Diamond Triumph: credit ratings downgraded

The Corporate Family rating of Diamond Triumph Auto Glass, Inc. has been lowered to Caa1 from B3, and the rating on senior unsecured notes to Caa2 from Caa1, by Moody“s Investors Service. The move re…

The Corporate Family rating of Diamond Triumph Auto Glass, Inc. has been lowered to Caa1 from B3, and the rating on senior unsecured notes to Caa2 from Caa1, by Moody“s Investors Service. The move reflects Moody“s expectation that the company“s credit profile will stay under pressure due to lower pricing and insurance reimbursement rates, and rising operational costs. In conjunction with Diamond“s high financial leverage, the rating and negative outlook anticipate deteriorating credit metrics, including modest interest coverage, lower free cash flow, and the potential for more restricted liquidity given the weakening operating metrics. Moody“s also said that its ratings for Diamond will subsequently be withdrawn as the lack of adequate financial information means it is unable to maintain a rating opinion. The rating downgrade reflects the high level of surplus capacity in the automotive glass replacement and repair industry, which has put pressure on prices and led to a significant degree of discounting. The mild winter of 2005-2006 in the USA has further restricted sales growth. Pressure on the company“s revenue is expected to continue in the near term. Based on the current weakening earnings environment, Moody“s believes that these factors will lead to worsening credit metrics, lower free cash flow, and lower liquidity. Diamond is currently being investigated for certain of its practices and has not yet delivered its audited fiscal 2005 financial statements. The company has indicated that it is cooperating with the investigation, but the final cost of resolving all aspects remains uncertain. Diamond“s Caa1 Corporate Family rating is consistent with characteristics incorporated into Moody“s automotive supplier methodology. Moody“s says the company“s financial ratios generally point to Caa metrics including leverage, interest coverage, and free cash flow generation. Further limiting Diamond“s ratings are its small relative revenue base, focus on one core segment, regional focus within the US, and, as of the company“s last public filing, the large number of debt maturities due within one year. Moody“s also said that on 11 October 2005, Diamond announced that it received consents from holders of its senior notes which eliminated the need to file annual, quarterly and current reports with the Securities and Exchange Commission. While certain financial information has been available since that filing, Moody“s believes that it does not have sufficient financial information to maintain a rating going forward, and, consistent with Moody“s policies, the ratings will be withdrawn.