Zenith Electronics Corp. expects to make interest payments on approximately $150 million of outstanding debt despite potential liquidity problems.
"It is our intention to service our debt and fulfill all our obligations as we have always done," Seymour Lipton, Zenith's director of investor relations, said yesterday.
Zenith currently has $115 million of 6 1/4% convertible subordinated debentures due 2011. The next scheduled interest payment for those debentures is April 1.
The company also has about $35 million of 12 1/8% senior notes due 1995. The notes next scheduled interest payment is Jan. 15.
In its quarterly Form-10Q filing with the Securities and Exchange Commission, Zenith said it could face "serious liquidity problems."
As of Sept. 26, the company had a net worth of $230 million, just $1 million above the minimum net worth required at each quarter's end under a credit agreement with the Bank of New York Commercial Corp.
Zenith has begun talks with the bank in hopes of persuading it to relax the financial covenant.
If the bank refuses to change the covenant, Zenith expects to be out of compliance with the credit agreement by approximately late February when fourth-quarter results are reported. The company would continue to violate the agreement until net worth is increased through earnings, a sale of equity securities, or sale of assets at more than book value.
If the company falls to comply with the covenant, it may have to repay any outstanding amounts or be prevented from additional borrowing, the SEC filing says.
In addition to its bank negotiations. Zenith is working with investment bankers to trim its investments in components, other non-core activities, or both, the filling said.
"However, there is no assurance that a modification of the credit agreement will be available or that any of the actions which would increase net worth will take place on a timely basis, if at all," Zenith's filing says. "In such event, the company would experience serious liquidity problems."
Zenith has recently started analyzing "a full range of financing, strategic, and other contingency plans," the filing says.
In secondary trading yesterday, Veterans Day muted trading in high-yield bonds, which ended the day unchanged.
"[It's] very quiet because there was no government market," one trader said.
High-grade corporate bonds were also unchanged and "pretty quiet."
When London finished its trading session around noon eastern standard time, "everything ceased," a trader in that market said.
Moody's Investors Service lowered Zenith Electronics' $35 million of senior unsecured notes to B3 from B2 and $115 million of convertible subordinated debentures to Caa from B3.
"The downgrade reflects Zenith's sizable losses in the past three years, it's narrow compliance of the covenants of its new revolver at the end of its third quarter, and its diminishing prospects to improve profitability in the immediate future," a Moody's release says. In another move, Moody's gave a Baa2 rating to Samsung Electronics Co.'s long-term debt issued under SEC Rule 144A.
The rating marks the first time Moody's has rated Samsung Electronics' debt. The agency based its rating on the company's importance to the Korean economy and the Samsung group of companies, a Moody's release says.
"The rating also reflects Samsung Electronics' large exposure to the fiercely competitive semiconductor industries, as well as its high leveraged capital structure," the release says.