$120M in Dan River debt downgraded

Staff -- Home Textiles Today, 1/7/2002 12:00:00 AM

NEW YORK —

Moody's Investors Service has downgraded its rating on about $120 million of Dan River debt, citing ongoing losses and a continued weak retail environment.

The debt-rating agency lowered its rating on the company's 10.125 percent senior subordinated notes to "Caa3" from a prior rating of "B3".

"The downgrade reflects the company's continued losses, caused by weak industrywide demand for its products," said Moody's, most notably its apparel fabrics for the men's shirting industry. Moody's also cited "cost inefficiencies from under-utilization of vertically integrated domestic assets; a price promotional environment at a time when the company needed to reduce inventory; and high working capital requirements."

On a more positive note, Moody's pointed to the company's "strong market share in home fashions" and its "lessened dependence on the more cyclical apparel segment."

Moody's assigned a "negative outlook" to the ratings, saying it reflects the agency's "concern about the length of the recession and the magnitude of future losses." Moody's also noted "the under-utilization of assets, which might suggest the need to close more plants if demand does not recover soon."

Profit margins eroded sharply in the third quarter, Moody's noted, to 12.2 percent from 20.7 percent last year, due to "lower sales volume, production curtailments and less profitable product mix." And high costs, about 10 percent of third-quarter sales, put earnings under pressure. Return on assets, said Moody's, was "very low" — 1.5 percent for the third quarter, down from 10.4 percent a year ago, "which suggests a possibility of asset restructuring charges in the near term."