S&P expects to rate Graphic Packaging loan B+, notes B-

Standard & Poor's said it expects to assign a B+ rating to the $1.6 billion secured bank credit facility to be issued by Graphic Packaging International Inc. to fund the merger of Graphic Packaging Corp. and Riverwood International Corp. and a B- rating to the $425 million subordinated notes and $425 million senior unsecured notes. The outlook will be positive.

S&P said the ratings are based on preliminary terms.

The senior unsecured notes would be rated two notches below the corporate credit rating because of the significant amount of senior secured debt that would rank ahead of senior unsecured creditors in the event of bankruptcy.

For the bank facility, S&P believes that in the event of default or bankruptcy there is the likelihood of meaningful recovery of principal but the value of the enterprise in a distressed situation may not fully cover the amount of secured debt.

The post-merger rating would reflect Graphic Packaging's favorable cost position in oversupplied and highly competitive paperboard and packaging markets, limited product diversity, a value-added product mix, the risk of substitution from competing substrates, relatively stable earnings and cash flows, and a very aggressive capital structure, S&P said.

The positive outlook would reflect expectations that, over time, the new company could reduce debt with internally generated cash flow and achieve a slightly higher credit rating.

Moody's rates Boyd Gaming liquidity SGL-1

Moody's Investors Service assigned an SGL-1 speculative-grade liquidity rating to Boyd Gaming Corp.

Moody's said the SGL-1 rating is based on its expectation that internally generated cash flow combined with existing cash balances should be sufficient to meet the company's capital spending and debt service requirements over the next 12 months.

S&P puts WRC Media on watch

Standard & Poor's put WRC Media Inc. on CreditWatch negative including its $150 million 12.75% senior subordinated notes due 2009 at B- and Weekly Reader Corp.'s $100 million term loan B due 2006, $30 million revolving credit facility due 2005 and $31 million term loan A due 2005 at B+.

S&P said the CreditWatch listing reflects weak debt service measures, tightening bank covenants and the lackluster outlook for supplemental educational funding, which is likely to undermine profitability over the near term. Kindergarten through twelfth grade funding is being curtailed by growing state budget deficits, which have been causing reductions in state and local educational spending, including purchases of supplemental educational materials.

A decline in operating performance would place pressure on debt leverage and may reduce the compliance cushion within bank covenants, S&P said. The restricted group actual debt to EBITDA ratio was 5.27x for the fiscal quarter ended March 31, 2003, while the debt to EBITDA ratio covenant steps down to 5.50x from 5.75x on Sept. 30, 2003, and to 5.0x on Dec. 31, 2003.

EBITDA has been relatively flat during the past two years, while the original rating anticipated substantial growth in EBITDA, S&P said. The company expects revenues will be flat to down 3%-4% for the first half of 2003 due to weak education funding. EBITDA coverage of interest expense was 1.7x for the 12 months ended March 31, 2003. EBITDA coverage of interest and pay-in-kind preferred dividends was thin at 1.1x for the same period, while debt and preferred stock to EBITDA was 7.8x.

The company faces significant debt maturities in 2005, and the 15% senior preferred stock due 2011 requires cash interest payments commencing in March 2005, S&P noted.

S&P raises Finlay outlook

Standard & Poor's raised its outlook on Finlay Enterprises Inc. and its subsidiary Finlay Fine Jewelry Corp. to stable from negative and confirmed their ratings including Finlay Enterprises' senior unsecured debt at B and Finlay Fine Jewelry's senior unsecured debt at B+.

S&P said the outlook revision reflects Finlay's relatively stable operating performance amid a challenging retail environment and S&P's expectations that this level of operating performance will continue because of good inventory and cost control.

Despite a challenging retail environment, Finlay achieved relatively stable operating results in 2002 and the first quarter of 2003, S&P noted. Same-store sales increased 0.1% in 2002 and declined 0.6% in the first quarter of 2003, reflecting slow mall traffic and intense promotion. Despite flat sales, operating margins were well maintained at about 9% during these periods because of effective inventory and cost control.

Finlay has been successful in managing its inventory, mitigating markdown risk. The company's inventory declined 13% in 2002 and 2% in the first quarter of 2003 compared to sales decline of 2.3% and 1% during these periods.

The retail environment remains challenging in 2003, however, and Finlay is still susceptible to weak mall traffic and consumer spending, S&P said. Nevertheless, Finlay has generally outperformed its host stores with better same-store sales trends over the last few quarters.

Improved cash flow generation from better working capital management is resulting in lower debt levels, S&P said. As such, cash flow protection measures improved slightly with EBITDA interest coverage at 3.1x and total debt to EBITDA at 3.3x for the 12 months ended May 3, 2003, compared to 2.9x and 3.5x a year ago. However, given the high seasonality of the business, debt leverage generally peaks at end of the third quarter as the company builds inventory prior to the holiday season. Debt leverage was about 4.0x for the 12 months ended Nov. 2, 2002. Total debt, which amounted to about $260 million in the first quarter of 2003, is largely comprised of $225 million in senior unsecured notes.

S&P rates Le Nature's notes B- , loan B+

Standard & Poor's assigned a B- rating to Le Nature Inc.'s planned $150 million senior subordinated notes due 2013 and a B+ rating to its proposed $100 million senior secured revolving credit facility due 2008. The outlook is stable.

S&P said the senior secured debt is rated the same as the corporate credit rating because it believes that the proceeds from the liquidation of collateral in a distressed situation would not be sufficient to fully cover the bank debt; however, meaningful recovery of principal is likely.

Le Nature's ratings reflect its narrow product focus, small size, customer concentration, and leveraged financial profile, S&P said. Somewhat offsetting these factors are the company's strong EBITDA margins and participation in the water segment, which is growing faster than other areas of the U.S. beverage industry.

Although Le Nature's predominantly serves the Northeast and Mid-Atlantic regions of the U.S., the company is expanding into West Coast markets, S&P noted. Customer concentration is also a rating concern as the company's top three customers accounted for close to 40% of its sales for the 12 months ended March 31, 2003. Although there are many smaller participants in the industry, the bottled water and non-carbonated soft drink markets are highly competitive and dominated by large multi-segment beverage companies, some of which have broader product portfolios, greater financial resources, and greater geographic and customer diversity than Le Nature's.

Pro forma for the refinancing, Le Nature's will be moderately leveraged, S&P said. Lease-adjusted debt and preferred stock will increase from about $162.5 million at year-end 2002 to about $214.8 million at closing, which is a significant burden for a company of Le Nature's size.

S&P estimates that at the closing of the transaction, pro forma lease-adjusted EBITDA coverage of interest (excluding preferred costs) will be over 3.5x and lease-adjusted total debt and preferred stock to EBITDA will be about 3.6x. However, S&P expects credit measures to improve for the full-year in 2003 with EBITDA growth driven by cost savings from in-house PET plastic bottle production and increased sales from the West Coast. Standard & Poor's expects total debt and preferred stock to EBITDA to drop below 3.5x by year-end.

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