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BREAKING NEWS: S&P lowers Exide’s credit, debt ratings further into junk territory

Nathalie Tadena

May 03, 2013
(c) 2013 Dow Jones & Company, Inc.

Standard & Poor’s Ratings Services lowered its rating on Exide Technologies Inc . one notch further into junk territory, noting the battery manufacturer’s recent suspension of operations at a secondary lead-recycling facility in California is a further headwind to its operational and financial flexibility.
S&P on Friday downgraded Exide’s rating to triple-C-plus, seven levels into junk territory, from B-minus. The company’s rating remains on watch for further downgrade….

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Standard & Poor’s Announcement – May 3, 2013

  • Milton, Ga.-based battery manufacturer Exide Technologies recently announced the suspension of its operations at its Vernon, Calif., secondary lead recycling facility, which, in our view, is a further headwind to Exide’s operational and financial flexibility.
  • We are lowering our corporate credit rating on the company to ‘CCC+’ from ‘B-‘ and consequently also lowering our issue-level ratings. All ratings remain on CreditWatch with negative implications.
  • We expect to resolve the CreditWatch listing within the next 60 days after we review Exide’s financing plans and assess the company’s financial management strategy.
NEW YORK (Standard & Poor's) May 3, 2013--Standard & Poor's Ratings Services 
said today that it lowered its corporate credit rating on Exide Technologies 
to 'CCC+' from 'B-'. At the same time, we lowered our issue rating on Exide's 
$675 million senior secured notes (due 2018) to 'CCC+' (same as our corporate 
credit rating on the company) from 'B-'. The recovery rating on this debt is 
'4', indicating our expectation that lenders would receive average (30% to 
50%) recovery in the event of a payment default. We also lowered the rating on 
Exide's $60 million convertible senior subordinated debt due 2013 to 'CCC-' 
(two notches lower than our corporate credit rating). The recovery rating is 
'6', indicating our expectation of negligible (0 to 10%) recovery. 

All ratings remain on CreditWatch with negative implications.

The downgrade follows the company's announcement of the suspension of its 
operations at its Vernon, Calif., secondary lead recycling facility. "We 
believe this facility provides a meaningful portion of Exide's internal lead 
requirements and an extended suspension could impose further pressure on 
profitability and free operating cash flow (FOCF) than we previously 
anticipated," said Standard & Poor's credit analyst Nishit Madlani. This is 
likely to stem from higher costs because Exide plans to purchase lead on the 
open market and seek to negotiate tolling arrangements with third-party lead 
recyclers to make up for the lost capacity.

The ratings on Exide reflect our assessment of its financial risk as "highly 
leveraged" and its business risk profile as "vulnerable." 

All ratings remain on CreditWatch with negative implications, where we placed 
them on April 9, 2013, because of our view of an increased likelihood of a 
downgrade after the company retained a financial advisory firm to help with 
financing alternatives. 

The CreditWatch placement reflects at least a one-in-two likelihood that we 
could downgrade Exide to 'CCC' or below in our next review. 

We aim to resolve the CreditWatch listing within the next 60 days, once we 
have greater visibility into the company's financial arrangements and we can 
gauge the effect of the plan on Exide' credit quality. We will assess the 
impact of recent developments on Exide' businesses, trade terms, liquidity, 
and cash flow over our review period. 

Further downward rating pressure on the company would arise if it appears 
likely to engage in a debt exchange or redemption in the next 12 months that 
we would classify as a distressed exchange.

We could also lower the rating if Exide's FOCF use is likely to exceed our 
expectations in fiscal 2014, resulting from the company's inability to improve 
its liquidity and manage working capital requirements with a sustainable 
capital structure. This would be accentuated if further headwinds to its 
financial flexibility were to materialize. For instance, a delay in the 
receipt of proceeds from the sale of its Frisco, Texas, property (not our base 
case) could limit Exide's ability to invest in capital expenditures required 
to support its business prospects. 

We could affirm the rating if Exide adopts a financing arrangement that 
improves liquidity with at least modest longer-term deleveraging prospects and 
if its FOCF use in fiscal 2014 is likely to be limited to about $10 million.

RELATED CRITERIA AND RESEARCH
Complete ratings information is available to subscribers of RatingsDirect at 
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by 
this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.

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