Moody's cuts Mirant

Moody's Investors Service downgraded Mirant Corp. and its subsidiaries multiple notches including cutting Mirant's senior unsecured debt to Caa2 from B1 and the senior implied rating to B3 from Ba3. The outlook remains negative. The action affects $6.6 billion of debt.

Moody's said Mirant's senior unsecured ratings continue to be notched down from the senior implied rating due to the expectation that future renewals of existing bank debt will be done on a secured basis, effectively subordinating the senior unsecured bonds.

Moody's added that the downgrade reflects: continuing uncertainty related to the ultimate resolution of the company's significant debt obligations coming due over the next three years, including $3.0 billion of bank credit facilities, given the company's limited access to public debt markets; ongoing concerns about the level of cash flow that the restructured company will be able to generate relative to its high financial leverage; and the likelihood that minimal amounts of free cash flow will be available for further debt reduction resulting in continued reliance on asset sale proceeds.

The continuing negative outlook is because of lack of clarity around the amount of secured debt that may ultimately be put in place and structural and effective subordination that may arise as a result, uncertainty as to potential liabilities arising from ongoing government investigations and lawsuits related to California's power markets and uncertainty surrounding the outcome of the ongoing independent auditors review of the company's financial statements for 2000 and 2001 and delays in providing full-year 2002 results.

Despite ongoing restructuring efforts, Mirant's credit profile remains weak due largely to a capital structure that consists of too much debt relative to operating cash flow levels, with prospects for material improvement in the near-term being uncertain at best, Moody's said. The company currently estimates its liquidity, made up almost entirely of cash on hand and excluding restricted cash, to be $1.0 billion.

Furthermore, Mirant doesn't expect any material improvement in liquidity, or reduction, related to ongoing operations during the next few months. Therefore, events likely to have the largest impact on the company's liquidity in the near term are; the refinancing of its bank credit facilities, asset sales, and reductions in capital required to support a smaller gas marketing business.

S&P puts Riverwood on positive watch, Graphic Packaging on negative watch

Standard & Poor's put Riverwood International Corp. on CreditWatch with positive implications including its notes at CCC+ and bank debt at B and Graphic Packaging Corp. on CreditWatch with negative implications including its notes at B+ and bank debt at BB.

S&P said the watch placements follow the announcement that Riverwood and Graphic Packaging will merge.

S&P said the transaction could create a company with the ability to generate greater levels of free cash flow than Riverwood alone, allowing for more rapid debt reduction. Riverwood's debt at Sept. 30, 2002 was about $1.6 billion. Graphic Packaging had debt outstanding at Dec. 31, 2002 of about $480 million.

Revenues of the new company on a pro forma basis for 2002 would be about $2.3 billion, or about twice that of each of the merged companies. Total debt for the combined company is initially expected to be about $2.2 billion.

S&P said it believes the merger would be a good strategic combination that should provide forward integration opportunities, the potential to accelerate revenue growth for new consumer packaging applications, expansion of Riverwood's packaging systems capabilities to Graphic Packaging customers, and a reduction in customer concentration.

In addition, the potential realization of $55 million of synergies identified by the companies, the expected tax benefit of a significant portion of Riverwood's $1.2 billion of net operating losses, and lower interest expense following debt refinancing should boost free cash flow generation above the current capabilities of the individual companies, S&P said.

Nonetheless, the new company would be highly leveraged, with pro forma debt to EBITDA of 5.2x, excluding synergies.

Moody's puts Riverwood on upgrade review, Graphic Packaging on downgrade review

Moody's Investors Service said it put Riverwood Holding Inc. and its subsidiaries on review for possible upgrade and the ratings of Graphic Packaging Corp. on review for possible downgrade. The action affects $2.5 billion of securities including Riverwood's senior secured bank facilities and term loans at B1, senior unsecured notes at B3, senior subordinated notes at Caa1 and liquidity rating at SGL-3 and Graphic Packaging's bank debt at Ba3 and notes at B2.

Moody's said the action follows the announcement of the companies' planned merger.

The merger, which is to be completed in a stock for stock transaction, is expected to allow the combined entity to realize operating and financial synergies. Further, it fulfills Riverwood's objective of becoming a public company.

