Waterford debt downgraded by ratings agency

Waterford Wedgwood's junk bond status was reaffirmed yesterday with a range of debt downgrades from ratings agency Fitch.

The agency said the downgrades reflected "the material deterioration in financial performance in recent months" at Waterford. Fitch also pointed to its expectation that "results are unlikely to improve materially in the next 12-18 months".

Referring to the €100 million rights issue recently completed by Waterford, Fitch said the company may need the "further support of its principal shareholders" to fund liquidity over the coming year.

Waterford's €165 million mezzanine notes, launched at the end of 2003, have been downgraded from CCC+ to CC. The outlook on the rating is "negative".

The downgrade could be expected to prompt an increase in the yield available on the bond, which was issued at 9.875 per cent.

Fitch has also downgraded the company's senior unsecured debt from B- to CCC and has reduced the rating on its short-term debt from B to C.

The rating on Waterford's senior secured debt has been reduced from B+ to B-.

Analysts said yesterday that the downgrades were understandable in light of Waterford's financial record and the lack of visibility surrounding current trade.

An update on business at the company is not expected until the middle of the summer.

"We really have no idea what's there in terms of sales," said one commentator.

This picture on trading is likely to be muddied further in future by the merger of two of Waterford's biggest US customers. Plans by Federated Department Stores to double its size by acquiring May Department Stores are expected to make Waterford's pricing position considerably more difficult in its most important market.

Fitch acknowledged yesterday that Waterford had met its targets for reduction of working capital but said that this had been offset by unhelpful currency movements and weaker-than-expected results at the start of this year.

Waterford said last month that sales to date in 2005 were down on average by 11 per cent.

Fitch also noted that the benefits of Waterford's recent €58 million purchase of Royal Doulton would probably not be sufficient to bring it back to a positive cashflow position.

Waterford's shares closed unchanged at four cent in Dublin last night.