S&P upgrades Kinetic Concepts, rates notes B, loan BB-

Standard & Poor's upgraded Kinetic Concepts Inc. including raising its bank debt to BB- from B+ and $200 million 9.625% senior subordinated notes due 2007 to B from B-. S&P assigned a B rating to the company's planned $205 million senior subordinated notes due 2013 and a BB- to its planned $480 million term bank loan due 2010 and $100 million revolving credit facility due 2009. The outlook is stable.

S&P said the upgrade reflects both very attractive medium-term sales prospects for Kinetic Concepts' important patented technology VAC, a device used to improve the healing of chronic wounds, as well as increased financial flexibility resulting from a longer dated debt maturity profile.

The new rated debt, along with $270 million of convertible redeemable referred stock that will largely be issued to Kinetic Concepts' financial sponsors, constitutes a leveraged recapitalization of the company.

VAC now contributes more than half of Kinetic Concepts' total revenues, compared with 24% in 2000, S&P noted. Related medical disposables also contribute significantly to cash flow.

Still, despite patent protection, the company's increasing dependence on the VAC product represents a narrowing of the company's business focus and thus a vulnerability, as sales generated by the company's other product lines, primarily bed surface products, have been declining in the face of heavy competition.

Kinetic Concepts financial performance has largely reflected strong market acceptance of the VAC product lines, along with favorable reimbursement rulings. The product line is expected to gain further momentum as the company accelerates its sales efforts to further penetrate markets.

Although leverage will increase as a result of the refinancing, it will still be consistent with the rating category at 3.9x lease-adjusted debt to EBITDA, S&P said. Funds from operations to debt should continue to improve to about 23% by the end of 2003, from 16% at the beginning of the year. And Standard & Poor's expects return on capital to average in the high-30% to low-40% range in the medium term.

S&P lowers Coinmach outlook

Standard & Poor's revised its outlook on Coinmach Corp. to negative from stable and confirmed its ratings including its senior secured debt at BB- and senior unsecured debt at B.

S&P said the outlook revision reflects its concern that Coinmach's financial performance during the intermediate term will continue to be pressured by high vacancy rates in the firm's key markets.

The ratings reflect Coinmach's highly leveraged financial profile, which is somewhat mitigated by the company's position as the largest supplier of contract outsourced laundry equipment services in the highly fragmented and regional laundry industry. The ratings also benefit from the company's relatively stable cash flow stream, S&P said.

Historic low interest rates have significantly increased home ownership and rental vacancy rates within certain key regions of the U.S. in which Coinmach operates, especially areas of the Southeast, Midwest and Southwest, S&P said. Thus, Coinmach experienced a 1% revenue decline in fiscal 2003 compared with the previous fiscal year, despite growth in its machine count and the timing of price increases during the year.

S&P said it believes that vacancy rates will not recover in the short term.

Moreover, higher costs primarily related to insurance and health care pressured lease-adjusted operating margins (before D&A), which fell to about 26% in fiscal 2003 from about 28% two years before.

Furthermore, despite an $18 million reduction in debt in fiscal 2003, Coinmach continues to have a sizable debt burden following its July 2000 LBO, with total debt (adjusted for operating leases) to EBITDA high at about 5.3x, and EBITDA coverage of interest at about 2.3x, S&P said. Both measures are below the rating agency's expectations.

S&P rates Seabulk notes B

Standard & Poor's assigned a B rating to Seabulk International Inc.'s proposed $150 million senior unsecured notes due 2013. The outlook is stable.

S&P said the senior unsecured notes are rated one notch below Seabulk's corporate credit rating to reflect the level of secured debt (proposed $80 million secured credit facility and roughly $20 million secured debt on two single-hull tankers) ranked senior to the unsecured notes, pro forma for the proposed transaction.

The five double-hull tankers have been financed with Title XI government guaranteed ship financing bonds, which are secured by the vessels but have no other recourse to Seabulk. S&P believes that the double-hull tankers encumbered by the Title XI financings will be net generators of cash flow and, thus, not present a drain on Seabulk's liquidity.

S&P said Seabulk's ratings reflect its exposure to the volatile, deeply cyclical, and competitive offshore support segment of the petroleum industry, concerns over future growth initiatives, and the company's aggressive financial leverage. These weaknesses are partially mitigated by the relatively stable cash flow characteristics of the company's tanker and towing businesses.

Seabulk's leverage is considered aggressive at about 70% total debt (including all Title XI debt) to capital, S&P said. Excluding the operations and nonrecourse debt burden of the double-hull fleet, Seabulk's debt to EBITDA (for the 12 months ended March 2003) was around 3.5x. Growth initiatives, i.e. spending on vessel additions, are likely to take precedence over debt reduction in the near to medium term. Cash flow is adequate for the rating category, with FFO to adjusted debt above 15% and medium-term EBITDA interest coverage expected to remain around 3.0x without significant improvement in industry conditions.

