Moody's raises Sierra Pacific outlook

Moody's Investors Service raised its outlook on Sierra Pacific Resources to stable from negative and confirmed its ratings. It took a similar action on Sierra Pacific's utility subsidiaries Nevada Power Co. and Sierra Pacific Power Co. Moody's also assigned a B2 rating to Sierra Pacific Resources new $300 million of 7.25% convertible notes. Moody's rates Sierra Pacific Resources' senior unsecured debt at B2 and the senior secured debt of Nevada Power and Sierra Pacific Power at Ba2.

Moody's said the confirmation reflects the closing and funding of the new convertibles, which, together with other recently announced strategic financial and operational initiatives, significantly improves Sierra Pacific Resources' liquidity and addresses concerns about potential near-term default risk.

The change in outlook reflects Moody's belief that the companies now have additional flexibility to work through the lingering issues that they have been dealing with.

These issues include how Enron's claims will be dealt with by the courts; what future treatment by the Public Utility Commission of Nevada will be provided in the deferred energy rate cases recently filed by NPC and SPPC; what court rulings relating to appeals of the utility companies' earlier deferred energy rate case decisions might be; what the outcome of the Federal Energy Regulatory Commission 206 complaint case might be; and whether Nevada Power can overcome the current limitations on its ability to pay dividends to Sierra Pacific Resources.

Moody's said it believes that the lingering uncertainties surrounding the aforementioned issues are adequately reflected in the existing ratings and stable outlooks.

S&P cuts Revlon

Standard & Poor's downgraded Revlon Consumer Products Corp. and REV Holdings Inc., removed them from CreditWatch with negative implications and assigned a negative outlook. Ratings lowered include Revlon's $117.9 million bank loan due 2005 and $132.1 million revolver due 2005, cut to B- from B, $250 million 8.125% senior notes due 2006, $250 million 9% senior notes due 2006 and $650 million 8.625% subordinated notes due 2008, cut to CCC- from CCC, and $363 million 12% notes due 2005, cut to CCC+ from B-, and REV Holdings' $80.522 million 12% notes due 2004, cut to CC from CCC-.

S&P said the downgrade reflects Revlon's substantial debt leverage, liquidity concerns, and a prolonged period of weak operating results.

Revlon's weak performance last year led to financial covenant defaults under its credit agreement, S&P noed. An amendment to the credit agreement has since been completed, including waiving all financial covenants until Jan. 31, 2004, and adding a new liquidity covenant.

While the anticipated investment in Revlon by MacAndrews & Forbes of up to $150 million, through a combination of debt and equity, will improve the company's liquidity position in 2003, S&P said it remains "very concerned" that the liquidity position may be severely stressed over the intermediate term, given the pace at which the company's cash balances have been depleting and credit facility availability has been reduced.

The company has announced a new growth plan designed to strengthen the business and increase revenues, S&P added. The plan, which is estimated to total about $140 million in pretax charges, will include strengthening the product mix, advertising, merchandising, and new product development.

Still, S&P said it believes that despite Revlon's strong brand name and good cosmetics market share in the mass channel the company will be challenged in its effort to return the business to profitability, given intense competition due to the significant financial resources of the company's main competitors, L'Oreal SA and Procter & Gamble Co.

S&P raises Advance Auto outlook

Standard & Poor's raised its outlook on Advance Auto Parts Inc. and its primary operating subsidiary, Advance Stores Co. Inc. to positive from stable and confirmed their ratings including Advance Auto's senior unsecured debt at B and Advance Stores' senior secured bank loan at BB- and senior subordinated debt at B.

S&P said it revised Advance Auto's outlook because of its improved operating performance in 2002 and S&P's view that the company will utilize free cash flow to reduce leverage in future years.

The proposed $350 million of additional bank debt, which will be an add-on to the company's existing senior secured bank loan, will be used to refinance the majority of its subordinated debt and senior discount notes, S&P added. The refinancing should result in lower interest expense for the company and a greater ability to reduce leverage.

