Wednesday, March 2, 2011

Standard & Poor’s assigns “BB-“ corporate credit rating to American Reprographics Co (ARC)

I found this on the day before yesterday….

Feb. 28, 2011--Standard & Poor's Ratings Services today affirmed its 'BB-' corporate credit rating on Walnut Creek, Calif.-based reprographics and printing company American Reprographics Company (ARC).

“We removed this rating, along with all related issue-level ratings on the company's debt, from CreditWatch, where we placed it with negative implications on Oct. 22, 2010. The rating outlook is negative.”

“At the same time, we assigned our 'BB-' corporate credit rating to parent company American Reprographics Company.”

"The 'BB-' rating reflects our expectation that ARC's revenue and cash flow will remain highly cyclical and could take some time to recover from the current protracted real estate downturn," said Standard & Poor's credit analyst Tulip Lim.”

“We estimate that revenue will decline at a mid-single-digit percentage rate and EBITDA will decline at a low-double-digit to low-teens percentage pace. We regard ARC's business risk as weak given its dependence on U.S. construction spending. We view the company's financial risk profile as aggressive, given its somewhat high debt leverage.”

“ARC has a leading market position in the fragmented reprography market and has significant cost advantages from its nationwide presence. However, we consider its business profile to be weak because its end markets are highly concentrated (more than 75% of net sales are derived from printing for the architectural, engineering, and construction (AEC) segments) and the company has a high geographic concentration in California. ARC's operating performance is linked to the U.S. construction market, particularly that of nonresidential construction (approximately 70% of ARC's total revenue is nonresidential related), which we expect to remain weak over the near term.”

Just a quick comment:

As most reprographers, who follow ARC, know, ARC successfully refinanced its debt sometime around Dec 1, 2011. ARC issued $200 million in unsecured notes. (It also entered into a new secured-debt arrangement with Wells Fargo for (I think it was) an additional $50 million in financing. The notes ARC sold were rated BB- (which I previously pointed out is “junk bond” status), and the interest (coupon) rates on those notes was somewhere around 11%. Just my own personal opinion about this, but that’s a pretty high interest rate for a company that well-manages its operations and cash flow. And, knowing the people who run ARC, it is very unlikely (at least it is to me) that anyone who bought these notes will have a problem getting paid. I checked with a broker to find out if I could buy some of those notes; he could not find them listed anywhere (he said I need the “CUSIP” number for him to find them). I’d trust Suri, Dilo and Jonathan to pay me back; how about you?

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