Carlyle’s Sequa Cut by S&P as Maturity Looms for All Its Debt

  • Rating falls to CCC with negative outlook, shrinking revolver
  • Scenarios include liquidity crunch or distressed debt swap

Doubts are rising about whether Sequa Corp., the aerospace parts servicer controlled by The Carlyle Group LP, can handle more than $1.6 billion of debt maturities next year amid an onslaught from bigger competitors and a drought in demand from developing markets.

S&P Global Ratings reduced Sequa’s corporate credit rating on Thursday to CCC from CCC+, or eight levels below investment grade, and warned another cut may be coming. All of Sequa’s debt is due next year, according to S&P, starting with its $1.3 billion term loan in June 2017, followed by $350 million of bonds in December.

S&P called Sequa’s near-term debt commitments “unsustainable,” citing weak credit metrics and negative free cash flow. On top of that, the firm’s revolver loan will drop to $165 million on Sept. 30, then to $145 million on Dec. 31, and finally to just the value of Sequa’s outstanding letters of credit by May 5, S&P said.

The company “will likely face a near-term liquidity crisis or choose to undertake a distressed exchange offer or redemption in the next 12 months,” S&P analysts led by Tennille Lopez said in the report.

Elizabeth Gill, a spokeswoman for Washington-based Carlyle, declined to comment. Andrew Farrant, a spokesman for Sequa, didn’t immediately respond to messages seeking comment. The company is based in Palm Beach Gardens, Florida.

Under Pressure

Carlyle took the aerospace company private in a $2.7 billion leveraged buyout eight years ago. Firms such as Sequa have come under pressure as makers of original engine components such as General Electric Co. and Rolls-Royce Holdings Plc jumped into the market. Secondary parts sellers have been suffering amid economic slowdowns in developing markets that eroded demand for repairs and upgrades of private and commercial jetliners.

The company’s $350 million of 7 percent unsecured bonds due December 2017 plunged last year after executives told investors it had burned through half its cash in the second quarter due to poor earnings and trouble at a recently acquired unit. By April of this year, the bonds traded for less than 15 cents on the dollar; they’ve since rebounded to 34.25 cents as of Friday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The term loan was quoted at 87 cents on the dollar.

There are just $5 billion of 2017 maturities for North American corporate debt yielding above 9 percent, according to a Bloomberg Intelligence report. Sequa’s term loan is the largest maturity in that group, the report said.

— With assistance by Laura J Keller

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