DBRS Places Armtec Under Review with Negative Implications

DBRS has today placed the BB (low) Issuer Rating and the BB Senior Unsecured Debt ratings of Armtec Holdings Limited (Armtec or the Company) Under Review with Negative Implications. The rating actions follow the Company’s announcement of much weaker than expected first-quarter results and a weak outlook for the remainder of 2011 in the Engineering Solutions business. In addition, DBRS will also review the recovery rating in light of the poor operating performance.

Competitive pressure on contract pricing, delays and higher costs led to a sharp decline in operating income in 2010. DBRS was expecting the Company’s performance to stabilize in 2011. However, ongoing competitive pressure, weather-related delays and operating inefficiencies have led to much weaker results in the first quarter of 2011. More worryingly, the Company is not expecting any meaningful improvement in market conditions in the near future. DBRS is concerned that operating results could continue in the current deteriorating trend.

Armtec had unused credit facilities of about $153 million at the end of March 2011. In addition, the Company raised about $58 million with an equity issue on April 13, 2011. Furthermore, the Company has suspended its dividends indefinitely, which should help conserve cash. Although deemed adequate for now, DBRS believes that further deterioration in operating performance and the resultant cash burn could stress the Company’s liquidity position.

DBRS expects the review to conclude within the next few weeks.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Industrial Products Companies, which can be found on our website under Methodologies.