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Possible Takeover Pumped Tutor Perini Stock

By MARK R. MADLER Staff Reporter Talk about the possible acquisition of Tutor Perini Corp. temporarily sent its share price soaring before being knocked down by the market’s deflation due to the coronavirus. The Sylmar-based construction firm confirmed in a statement on March 2 that a special committee of its board had been engaged in discussions regarding a possible sale. “No definitive agreement providing for a transaction has been reached, and there can be no assurances that any transaction will result from these discussions or as to the terms, timing or approval of any such transaction that may be proposed,” the statement said. The day the statement was released Tutor Perini’s share price reached $13.95. Two days later it reached a high for the year of $14.94. But just a week and half later, the price began its decline, hitting a low of $2.91 on March 17 as markets were roiled by effects of the coronavirus pandemic. The share price closed at $6.11 on March 25. The effects of the coronavirus were the reason behind Moody’s Investors Service downgrading Tutor’s overall credit rating to B2 from B1 and revising the ratings outlook to negative from stable. Michael Corelli, Moody’s senior credit officer and lead analyst for Tutor Perini, said the downgrade reflects the company’s challenges in refinancing $200 million in convertible notes in light of a recent deterioration in credit market conditions. “The plunge in its share price due to concerns about work stoppages and the economic impact of the coronavirus … have exacerbated worries about its inconsistent cash flows and somewhat weak liquidity,” Corelli said in a statement. Additionally, Moody’s downgraded Tutor’s probability of default rating to B2 from B1 and its senior unsecured notes to B3 from B2. The announcement of the downgrades was made after the market closed on March 23. ‘Eliminated’ earnings For the fourth quarter ending Dec. 31, Tutor Perini reported a net loss of $86.1 million (-$1.71 a share), compared with net income of $49.4 million (98 cents) in the same period a year earlier. Revenue dropped about a half percent to $1.2 billion. Chief Executive Ronald Tutor was disappointed in the quarterly results, which were impacted by a reduction in revenue of $124 million from a jury trial verdict in a case related to construction of the Alaskan Way Viaduct Replacement Project by a joint venture for which the company holds a 45 percent share as a minority partner. “While we are appealing that decision and are optimistic we will eventually prevail, the charge we were required to take nonetheless significantly reduced our earnings for the quarter,” Tutor said in a conference call on Feb. 26. “In fact, they really eliminated our earnings.” Also playing into the poor financial results was the specialty contractors segment of the business, formed in 2011 and made up of the company’s electrical and mechanical contractors. The segment caused earnings per share to decrease for the full year due to net unfavorable adjustments on certain electrical mechanical projects in New York, the company said. “The company anticipates strong revenue growth across all segments in 2020 and substantially improved operating margin in the Specialty Contractors segment,” it added. Still, that optimism was prior to the coronavirus crisis that has shuttered many U.S. businesses and caused a downturn in construction. Moody’s, in its analysis of its ratings rationale for Tutor Perini, said the company’s operating performance will be supported by its $11.2 billion fourth quarter backlog of orders. That represents a growth of 21 percent year-over-year, Tutor said. “However, its quarterly operating performance will remain volatile depending on the timing of projects and work stoppages and delays which have begun to occur in New York and California related to the coronavirus, as well as potential adjustments as it collects on its aged receivables,” the ratings company said. Moody’s also said that the company’s cash flow is likely to remain volatile. “The company’s inability to consistently generate free cash flow has resulted in its outstanding debt increasing to about $834 million (adjusted debt of $1.2 billion) in December 2019 from $736 million in December 2017 while its credit metrics have modestly weakened,” the ratings agency said.

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