The review for possible upgrade of Riverwood's debt ratings reflects the potential for improved operating and financial performance and lower leverage, Moody's said. The review for possible downgrade of Graphic Packaging reflects Moody's view that existing Graphic Packaging bondholders could experience increased financial leverage given the current credit risk profile of the two companies.

Riverwood's speculative-grade liquidity rating of SGL-3 was confirmed reflecting ongoing tightness on the EBITDA to interest covenant and limited overall financial flexibility.

Fitch to cut Lumbermens

Fitch Ratings said Lumbermens Mutual Casualty Co.'s surplus notes remain at C, indicating imminent default, but will likely be cut to D at the earlier of the execution of the tender offer or at the June 1, 2003 interest payment date.

Fitch's comments follow Lumbermens' announcement that it has received a notice from the director of the Illinois Insurance Department denying Lumbermens' request to make interest payments due June 1 and July 1 on its surplus notes. Concurrent with this ruling, Lumbermens is offering to purchase all $700 million of its outstanding surplus notes for a total purchase price of $100 per $1,000 principal amount pending consent of the surplus noteholders to an amendment to certain terms of the surplus notes and related documents.

Fitch said it believes that a tender at 10% of par represents a distressed transaction and would be viewed by Fitch as a default.

S&P cuts Lumbermens

Standard & Poor's downgraded Kemper Insurance Cos. Intercompany Pool's counterparty credit rating to B- from B+ and Lumbermens Mutual Casualty Co.'s $100 million 8.45% surplus notes due 2097, $200 million surplus notes due 2037 and $400 million 9.15% surplus notes due 2026 to C from CCC. The ratings remain on CreditWatch with negative implications.

S&P said the actions follow Kemper's announcement that the Illinois Insurance Department had denied Kemper permission to make the next scheduled interest payments on its surplus notes.

Kemper also announced a tender offer for all notes outstanding at 10% of face value. If all notes were tendered, Lumbermens would pay about $70 million to note holders. This action would eliminate one class of creditors and facilitate creation of a new entity by a consortium of investors, which will buy the renewal rights to a portion of the ongoing book of business. The claims of the note holders on Lumbermens assets, however, are subordinated to other creditors. Therefore the tender offer will reduce the amount of cash available to pay policyholder obligations by a similar amount, though the new entity will pay Lumbermens $9 million for certain assets and, going forward, a commission on renewal business.

S&P said it expects to resolve the CreditWatch status of the surplus note ratings as the interest payment dates are reached. The ratings on these notes will be revised to D on actual default on these payments.

Moody's cuts AmeriGas senior unsecured

Moody's Investors Service downgraded AmeriGas Partners, LP's senior unsecured rating to B2 from Ba3 and confirmed its senior implied rating at Ba3. The outlook is stable. The action ends a review begun in November 2002.

Moody's said the confirmation of AmeriGas's senior implied rating reflects its expectation that the company's credit measures will remain in line with not only historic results, but also those of some of its peers. The rating continues to reflect AmeriGas' highly leveraged financial position, heavy payout rate, leading position in propane retailing and potential for support from parent UGI Corp., which has substantial cash resources.

The downgrade of AmeriGas's senior unsecured notes is a re-calibration to better convey their junior position in the company's consolidated capital structure and the lack of upstream guarantees from its subsidiaries, Moody's said. AmeriGas is a master limited partnership and a holding company with no operating assets of its own that relies on cash flow from its operating subsidiaries (operating partnerships or OLPs) to service its debt. The master limited partnership debt is not guaranteed by the subsidiaries that hold the company's assets. About 70% of AmeriGas's consolidated debt - first mortgage notes, bank debt, and leases - exists at the operating level, secured by substantially all of its assets.

The master limited partnership ratings indicate the rate of expected recovery for its senior unsecured noteholders relative to that of the secured creditors at the operating level. Moody's estimated that the operating net tangible assets just cover its debt, leaving little if any available to cover the debt of the master limited partnership.

S&P says Manitowoc unchanged

Standard & Poor's said Manitowoc Co. Inc.'s ratings are unchanged including its corporate credit at BB with a negative outlook.

