Moody’s cuts Hawker Beechcraft rating

Moody’s has cut Hawker Beechcraft Acquisition Company’s corporate family rating to Caa3 from Caa2, with a negative outlook. It has also downgraded $2.4 billion of notes maturing between 2013 and 2015.

The downgrades are partly because of general concerns about the global economy as well as delays with deliveries of Hawker 4000 and King Air aircraft earlier this year.

However, the rating agency is about the company’s debt that Onex and Goldman Sachs used to acquire Hawker Beechcraft and it has raised its probability of default from Caa2 to Caa3.

“We view the capital structure as unsustainable,” said Moody’s. “Pronounced risk that some form of restructuring of the company’s debt obligations may occur underscores the negative rating outlook.”

The rating agency said that Hawker Beechcraft’s debt to book capital ratio was 114%.

As well as concerns about restructuring the debt Moody’s also has concerns about cash reserves. “We also view the liquidity profile to be weak and have lowered the speculative grade liquidity rating to SGL-4 from SGL-3,” said Moody’s.

Cash fell to $143 million by June 30, 2011 from $423 million on December 31, 2010. Moody’s says there is a substantial cashflow deficit after interest, working capital and capital expenditures.

The manufacturer drew down $50 million on a revolving facility in July/August and Moody’s expects it to draw more in before the end of 2011. This revolver expires in March 2013 and is subject to stricter covenants in 2012.

Moody’s says that Hawker’s cash flow should improve as deliveries increase towards the end of the year.  Hawker had revenues of $2.7 billion in the year ending June 30, 2011.