Moody’s Cuts McDonnell’s Credit Rating : Aircraft: The agency downgraded the firm, predicting that it may be forced to stop making commercial planes.
Citing deteriorating prospects for McDonnell Douglas’ commercial aircraft and defense businesses, Moody’s Investors Services on Tuesday lowered its ratings on $5 billion of McDonnell’s long-term debt.
Moody’s said McDonnell may be forced out of the commercial aircraft business if its sales don’t improve. An exit would result in “large cash outlays,” the bond rating agency said.
The downgrading comes after McDonnell officials insisted that the company’s financial problems are behind it and said they expected to slash debt by $1 billion during 1993, as assets were sold and operating profit improved.
“We’re shocked at Moody’s action, and we don’t understand it,” a McDonnell spokeswoman said. “We will have a statement tomorrow after we can give this action a more thorough study.”
Aerospace analyst Wolfgang Demisch said the downgrading is “a noticeably more pessimistic appraisal of the company” than McDonnell executives made only last month. But he described the cut as “not particularly traumatic.”
McDonnell said Moody’s action will not reduce the firm’s debt securities below what is considered “investment grade” by institutions--generally a rating of AAA to BBB. The company also said the rating reduction would not force institutions to sell McDonnell securities.
“It is not junk debt,” the spokeswoman said. She noted that Standard & Poors, another rating agency, did not lower its rating.
Moody’s said that a moderate improvement in operating cash flow would not, by itself, do much to reduce the St. Louis-based aerospace company’s heavy debt. Significant debt reduction would depend primarily on asset sales, the agency said.
Moody’s lowered the firm’s senior debt rating to Ba2 from Baa3. It also reduced the short-term rating for commercial paper to Not Prime from Prime-3. The rating for McDonnell Douglas Finance Corp., the company’s finance subsidiary, was also cut.
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Moody’s said it expects financial uncertainties involving McDonnell’s C-17 cargo jet and the defunct A-12 attack plane to persist because of the downturn in the world defense market.
McDonnell Douglas lost $475 million on the C-17 last year, but executives have insisted that the program will turn a profit in 1993.
Moody’s announcement came after the market’s close. McDonnell shares closed at $56.50, up 37.5 cents a share in New York Stock Exchange trading.
