The county’s largest public companies have come through the financial crisis with their credit ratings largely intact, though some suffered bumps and bruises along the way.
Those here with the best debt ratings going into the downturn that started in 2008 generally held on to their investment-grade status.
Meanwhile, the hardest-hit companies here in the past two years have seen some fluctuation in their ratings, including some recent upgrades within the speculative or junk bond category.
The Business Journal took a look at the debt ratings of several big publicly traded companies here with the help of ratings companies, financial statements and other reports.
The ratings play a key role for companies looking to raise money by selling bonds. The lower a company’s rating, the higher the interest it pays to draw investors.
The difference in a solid rating and a riskier one could mean millions in how much interest a company pays each year.
Irvine-based drug maker Allergan Inc., the county’s highest-rated debt issuer, recently sold $650 million worth of 10-year bonds with a 3.37% interest rate, the second-lowest 10-year yield for a large U.S. corporate borrower in at least 15 years, according to London’s Dealogic.
The debt was rated “A+” by New York-based Standard & Poor’s Financial Services LLC, one of the three big debt raters.
The rating is considered upper-medium within Standard & Poor’s investment grade category.
Allergan has an “A-” debt rating from New York-based Fitch Ratings Inc., another rating company.
The highest rating available for S&P and Fitch is “AAA.”
Allergan’s rating reflects the company’s solid position as a specialty drug and medical products maker, geographic diversity, strong cash flow and low debt, according to S&P.
After Allergan, debt ratings start moving down the scale for companies here.
Brea-based Beckman Coulter Inc., a maker of machines and chemicals for medical testing and research, is rated in the lower ranks of investment grade.
Moody’s Investors Service Inc., part of New York-based Moody’s Corp., rates Beckman’s long-term debt, as “Baa3,” one notch above junk. That rating hasn’t moved since 2001.
A handful of companies—Santa Ana’s Ingram Micro Inc., Huntington Beach-based Quiksilver Inc. and Irvine’s Standard Pacific Corp.—have seen their ratings upgraded in the past five months.
In May, Moody’s raised Ingram Micro’s corporate family rating to “Baa3” from “Ba1” and its senior unsecured debt rating to “Baa3” from “Ba2.”
The company, the largest distributor of computers and consumer electronics with yearly sales of $30 billion, has $275 million of debt covered by the rating, which took Ingram from the top of Moody’s junk category to the bottom of its investment grade group.
The revision reflects “Ingram Micro’s financial discipline with respect to maintaining strong balance sheet liquidity and moderate financial leverage during the recession and Moody’s expectation that financial leverage will remain conservative,” the ratings company said.
Clothing maker Quiksilver and homebuilder Standard Pacific were rescued by investors from crushing debt during the downturn.
The deals came at a price—the investors now own big chunks of both companies—but they helped shore up ratings for Quiksilver and Standard Pacific.
Quiksilver Improving
Last month, Moody’s upgraded Quiksil-ver’s corporate debt to “B2” from “B3” and changed its outlook to positive after Quiksilver issued stock to New York-based Rhone Group LLC in exchange for forgiving up to $140 million in debt.
The rating is in the upper middle of junk status. It covers about $400 million in debt held by Quiksilver, which has seen business improve after the worst downturn in recent memory for clothing makers, Moody’s said.
In 2009, Quiksilver struck a lifesaving deal with Rhone Group to borrow $150 million over five years to help the company refinance a U.S. line of credit and consolidate its European debt.
The move came after Quiksilver was nearly sunk by 2005’s $560 million ill-fated buy of French ski maker Rossignol. The company unloaded Rossignol in a $50 million fire sale in 2008.
In April, Moody’s upgraded Standard Pacific’s corporate debt one notch from “Caa1”—considered substantially risky—to “B3,” a slightly better junk rating.
The homebuilder cut costs enough to get back to profitability, Moody’s said. But Standard Pacific remains saddled with a debt-to-capital ratio of about 54%, according to Moody’s. By comparison, Allergan has a debt-to-capital ratio of about 30%.
In 2008, Standard Pacific made a lifesaving $530 million deal with New York-based hedge fund MatlinPatterson Global Advisers LLC, making it the homebuilder’s dominant shareholder.
Two nursing home operators based here, Irvine-based Sun Healthcare Group Inc. and Skilled Healthcare Group Inc. of Foothill Ranch, have debt rated as junk, something unlikely to change given their reliance on federal and state funding and the prospect of government budget cuts.
In July, Moody’s downgraded Skilled’s corporate family rating to “B2” after a lawsuit over staffing levels at 22 of the company’s California nursing homes.
At the time, Skilled faced a crippling $677 million judgment that could have bankrupted the company. It has since settled the lawsuit and agreed to pay a manageable $50 million to plaintiffs (see frontpage story).
Sun Healthcare has had a highly speculative “B1” rating since 2007.
