NEW YORK — Standard & Poor’s Ratings Services on Sept. 23 lowered its corporate credit rating on American Plumbing & Mechanical Inc. to single-B from single-B+, and removed the rating from CreditWatch.
On June 30, AMPAM had $167 million in debt outstanding. The outlook is now negative, S&P said. Round Rock, Texas-based AMPAM is a leading provider of plumbing and mechanical contracting services in the United States.
“The downgrade reflects weaker-than-expected cash flow generation due to softening market conditions, higher fixed and insurance costs, and poor operating performance within some business units, which has further strained financial flexibility,” said Joel Levington, S&P credit analyst.
The ratings reflect the company’s limited liquidity, aggressive financial profile, and its leading niche positions in large, highly fragmented and cyclical markets.
For the first six months of 2002, income from operations and sales declined 81% and 4%, respectively, forcing AMPAM to seek a waiver and amendment under its bank credit agreement.
Although the company was able to obtain changes to make the bank financial covenants more reflective of the firm’s lower expectations, the amendment also reduced the size of the credit facility.
A fair degree of operating leverage, meaningful pricing pressures and rising insurance costs has lowered operating margins. Although the company has undertaken a number of actions to stabilize margins during this period of challenging market conditions, it is unlikely that AMPAM will be able to restore profitability to historical levels in the next several quarters, S&P said.
Failure to stabilize operations and liquidity in the near term could lead to further downgrades, S&P said.