CHICAGO, May 30 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
lowered the ratings on the bank credit rating of Heilig-Meyers Company
(NYSE: HMY) to 'B+' (Single-B-Plus) from 'BB' (Double-B) and the senior note
rating of HMY's MacSaver Financial subsidiary to 'B' (Single-B) from 'BB'
(Double-B). The action reflects the company's new one-year bank credit
agreement which places various assets ahead of HMY's existing senior notes as
well as the company's high leverage, need to meet sizable debt maturities in
2002 and 2003 and sharply reduced financial flexibility. The Rating Outlook
is Negative.
In April 2000, the company announced the sale of its Berrios division for
approximately $125 million of proceeds. Also, HMY announced discussions with
its bank group to extend its current bank credit agreement until 2001. While
both events appear positive, the terms and conditions of the new bank credit
agreement state that HMY has pledged $90 million of certain real estate assets
as partial security to the participating banks and insurance lenders. Prior
to this agreement, HMY's bank credit facility and MacSaver senior notes ranked
pari passu. Thus, the senior notes have become subordinated to the bank debt.
The new bank credit agreement consists of a $140 million line with $55 million
allocated to Letters of Credit and $85 million for working capital.
While the bulk of asset sale proceeds has been used to retire debt, HMY's
balance sheet is still extremely leveraged. Including operating leases, HMY's
total adjusted debt/EBITDAR is in excess of 6 times with fixed-charge coverage
of slightly more than 1 times. Moreover, the company still has to demonstrate
that its core furniture stores and credit operations are achieving desired
results.
Heilig-Meyers has grown via acquisition, purchasing small regional
furniture retailers. Beginning in the mid 1990s, the company made several
acquisitions of larger furniture retailers that offer more
specialized/higher-end furniture. This strategy was unsuccessful and the
company is now focused on its Heilig-Meyers' core base of stores operating
primarily in small towns offering products to low-to-middle income households.
Opportunities to improve margins exist particularly in improving distribution,
logistics, purchasing and improving the credit operations. However, a return
to double digit EBITDA margins may be difficult.
Heilig-Meyers is a furniture retailer operating more than 900 stores
under the names of Heilig-Meyers and The RoomStore.
For additional research on Heilig-Meyers Company (HMY), visit DCR's
web site at http://www.dcrco.com (Quick Search:Heilig-Meyers). DCR's research
is also available on Bloomberg at DCR and First Call's BondCall
Direct/Research at http://www.firstcall.com, as well as through other third
party providers.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Sheila M. McNeely, 312-368-3185,
mcneely@dcrco.com. or Thomas P. Razukas, CFA, 212-908-0223,
razukas@dcrco.com, both of DCR
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