StoneMor Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cemetery-services company StoneMor Partners (NAS: STON) were getting buried by the market today, falling as much as 17% even as the broader market rallied.

So what: In a press release following the close of trading yesterday, Standard & Poor's put StoneMor's credit rating on a negative watch, sparking concerns that it would be downgraded to below its current B level. At the same time, S&P downgraded the unsecured debt of StoneMor's subsidiary from B- to CCC+.

Now what: While both the company's credit rating and the rating on the subsidiary's notes were already well below investment grade, lower ratings are not a happy outcome for a company whose stated EBITDA -- a cash-flow measure -- is already barely covering its interest commitments.

Looking ahead, investors will want to see the company make progress toward improving its balance sheet and stabilizing its financing. If ratings agencies and bond investors continue to bite their nails over StoneMor's financial stability, yesterday's warning could become a downgrade, which could put the company in an even tougher financial position.

Of course, as my fellow Fool Alex Pape outlined back in August, there may be more than meets the eye when it comes to StoneMor's financials, so the S&P's take may not be quite as bad as it seems at first blush.

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At the time thisarticle was published The Motley Fool owns shares of Stonemor Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributorMatt Koppenhefferhas no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting hisCAPS portfolio, or you can follow Matt on Twitter,@KoppTheFool, or onFacebook. The Fool'sdisclosure policyprefers dividends over a sharp stick in the eye.

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