Moody's Investors Service has downgraded the long-term ratings on Brunswick to Baa3 from Baa2.
"The downgrade reflects our view that the downturn in the marine market will continue into the foreseeable future, and is worse than our previous expectations, as consumer spending continues to deteriorate due to the ongoing credit market and housing market crises as well as high energy and food costs" said Kevin Cassidy, senior credit officer at Moody's Investors Service, last week in a statement.
Brunswick also recently had its rating downgraded by Standard & Poor’s Rating Service.
In response to S&P, the giant boatbuilder said it expects to generate positive cash flow in 2008 and to end the year with cash in excess of $400 million, up from $267 million at the end of the first quarter of 2008.
Cassidy of Moody’s said “While we believe that Brunswick will continue to take appropriate and difficult steps to protect its credit metrics and liquidity, the marine downturn has expanded into previously strong markets such as high-end yachts and certain pockets outside the U.S.”
Moody's said it believes the company will likely be able to refinance its $250 million of notes due July 2009, assuming the credit markets do not deteriorate significantly.
“Assuming the company is able to obtain a waiver for its covenant and is able to refinance its upcoming maturity, we believe the company has adequate liquidity over the next 12 to 18 months based on targeted cash balances of around $300 to $400 million, access to an undrawn, unsecured $650 million revolving credit facility, lack of share repurchases and a modest dividend just below $55 million,” Moody’s said in its statement.
Brunswick's Baa3 rating reflects the fact that its performance is not expected to significantly improve in the near term and a $700 million total revenue decrease to around $5 billion is a possibility, Moody’s said.
Brunswick said the downgrade from S&P would not have any significant impact.
“Both our strong balance sheet and ability to generate cash provide us with substantial liquidity and serve us well in economic circumstances such as those affecting the United States,” the boatbuilder said in a statement. “We will continue to focus on operating our businesses well in these market conditions.”
Brunswick, in its statement, said “With regard to our $650 million revolving credit facility, there are no borrowing constraints resulting from the ratings action.” The company does not anticipate any borrowing under the facility for the remainder of 2008.
Looking forward, Brunswick anticipates amending the revolving credit agreement to enhance its ability to remain in compliance with the facility’s leverage covenant and to ensure sufficient borrowing capacity if the recreational market downturn continues into 2009.
“We also intend to refinance our $250 million senior, unsubordinated floating rate notes due in 2009,” the company said.