Moody's Downgrades Cammell Laird

Thursday, January 25, 2001
Moody's downgraded to Caa2 from B2 the rating for the Euro 125 million senior notes of Cammell Laird Holdings plc following the announcement of its key customer Costa Crociere to terminate a high value contract with CLH to convert the cruise ship Costa Classica. CLH has rejected Costa's right to terminate the contract and has stated that it will take all necessary action to protect its commercial position. The following ratings were downgraded:

At the time of the original rating assignment, the Costa contract was already in an advanced stage and considered to be a reference contract for the flow of future orders. Cash flows from those future orders were expected to provide the means for servicing the company's debt. The dispute over the Costa contract now affects the company's track record at a stage when new orders are under negotiation. Successful conclusion of new contracts near term is critical for the company's cash flow. The downgrade reflects CLH's deteriorating financial and liquidity position in the absence of the expected significant cash payment by Costa Crociere at the end of April 2001.

Moody's expects interest coverage for the fiscal year 2001 and 2002 to weaken significantly despite partial protection by bank guarantees and potential compensation payments. While CLH may begin legal actions against Costa Crociere, Moody's expects that such litigation may take considerable time. Moody's notes that for continued availability CLH will have to renegotiate terms and conditions of the GBP 50 million secured revolving credit facility by end of April 2001. In the past, the lender was supportive to CLH's strategy. Moody's believes that a key challenge will be to reinstate CLH's financial flexibility through additional funding sources. - (Reuters)

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