MOODY’S CUTS IKON’S RATING

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Date: Wednesday May 5, 2004 10:40:00 am
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    <FONT size=3><FONT color=blue><SPAN class=t><FONT size=5>Moody’s cuts Ikon Office Solutions ratings</FONT></SPAN><BR></FONT></FONT>
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    <DIV class=ar>
    <P><FONT color=blue size=3>Approximately $1.1 Billion of Debt Securities Affected. </FONT>
    <P><FONT color=blue size=3>NEW YORK, April 27 – Moody’s Investors Service (</FONT><a target=”_blank” href= “http://us.rd.yahoo.com/finance/news/keywords/news/SIG=12inlna16/*http://search.news.yahoo.com/search/news?p=Moody%27s+Investors+Service+&a=1&n=10″&gt; News</A><FONT color=blue size=3> – </FONT><a target=”_blank” href= “http://us.rd.yahoo.com/finance/news/keywords/websites/SIG=1270ic4pd/*http://search.yahoo.com/search?a=1&n=10&p=Moody%27s+Investors+Service”&gt; Websites</A><FONT color=blue size=3>) lowered the ratings of IKON Office Solutions (IKON) and IOS Capital LLC (IOS), which was recently merged into IKON, with its debt assumed by IKON. The rating outlook is stable. Ratings lowered include: IKON Office Solutions: Senior implied rating to Ba2 from Ba1 Senior unsecured $61 million, 6.75% Nov 2004 to Ba2 from Ba1 Senior unsecured $294 million, 6.75% Nov 2025 to Ba2 from Ba1 Senior unsecured $95 million, 7.30% Nov 2027 to Ba2 from Ba1 Shelf registration Senior / subordinated / preferred to (P) Ba2, (P) Ba3 (P) B1 from (P) Ba1, (P) Ba2 (P) Ba3 IOS Capital LLC: Subordinated convertible $300 million, 5% May 2007 – to Ba3 from Ba2 The rating action reflects Moody’s expectation that revenue growth will remain challenging and that competitive pricing and/or product mix could continue to exert pressure on operating profitability over the intermediate term. IKON’s cash flow from operations may also be somewhat diminished following the exit from most of its leasing operations, even though IKON is expected to receive various origination fees from GE that will likely approximate $90 million to $100 million per year. At the same time, IKON’s balance sheet liquidity should remain strong following the receipt and partial use of proceeds from the transaction with GE, thereby providing IKON with the internal means to invest prudently in growth opportunities. Following the repurchase of debt throughout 2003, excluding finance related debt, IKON has just $61 million of debt maturities over the next three years. In March 2004, IKON closed on the sale to GECC of certain assets and liabilities of IOS Capital LLC for approximately $1.5 billion in gross proceeds. Proceeds have or will be used to pay down related debt, including a tender for IOS June 2008 notes that is expected to close April 2004, in addition to payments of deferred tax related to the finance receivables sold. As part of the transaction, GE and IKON entered into a five year agreement by which GE will be the preferred lease financing source on future lease originations in the United States and Canada. IKON will also be selling its Canadian lease portfolio to GECC, with closing expected in the June 2004 quarter. Following these transactions, IKON’s financing receivable portfolio will consist of approximately $1.3 billion of existing finance lease receivables and associated asset backed financing debt, which will run off over the next three years. Additionally, IKON retains about $275 million of other finance receivables, primarily in the UK, which are expected to continue to be funded with a bank conduit facility. As part of the transaction with GE, IKON has assumed the two public debt obligations of IOS — a $350 million senior unsecured note due June 2008 and a $300 million subordinated convertible note due May 2007. IKON successfully tendered for $250 million of the $350 million note, with expectations that the tender will close in April 2004, leaving $95 million of June 2008 notes outstanding. Upon closing the sale to GE, IKON terminated its $300 million unsecured bank credit facility. Moody’s expects the company will arrange another, smaller facility that may be secured. The $350 million senior unsecured note due June 2008 of IOS, also assumed by IKON, retains its Ba1 rating and thus a rating notch benefit, reflecting the security it would be granted following the expected consummation of a new secured bank facility and the expectation that the bank facility will have minor usage. To the extent that the bank facility becomes more heavily used combined with operational performance, it would then be likely that the senior unsecured and subordinated notes rating would be adjusted downward. IKON Office Solutions, headquartered in Valley Forge, Pennsylvania is the largest independent copier distributor in North America and the United Kingdom. IOS Capital LLC is a wholly owned captive finance company that has been merged into IKON Office Solutions</FONT></P></DIV>

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