S&P's comment came after Manitowoc announced first quarter 2003 earnings will be off by about 12-15 cents per share from what was expected. S&P noted that difference is less than 10% of the $1.59 per diluted share reported in 2002 for net income from continuing operations.

The decline is due to the impact from the recently ended strike at Manitowoc's Marinette Marine operations.

S&P said it did not expect the strike to have a material impact on the company's EBITDA. The company has indicated that it expects its full-year cash flow from operations will be at least $100 million.

Although leverage was about 4x at the end of 2002, with integration and cost savings, and debt repayment, S&P said it expects total debt to EBITDA to be around 3x and EBITDA interest coverage to range from 4x to 4.5x. In addition, funds from operations to total debt is expected to average around 20%.

If credit protection measures remain below appropriate levels for the current ratings over the intermediate term, likely driven by prolonged weakness in the crane market, the ratings could be lowered, S&P added.

Moody's confirms Indofood

Moody's Investors Service confirmed PT Indofood Sukses Makmur Tbk's foreign currency rating for its $280 million eurobonds at B3 and maintained the positive outlook. But Moody's lowered the outlook on the B1 local currency issuer rating to negative from stable.

Moody's noted the outlook for the foreign currency rating reflects the positive outlook for Indonesia's sovereign rating.

The negative outlook for the B1 local currency rating reflects the fact that the increasingly competitive environment in Indonesia and increased operating costs have continued to erode the profit margin of Indofood, as reflected in the drop in its EBIT margin to 11.4% in fiscal 2002 from 2001's 13.9%, Moody's said.

As a result financial measures of credit have deteriorated below management's targeted ratios as previously outlined to Moody's. RCF/debt and EBIT/interest were lowered to 13% and 2.2x respectively in fiscal 2002 from 24% and 2.5x in fiscal 2001.

S&P withdraws Entertainment Publications ratings

Standard & Poor's withdrew its ratings on Entertainment Publications Operating Co. Inc. and Entertainment Publications Inc. following the completion of the acquisition of Entertainment Publications by USA Interactive Inc. for $360 million in cash.

Ratings affected include Entertainment Publications Operating's senior secured debt at B+ and Entertainment Publications Inc.'s senior unsecured debt at B-.

S&P says AFC unchanged

Standard & Poor's said AFC Enterprises Inc.'s ratings are unchanged including its corporate credit at BB with a stable outlook on news that the company will restate earnings for 2001 and the first three quarters of 2002.

AFC is revising its accounting for impairment charges, asset sales, cooperative advertising, and other items.

The charges are non-cash and do not impact key credit ratios, S&P said. AFC's credit protection measures are currently adequate for the rating category.

Although the restatements will delay the filing of its 10-K annual report, which will violate its debt agreements that require AFC to file financial statements within 90 days, the company anticipates that it will be able to obtain a waiver from its lenders on this requirement.

Fitch cuts some Northwest, Delta EETCs

Fitch Ratings downgraded five Enhanced Equipment Trust Certificate transactions backed by payments from Northwest Airlines and one by payments from Delta Airlines. Ratings downgraded are Delta Air Lines European enhanced equipment passthrough certificates, series 2001-2 class A to AA from AAA, Northwest Airlines passthrough certificates series 2002-1 class C-1 and C-2 to BBB- from BBB, Northwest Airlines European enhanced equipment trust certificates series 2001-2 class A to A from AA- and class B to BB- from BBB, Northwest Airlines passthrough trusts series 1996-1 class A to BBB- from A-, class B to BB- from BBB-, class C to B+ from BB, class D to B from BB-, NWA Trust #2 class A to A- from A+, class B to BBB- from BBB+, class C to BB+ from BBB, class D to B+ from BB-, and NWA Trust #1 class A to BB- from A and class B to B from BBB-. All classes are removed from Rating Watch Negative.

Fitch said the downgrades are a result of deterioration in the credit quality of the underlying airlines as well as a decline in the value of the aircraft supporting the transactions.

