US CREDIT-Brunswick liquid but earnings pressure remains

By Karen Brettell

NEW YORK, Aug 12 (Reuters) - A new debt sale and changes in
its bank credit agreements gives boat maker Brunswick Corp
(BC.N) some breathing room from a liquidity standpoint, but
until boat sales and earnings improve its bonds may face
further weakness.

The world's leading maker of recreational boats said in a
regulatory filing on Friday that it has amended its bank credit
agreements to allow higher debt relative to earnings before
interest, taxes, depreciation and amortization, in exchange for
the size of the facility being reduced.

Brunswick also sold $250 million in debt on Tuesday and
said that proceeds would be used to repay debt coming due in
July 2009. The new debt does not mature until 2013.

"What they tried to do is create a liquidity buffer for
themselves which will allow them at least over the next year or
two to not experience a liquidity crunch," said Craig Hutson,
analyst at independent research firm Gimme Credit.

Refinancing the 2009 bond this early comes at a steep cost,
however, adding approximately $15 million in extra interest
payments over the next year, he added.

Brunswick sold the new debt at a coupon of 9.75 percent,
over 6 percentage points more than the 3.45 percent coupon the
company is paying on the maturing debt.

"To us the surprising thing is why now," Hutson said. "I
think what that tells me is that the likelihood is that they're
going to see further deterioration in earnings."

Declining boat sales have pushed the boat maker into the
red. Last month Brunswick posted a $6 million loss for the
second quarter, compared to a year earlier profit, and forecast
it would lose money in the second half of the year. For
details, see [ID:nN24263815]

In June Brunswick also said it would cut 2,700 jobs, 10
percent of its work force, and close more marine plants to
adjust to the slowdown in boat sales.

RATING RISKS

"The company can avoid a liquidity crunch through the
various levers at hand, but earnings and ratings will be hard
to protect and market access will remain impaired until the
smoke clears on a plateau in Brunswick's financial profile,"
CreditSights analyst Kristina Regan said in a report.

"We believe that the recent corporate developments push
Brunswick another step closer to losing its investment grade
status," Regan said.

Standard & Poor's in July cut Brunswick's debt into junk
territory while Moody's Investors Service rates the company
"Baa3," the lowest investment grade. Moody's has a negative
outlook on the firm, indicating a cut to junk is likely over
the next 12 to 18 months.

"If the weak marine market continues for a more prolonged
period, the company's profitability and operating cash flow may
no longer represent the characteristics of a Baa3 consumer
durable company," Moody's said in a statement on Tuesday.

A ratings downgrade typically increases a company's
borrowing costs.

The cost to insure Brunswick's debt with credit default
swaps is trading near historical highs at 398 basis points, or
$398,000 per year for five years to insure $10 million in debt,
according to Markit Intraday. The swaps had traded around 87
basis points a year ago.

"With the continued deterioration in earnings, they are
likely to be under pressure from the rating agencies and
Moody's investment grade rating could be at jeopardy at some
point in the future," said Gimme Credit's Hutson.

"Because there's no sign of a bottom as far as their
performance goes, we're not ready to try and call a turnaround
and because of that, we're not inclined to buy the bonds," he
added.
(Editing by Leslie Adler)