Moody“s Investors Service affirmed 7 November 2008 the Waterford Wedgwood plc Corporate Family Rating (CFR) of Caa1 and downgraded the Probability of Default Rating (PDR) to Caa2 from Caa1 and the se…
Moody“s Investors Service affirmed 7 November 2008 the Waterford Wedgwood plc Corporate Family Rating (CFR) of Caa1 and downgraded the Probability of Default Rating (PDR) to Caa2 from Caa1 and the senior subordinated rating on the EUR 166 million notes due in 2010 to Caa3 from Caa2. The outlook on the rating is negative. “Moody“s acknowledges the strong commitment towards the company by main shareholders via continuous capital injections and the ongoing restructuring efforts aimed at reducing the high costs burden and at sustaining the current debt structure. Nevertheless, the lowering of the PDR reflects the heightened execution risks associated with the restructuring programme due to the current softness in consumer spending and the expectation that operating performances are likely to remain subdued increasing the probability of default in light of the approaching significant debt maturities in 2010”, said Paolo Leschiutta, vice president at Moody“s and lead analyst for Wedgwood. “In addition, in Moody“s view the implementation of the restructuring programme depends upon events outside of the company“s control, including the additional shares placing, planned by year end, and the potential disposal of Rosenthal, which successful conclusion are currently challenged by the difficult economic environment”, continued Mr. Leschiutta. The affirmation of the CFR reflects Moody“s expectation that potential recovery rate at family level in case of default might be above the standard 50%, in recognition also of the fact that the value of the brands is not entirely reflected on the company“s balance sheet. In this context, Moody“s notes that revenues have remained relatively resilient in recent years, indicating modest decline in brand perception, while operating performances have been under significant pressure due to the unsustainable cost structure. Despite continued support from shareholders, which materialised recently with the EUR 79.6 million injection of additional funds completed in October 2008, the liquidity profile of the group remains inadequate, with limited availability under the revolving facility. Although Moody“s recognises that working capital cycle should be more favourable to the company in the coming months as the company starts to receive cash towards the end of the calendar year, Moody“s remains concerned about the company“s high cash burn rate as fixed costs and interest burden continue to undermine restored liquidity. The company has no short-term debt obligations, however debt maturities concentrated in 2010 will raise refinancing risk in eighteen months“ time. The negative outlook reflects Moody“s view that the company will continue to face difficulties in achieving the full benefits of the restructuring programme and in strengthening profitability, which is required to bring leverage down from its current high levels. A stabilisation of the company“s rating outlook could be prompted by a return to profitability, resulting in positive cash flow from operations following a successful implementation of the restructuring programme and a recovery in the ceramics markets. The CFR rating could be downgraded in the event of a significant delay in the restructuring programme or if the liquidity profile worsens. The ratings could also be downgraded in the case of a deterioration in the rating agency“s perception of potential recovery rate.