S&P cuts Dixie Group’s credit rating
At the same time, the subordinated debt rating was lowered to single-'B'-minus from single-'B'-plus. The ratings remain on CreditWatch with negative implications, where they were initially placed on Oct. 12, 2000. Total rated debt is about $40 million.
The downgrade reflects financial measures that are below Standard & Poor's expectations, as well as the expectation that such measures will not improve to prior levels over the near term. The fiscal 2000 earnings weakness was attributed to continued difficulties in the factory-built housing segment, which experienced about a 40% decline in volume for the year.
Softness in Dixie's other business units during the fourth quarter, higher integration and consolidation costs, and higher unabsorbed fixed costs as Dixie curtailed production to reduce inventory levels, all negatively impacted operating performance. For the year ended Dec. 30, 2000, EBITDA to interest coverage was about 1.4 times and total debt to EBITDA was in excess of 8 times.
While sales improved markedly during January 2001 in the factory-built housing segment and at the North Georgia tufted operations from year earlier levels, Standard & Poor’s feels it is unclear whether the improvement is sustainable given the current economic environment.
In addition, Dixie closed a dyeing plant, sold other non-essential assets, and is exploring alternatives for some of the firm's other non-strategic assets to further reduce its costs and improve profitability.