THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, October 25, 1996 TAG: 9610250519
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 50 lines
The credit-rating agency Standard & Poor's has assigned a ``speculative'' rating to Newport News Shipbuilding and Drydock Co.'s future debt, citing the threat of continued cutbacks in defense spending to the yard's finances.
The ratings reflected Newport News Shipbuilding's position in ``a challenging business'' and the ``high financial risk,'' Standard & Poor's said Thursday.
A credit rating is the product of a formal examination of the borrower's financial health and ability to repay its debt in a timely manner.
Tenneco Inc., a manufacturing and energy company that has owned Newport News Shipbuilding since 1968, is scheduled to spin off its shipyard subsidiary to Tenneco shareholders in December.
To finance a $600 million dividend being paid to its parent, Newport News Shipbuilding is scheduled to issue $400 million in 10-year notes later this year and to draw on its bank line of credit. In the past, the yard's borrowing has been done through Tenneco.
Largely because of its work on two aircraft carriers, the yard is expected to have a year-end backlog of $3.4 billion, S&P said. Newport News Shipbuilding is the only yard building nuclear aircraft carriers for the Navy and one of only two yards assembling nuclear submarines.
``Despite this strong competitive position, constrained U.S. defense budgets carry the risk of program delays and downsizing of awards,'' S&P said. ``Also, construction carries risks of cost overruns.''
To reduce dependence on Navy contracts, the shipyard has returned to commercial shipbuilding and hopes to build non-nuclear surface ships for foreign navies, the credit-rating service noted.
``While the firm has a good base of Navy business near-term, additional contracts and nongovernment work will be important,'' S&P said.
However, Newport News Shipbuilding has not demonstrated the success of its diversification efforts, the rating agency said.
Earlier this week, Newport News Shipbuilding reported net income of $36 million for the Sept. 30 quarter but said it took a $31 million charge against earnings to cover losses on commercial tankers it is building.
S&P assigned a BB, or ``speculative,'' general rating to the company. In addition, it applied a BB rating to $200 million of senior notes that will be due in 2006 and to $210 million of Newport News Shipbuilding's bank borrowing.
S&P assigned a lower rating, B+, to $200 million of the senior subordinated notes that will mature in 2006.
S&P's ratings range from AAA for the most creditworthy debt to D for debt of questionable value. A BBB rating is considered medium-grade. by CNB