Arkansas Best Ratings Raised by S&P
Monday October 20 3:42 PM EDT
Company Press Release
Arkansas Best Ratings Raised by S&P
NEW YORK, Oct. 20 /PRNewswire/ -- Standard & Poor's today raised its subordinated debt and preferred stock ratings on
Arkansas Best Corp. to single-'B' from single-'B'-minus. In addition, Arkansas Best's corporate credit rating was raised to
double-'B'-minus from single-'B'-plus.
The ratings upgrade affects $115 million of rated debt and securities.
The outlook is stable.
The ratings upgrade reflects favorable near-term industry fundamentals, Arkansas Best's operational improvement, and
historical and prospective debt reduction. Arkansas Best is a holding company for ABF Freight System Inc., a large
participant in the highly competitive long-haul less-than-truckload (LTL) market (65% of revenues) and G.I. Trucking Co.
(regional LTL), and holds a minority interest in Treadco, Inc. (tire retreading) and various logistics and freight forwarding
subsidiaries. During the past fifteen months, Arkansas Best's long-haul LTL operations have experienced greatly enhanced
profitability because of favorable industry fundamentals, which include an unexpectedly strong economy and consumer
spending, falling fuel prices, and relatively restrained capacity increases. Standard & Poor's expects that these favorable
trends will extend into early 1998. However, longer-term, the industry must still contend with its cyclicality, intensely
competitive structure, and continued loss of market share to other, lower-cost segments of the transportation industry.
In addition to positive industry factors, Arkansas Best has improved its cost structure and reduced its capital requirements
through network restructuring, an aggressive cost-reduction program, and better revenue management. These actions were
prompted by heavy losses in 1995 and 1996, following the debt-financed acquisition of Worldway Corp. and subsequent
integration difficulties. Indicative of ABF Freight System, Inc.'s progress is the company's third-quarter operating ratio
(operating expenses after depreciation and amortization divided by operating revenues), which has dropped to 93.2% from
99.7% in 1996 despite a slight decrease in tonnage, and is expected by Standard & Poor's to be the best among its peer
group. Losses at problematic subsidiaries have either been reversed (e.g., G.I. Trucking) or the operations either have been
sold (Complete Logistics Co.) or discontinued (Integration Distribution, Inc.).
ABF has exploited this period of stronger cash flow and demand for trucking assets to improve its expected capital structure
and reduce fixed costs. By year end, Standard & Poor's expects total debt to be reduced to less than $230 million, down
from approximately $370 million in January 1997. Thus, Standard & Poor's is projecting adjusted total debt to total capital to
fall to less than 70%, with funds from operations to total debt and earnings before interest, taxes, depreciation, and
amortization (EBITDA) interest coverage rising to approximately 30% and 4 times (x), respectively. Prepayment of the
company's term loan has resulted in a material improvement in financial flexibility, with light near-term debt maturities and
approximately $85 million now available under the company's bank facility. However, financial improvement in early 1998
may be stunted by impending renegotiation of the National Master Freight Agreement (NMFA), the company's Teamster
labor contract, which expires on March 31, 1998.
OUTLOOK: STABLE
Renegotiation of the NMFA remains the company's most important near-term credit risk factor. While the company has
reduced its fixed cash costs sufficiently to weather a brief strike and any diversion of freight in anticipation of a strike, an
unexpected, prolonged service disruption could prompt Standard & Poor's to reevaluate the rating. -- CreditWire
SOURCE Standard & Poor's CreditWire |
