13, 2012 RATINGS LIST Ratings Remain Unchanged Waupaca Foundry Inc. Corporate Credit Rating B+/Stable/-- $225 mil. term loan B BB- Recovery Rating 2 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.