(The following statement was released by the rating agency)
Oct 08 - Overview
-- We think that tougher economic conditions in the remainder of 2012 andin 2013 could lead to further tightening of already tight covenant headroomand potential pressure on liquidity for Sweden-based leisure-product makerDometic Group .
-- We are lowering our rating on Dometic to 'B-' from 'B' and the issuerating on Dometic's EUR202 million PIK note to 'CCC' from 'CCC+'.
-- The negative outlook reflects our concerns that Dometic will facefurther tightening of covenant headroom and pressure on liquidity in thecontinued weakening European economy.
On Oct. 8, 2012, Standard & Poor's Ratings Services lowered its long-termcorporate credit rating on Sweden-based Dometic Group AB and its wholly ownedsubsidiary Dometic Holding AB to 'B-' from 'B'. The outlook is negative. Atthe same time, we lowered the issue rating on Dometic's EUR202 millionpayment-in-kind (PIK) notes to 'CCC' from 'CCC+'. The recovery rating on thesenotes is '6', reflecting our expectation of negligible (0%-10%) recovery in anevent of payment default.
The downgrade reflects the current tight covenant headroom under Dometic'ssenior term loan facilities, which we expect to tighten even further in theremainder of 2012. We expect a weakening European economy to put furtherpressure on Dometic's liquidity in 2012-2013, which may in turn lead to abreach of bank loan covenants. We believe that Dometic's covenant headroomcould be at the lower end of our definition of "tight" (5%-15%) by year-end2012. We also note that Dometic's senior management has changed several timesover a short period, which is also a concern, given the tight financialheadroom.
Although Dometic's underlying margins have historically proven fairlyresilient against swings in demand and have consequently been the mainsupportive rating factor, the group's very high debt burden makes it sensitiveto small changes in profits and cash flow. As Dometic has a total of aboutSwedish krona (SEK) 1 billion (Approximately EUR115 million) yearly of interestpayments and amortizations, and about SEK200 million of capital expenditures,even a smaller decline in the current rolling 12 months' EBITDA of SEK1.3billion could lead to tighter liquidity.