On Feb. 25, Fitch downgraded Northwest Airlines, Inc.'s unsecured debt to B from B+ and on March 18 it assigned an initial unsecured debt rating of B+ to Delta Air Lines, Inc.

The global aircraft industry has been turbulent during the last 18 months and is likely to remain so in the weeks and months ahead. Fitch is concerned that the continued weakening of the airline industry, particularly in North America, has and will lead to further value impairment of EETC aircraft collateral.

In the evaluation of the collateral, Fitch focused primarily on the following factors: the supply and demand of the aircraft and similar aircraft, and the aircraft's importance to an airline's ongoing operations. The aircraft that Fitch believes vulnerable to the largest impairment include older vintages from all manufacturers, and certain mid life to late life Boeing aircraft.

Moody's cuts Mission Resources

Moody's Investors Service downgraded Mission Resources including cutting its $225 million of 10.875% senior subordinated notes due 2007 to Caa3 from Caa1 and $40 million bank revolver to B2 from B1. The outlook continues to be negative.

Moody's said the new ratings more closely reflect the implicit substantial asset coverage shortfall, future operating and cash flow trends and the position of the bonds in a recapitalization of Mission. Bond coupons of $12.234 million are due April 1 and October1 through 2006 and Moody's does believe Mission will make its April 1 payment.

The downgrades reflect cumulative erosion of asset coverage, still negative production trends, a very high and also highly leveraged full-cycle cost structure, insufficient cash flow to reinvest for full reserve replacement; poor finding and development results with the capital that has been reinvested, and a closer approximation of the bonds' value in a debt restructuring, Moody's added. Debt of proven developed (PD) reserves at year-end 2002 approximated a very high $7.65/PD boe.

Pro-forma for fourth quarter 2002 asset sales, Moody's expects first quarter 2003 production to be 15% lower than fourth quarter 2002, pushing interest expense per unit of production to $6.10/boe of production.

Moody's cuts Eagle Family Foods

Moody's Investors Service downgraded Eagle Family Foods, Inc. including cutting its $50 million senior secured revolving credit maturing 2004 and $53 million senior secured term loan maturing 2008 to B2 from B1 and $115 million 8.75% senior subordinated notes due 2008 to Caa2 from B3. The outlook is stable.

Moody's said it lowered Eagle because of its high leverage and slow expected pace of debt reduction due to the company's small, concentrated business with limited growth and modest profitability.

The stable outlook is dependent on re-extension or replacement of the company's revolving credit prior to its December 2004 maturity.

Eagle's balance sheet is weak, its debt load significant, and its ability to deleverage from internally generated funds modest. Intangibles accounted for $108 million of Eagles $148 million asset base at Dec. 28, 2002, and book equity at Dec. 28, 2002 was negative $44 million. EBITDA for the 12 months to Dec. 28, 2002 was approximately $25 million, yielding a total debt/EBITDA ratio of 6.7x, based on December 2002's funded debt level of $168 million. Coverage of fixed charges is thin, with EBITDA-capex /interest of 1.5x.

Moody's cuts Courtyard by Marriott II

Moody's Investors Service downgraded Courtyard by Marriott II LP's senior unsecured notes to B2 from B1. The outlook is stable.

Moody's said the downgrade reflects the continued decline in Courtyard by Marriott II's operating performance and debt service coverages due to a sustained downcycle in the lodging industry which got underway in the second half of 2001.

Moody's also noted that stress in the lodging industry has been negatively impacting the operating performance of the partnership's owners, whose sponsorship has been a rating consideration. Owners of lodging properties, especially those in the higher pricepoint segment have been particularly affected during the current downturn because of their high operating leverage and dependence on business travel.

While the Courtyard brand has performed better than its competitive set since the downturn, the brand is facing heightened competitive pressure as corporate spending on travel continues to be restrained and the full-service segment continues to aggressively reduce pricing to maintain occupancy, Moody's said.

Moody's anticipates that the partnership will continue to operate, at least through the end of 2003, with significantly reduced debt service coverage levels. However, Moody's notes that the self-amortization of the partnership's CMBS debt, which is senior to the unsecured bonds, has resulted in declining leverage, and should continue to positively affect its future leverage profile.

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