The chairman of Fair Lanes Inc. said yesterday that the company is "not in trouble and not about to be in trouble," despite recent downgrades of its debt by two leading bond-rating agencies.
Mac Clayton, who heads the Hunt Valley-based bowling center chain, described the downgradings as "a fairly garden-variety event" and noted that the company made an $8 million payment to its 35 or so bondholders last month. The next payment is due Aug. 31, giving the company time to cut costs.
Last week Standard & Poor's announced that it had lowered its ratings from B to CCC+ on $138 million in Fair Lanes' senior secured notes yielding 11 7/8 percent. In February, Moody's lowered its rating of the debt from B1 to B3.
Hal F. Diamond, S&P's lead analyst for Fair Lanes, said that Fair Lanes' revenue stream was strong and that "fundamentally the company is healthy." But, he added, costs had become a problem following a aggressive expansion drive. He noted that CCC+ is a "distressed rating" but that it is several steps above the lowest grade S&P assigns.
"It doesn't necessarily mean the company is going to default," he said.
Mr. Diamond said S&P's decision to downgrade was based largely on weak results from the second quarter, which ended Dec. 24 with a $2.3 million loss.
In early January, Fair Lanes announced a sweeping reorganization, shifting the company's goals from expansion to cost-cutting and improved customer service. As part of that restructuring, about 60 managers and assistant managers were terminated, while 200 other jobs were created, many of them "guest host" positions at Fair Lanes' 112 centers in 18 states.
Later that month, when Stephen E. Carley resigned as president and chief executive officer, Mr. Clayton took over day-to-day management.
"We are controlling our expenses and being careful about our level of capital spending," Mr. Clayton said yesterday.
Mr. Diamond said Fair Lanes' prospects depend heavily on its success in cost-cutting and its performance during the third quarter, its busiest of the year.
"I believe the company has some strength going for it," he said.