Business Week
Standard & Poor's Ratings Services on Thursday lowered its corporate credit rating on cement producer Texas Industries Inc. deeper into junk status, citing declining demand for cement and falling prices.
S&P also noted that the concrete services company is heavily reliant on Texas and California for a majority of sales, with the latter still in the throes of a severe housing downturn. As business weakens, the company will be squeezed more by its high debt load, S&P said.
The credit ratings agency lowered the company's rating to "B" from "B+." The rating indicates that while Texas Industries currently can cover its financial obligations, adverse business conditions will likely hurt that ability.
S&P's rating on Texas Industries' $550 million senior notes due 2013 was lowered to "B" from "B+" as well. The company's recovery rating stayed at "4," which means debt holders can expect to recoup 30 percent to 50 percent of what they loaned to Texas Industries if it defaults on payment.
The ratings outlook remained at "Stable" because the company has sufficient capital to fund its operations and make debt payments over the next 12 months, S&P said. A "Stable" rating means that ratings likely won't change in six months to two years.
But S&P warned that that if commercial construction deteriorates more than expected and spending on infrastructure remains weak, the Texas concrete contractors ratings could be cut.
If Texas Industries' earnings before interest, taxes, depreciation and amortization stays below $80 million in fiscal 2011, it won't be enough to cover the company's fixed costs, S&P said.
S&P also said it could raise the ratings if sales rise more than 20 percent and adjusted earnings margins increase to over 13 percent in the first half of fiscal 2011. But S&P believes a rating upgrade is unlikely given poor business conditions.
S&P also noted that the concrete services company is heavily reliant on Texas and California for a majority of sales, with the latter still in the throes of a severe housing downturn. As business weakens, the company will be squeezed more by its high debt load, S&P said.
The credit ratings agency lowered the company's rating to "B" from "B+." The rating indicates that while Texas Industries currently can cover its financial obligations, adverse business conditions will likely hurt that ability.
S&P's rating on Texas Industries' $550 million senior notes due 2013 was lowered to "B" from "B+" as well. The company's recovery rating stayed at "4," which means debt holders can expect to recoup 30 percent to 50 percent of what they loaned to Texas Industries if it defaults on payment.
The ratings outlook remained at "Stable" because the company has sufficient capital to fund its operations and make debt payments over the next 12 months, S&P said. A "Stable" rating means that ratings likely won't change in six months to two years.
But S&P warned that that if commercial construction deteriorates more than expected and spending on infrastructure remains weak, the Texas concrete contractors ratings could be cut.
If Texas Industries' earnings before interest, taxes, depreciation and amortization stays below $80 million in fiscal 2011, it won't be enough to cover the company's fixed costs, S&P said.
S&P also said it could raise the ratings if sales rise more than 20 percent and adjusted earnings margins increase to over 13 percent in the first half of fiscal 2011. But S&P believes a rating upgrade is unlikely given poor business conditions.
