Moody’s downgrades Heckler & Koch

    Moody’s Investor Service has downgraded Heckler & Koch GmbH’s (Germany) Corporate Family Rating because the company may not have enough cashflow to pay the semi-annual $14 million of interest it owes on its EUR295 million debt.  From the research report (emphasis added) …

    Today’s rating action reflects the recent reduction in HK’s underlying liquidity owing to a marked weakening in the company’s operational performance. Unrestricted cash amounted to around EUR8.3 million as of 30 June 2014, representing a new low in the level of HK’s cash balances. We now believe there is a heightened risk the company will be unable to pay the semi-annual interest of around EUR14 million due on 15 November 2014 in respect of its EUR295 million bond. Payment will be highly dependent on favourable working capital movements, which can be unpredictable, including the receipt of a EUR8 million customer payment relating to the completion of a long-term project.

    HK’s rating benefits from its strong brand recognition and solid position in the small arms market, which is also reflected in a strong profitability such as EBIT margins of above the high teens for the last couple of years. However, the company remains exposed to a degree of customer concentration and ongoing legal and regulatory risks. Furthermore, we view the current capital structure as unsustainable in the absence of capital injections. With the exception of the last few months, where earnings were impacted by the delay in export licenses, HK’s operating performance has been strong compared with peers, but very burdensome interest payments have prevented, and are likely to continue to prevent, positive free cash flow generation.

    H&K now faces a lawsuit from GSG and ATI. They do not have a lot of cash on hand to pay for any settlement if they lose.

    Steve Johnson

    I founded TFB in 2007 and over 10 years worked tirelessly, with the help of my team, to build it up into the largest gun blog online. I retired as Editor in Chief in 2017. During my decade at TFB I was fortunate to work with the most amazing talented writers and genuinely good people!