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
The corporate credit rating on Waupaca is 'B+' and the rating outlook is
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 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