Warning that a financial restructuring poses a significant risk to ’s creditors, ratings specialist Moody’s Investors Service is downgrading the company and assigning a “limited default” designation based on deferred interest payments. The downgrade – from Caa3 to its second-lowest rating of Ca – follows Standard & Poor’s assignment of a default rating to the company earlier this week on the basis that Hawker Beechcraft missed the original due dates for the interest payments.
Hawker Beechcraft announced late last month that it reached a forbearance agreement with lenders deferring interest payments until June 29. The company also had secured $120 million in additional liquidity to fund operations.
The agreement was announced shortly before Hawker Beechcraft on April 2 filed a Form 12b-25 Notification of Late Filing with the U.S. Securities and Exchange Commission, saying it was delayed in reporting its year-end results. The company says it expects to report its year-end results “on or before April 16.” While it is not a publicly traded company, Hawker Beechcraft must report results because it has publicly traded debt.
However, Hawker Beechcraft estimated that it would report losses from operations of about $481.8 million for fiscal 2011, compared with a $173.9 million loss in fiscal 2010.
Hawker Beechcraft says the late filing was necessary because “the company has devoted and continues to devote substantial resources to negotiations with its senior lenders and other creditors in light of ongoing adverse economic and industry conditions.”
Hawker Beechcraft also warns that “if the company is unable to develop a plan for and implement a comprehensive restructuring, or ensure sufficient liquidity to maintain operations, there can be no assurance that it will continue to operate as a going concern.”
Moody’s assigns Ca ratings in cases where a company’s obligations “are highly speculative and are likely in, or very near, default.” The agency adds the rating could be further lowered if the company seeks Chapter 11 bankruptcy protection – which many analysts believe is inevitable.
While acknowledging Hawker Beechcraft’s recent agreement, Moody’s notes that the company’s “liquidity profile is weak due to very high financial leverage and the large size of near-term debt obligations.”