Moody's downgrades Wellman's ratings, citing margins

08 January 2003 23:02  [Source: ICIS news]

HOUSTON (CNI)--Corporate credit watchdog Moody's Investors Service said Wednesday it is downgrading ratings for polyethylene terephthalate (PET) resins and polyester fibres producer Wellman, saying the firm faces volatile margins and competition.

This downgrade affects some $400m (Euro385m) in Wellman shelf registrations. Moody's said it is lowering Wellman's senior unsecured shelf rating to speculative grade at (P)Ba2 from an investment grade of (P)Baa3 and the firm's subordinated shelf rating to (P)Ba3 from (P)Ba1.

The Moody's rating system considers all marks below Baa3 as speculative.

Moody's said its action "reflects concerns about the weakening profile of Wellman's two major business areas, PET resins and polyester fibres."

"This weakness arises from inherently volatile operating margins in PET resins, because of seasonal demand and an inability promptly and consistently to pass through raw materials cost increases," Moody's said.

The ratings agency said it expects that "resin prices, and therefore margins, are also likely to be constrained by both new North American capacity and the threat, if not the actuality, of Asian competition."

Moody's said it also anticipates continued erosion of both volumes and margins in Wellman's core fibre business, which is "only minimally offset by efforts to develop new specialty products."

Finally, said New York City-based Moody's, "the downgrade reflects the obstacles Wellman's management faces in efforts to further shift the company's operations towards its more profitable PET resins business."

Shrewsbury, New Jersey-based Wellman had 2001 sales of slightly more than $1bn.

By: Joe Kamalick
+1 713 525 2653

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