Moody's lowers Sanitec outlook

Moody's Investors Service lowered its outlook on Sanitec International SA to negative from stable and confirmed its ratings including its €260 million senior notes due 2012 at B2 and Sanitec Oy's €555 million senior secured credit facilities at Ba3.

Moody's said the changed outlook reflects Sanitec's highly leveraged capital structure and concerns over the company's operating performance following the initial rating assignment in April 2002; the potential for liquidity problems in late 2003 since the company's banking covenants are tightening and headroom is minimal, combined with mandatory debt amortization requirements; continued macroeconomic uncertainty, particularly in Germany, where the construction industry is experiencing a prolonged recession; and continued weak conditions in the vacuum sewage business, particularly in marine and aviations sectors.

Moody's noted that management has re-focused its strategy as a consequence of the continuing weak market conditions and expects that the company will continue to improve its production efficiency through increased emphasis on low cost production, group wide purchasing, cross-selling and sharing of proven technology and process know-how.

However, Moody's will be closely monitoring the company's performance over the next six months and any delay in executing the cost reduction plans or a further weakening in Sanitec's markets is likely to lead to a downgrade.

S&P says Tenet unchanged

Standard & Poor's said Tenet Healthcare Corp.'s ratings are unchanged including its corporate credit at BB with a negative outlook following the announcement of an indictment against the company and its Alvarado Hospital Medical Center.

S&P said it had expected the indictment and anticipates the possibility of others in the future.

The negative ratings outlook considers the potential adverse fallout from this issue as well as the other ongoing investigations, S&P added.

S&P says Georgia-Pacific unchanged

Standard & Poor's said Georgia-Pacific Corp.'s ratings are unchanged including its corporate credit at BB+ with a negative outlook following the company's second quarter earnings release.

Results were broadly in line with expectations, hurt by competitive tissue market conditions as well as high energy and fiber costs. These negative factors were offset to some extent by higher wood product prices toward the end of the quarter, lower operating and administrative costs and nearly $500 million in debt reduction, largely attributable to a big income tax refund and some inventory reduction.

Liquidity was adequate, with $1.6 billion of credit availability as of quarter end.

Asbestos trends during the first half of the year appear to be tracking management's expectations, with a surge in new claims filed in Mississippi in advance of a change in tort law there, S&P said. Similar tort reform in Texas could result in higher filings during the second half of this year.

However, management does not expect resolution of these cases to materially affect the company's asbestos settlement costs.

Although the exact impact of potential federal asbestos legislation on Georgia-Pacific is uncertain, it could be slightly positive for credit quality, S&P said. Credit measures remain weak for the ratings, but results are expected to improve when markets turn, and management has reiterated its commitment to debt reduction.

Moody's raises Range Resources outlook, rates notes B3

Moody's Investors Service raised its outlook on Range Resources Corp. to stable from negative, confirmed its ratings including its $68.8 million 8.75% senior subordinated notes due 2007 at B3 and $20.7 million 6% convertible subordinated debentures and $84.4 million 5.75% trust preferred securities due

2027 at Caa1 and assigned a B3 rating to its $100 million 7.375% senior subordinated notes due 2013.

Moody's said the outlook change is due to Range's gradual, yet still incomplete, process of leverage reduction. The current financial structure is within striking distance of sustainable cost structures during periods of lower commodity prices.

The outlook assumes continued deleveraging, especially in the current price horizon, when the opportunity to reduce debt is optimal. However, the outlook could fall back to negative in the event Range does not continue to reduce leverage.

Moody's said Range's ratings are constrained by Range's high full cycle costs that limit internal funding of reserve replacement in lower commodity price environments; still high leverage, on a debt to proved developed (PD) reserve basis, though steadily improved over the past three years; high 3 year average finding and development (F&D) costs despite improvement in 2002; high future capital spending needed to bring proved undeveloped (PUD) reserves to producing stage; and significant reliance on shorter-lived production.

The ratings gain support from Range's stable production trends while undergoing steady de-leveraging; the improvement of its F&D costs for 2002; the use of hedging to ensure funding for the majority of its 2003 capital budget; the company's focus on its core geographical regions; and capital spending flexibility derived from the high percentage of operated properties.

Moody's puts Cole National on review

Moody's Investors Service put Cole National Group on review for downgrade including its $125 million 8.625% senior subordinated notes due 2007 and $150 million 8.875% senior subordinated notes due 2012 at B2.

Moody's said the review is because of deteriorating margins and cash flow due to fundamental as well as cyclical factors.

Cole's recent results were significantly below Moody's expectations and raise concerns regarding Cole's ability to maintain debt protection measures suitable for its rating category.

Moody's review will focus on Cole's plans to generate higher profitability and cash flow and the recent restatement of prior results. The review also will incorporate Cole's position within the highly competitive eyecare industry, evaluate if Cole can earn an appropriate return on investment in its Target operations and determine if the current level of capital expenditures is sufficient to maintain and grow its current store base.

Any downgrade to Cole's ratings would be modest, Moody's said.

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