The acquisition of Discount Auto Parts strengthened Advance's position as the number-two auto supply retailer in the U.S.; the combined entity has about 2,400 locations in 37 states, S&P noted. The purchase also significantly enhanced Advance's market share in Florida, where Discount Auto has more than 400 stores. Much of the store remerchandising, systems conversions, and improvements in store appearances for the non-Florida Discount Auto stores have been completed and are performing well.

Industry demographics remain favorable, as the average age of vehicles continues to increase and a greater percentage of sales are in light trucks, whose parts have a higher average ticket, S&P said. Future growth could come from commercial sales, which represent about 15% of Advance's sales.

EBITDA coverage of interest improved to 2.6x in 2002 from 1.9x in 2001 as the company reduced debt levels by $220 million, S&P said. This ratio could improve to over 4x in the next two years as the company is expected to utilize free cash flow to reduce debt. Advance generated $145 million of free cash flow in 2002. Total debt to EBITDA was 3.8x in 2002 and is expected to improve in future years as debt levels are reduced.

S&P puts Resource America on watch

Standard & Poor's put Resource America Inc. on CreditWatch with negative implications including its $115 million 12% senior notes due 2004 at B-.

S&P said the action follows Resource America's announcement of its proposed $65 million debt refinancing and $30 million note offering.

The CreditWatch reflects the uncertainty of a successful offering, S&P said. Resource's previous attempt at capital market access in August 2002 met with difficulty.

If the proposed transaction does not occur, Resource's liquidity could become strained, as the company may have to refinance or sell assets to repay roughly $6 million of debt coming due in 2003 and roughly $101 million due in 2004, S&P said. Also, Resource has drawn substantially on all of its secured debt funding, leading to debt leverage of roughly 40% and debt to EBITDA coverage above 3.5x.

If the financing is successful, Resource's liquidity would improve sufficiently for the company to meet its 2003 debt maturities, S&P added. However, the company would still be highly leveraged and would face a challenging debt maturity schedule in 2004.

S&P upgrades Crown Cork

Standard & Poor's upgraded Crown Cork & Seal Co. including raising its senior secured bank debt to BB from B, senior secured second lien debt to B+ from CCC+, senior secured third lien debt to B from CCC and senior unsecured debt to B from CCC. The ratings were removed from CreditWatch with positive implications. The outlook is stable.

S&P said the upgrade reflects the meaningful improvement in Crown Cork's financial profile from its recent debt refinancing, which extended its substantial near-term debt maturities and improved its liquidity.

S&P added that Crown Cork's ratings reflect its aggressive financial profile, still onerous debt burden, and the risks associated with its asbestos litigation, which overshadow its average business risk profile.

Although the company has reduced its debt by more than $1.3 billion in the past year using proceeds from asset sales, debt for equity exchanges, and its free cash flow, Crown Cork remains heavily leveraged with debt to EBITDA in excess of 5x at Dec. 31, 2002, S&P noted.

As a result, Crown Cork's credit protection measures are still somewhat weak for the current rating.

However, S&P said it expects that the strength of the company's business will allow management to continue its debt reduction efforts and strengthen credit measures to more appropriate levels of debt to EBITDA to 4x, EBITDA interest coverage improving to 2.5x to 3.0x from 2.0x and funds from operations to debt to 15% from below 10% currently

Crown' Corks free cash flows (after asbestos payments) are expected to remain in excess of $200 million annually, supported by tighter working capital management and its commitment to maintaining lower capital spending levels of below $150 million, S&P added.

S&P rates ON Semiconductor notes B

Standard & Poor's assigned a B rating to ON Semiconductor Corp.'s planned $200 million senior secured notes due 2010 and confirmed its existing ratings including its bank debt at B and second-priority senior secured notes at CCC+. The outlook is negative.

S&P said ON Semiconductor's ratings reflect depressed operating profitability, high leverage, and limited financial flexibility.

Sales in 2001 declined 41%, a steeper decline than in the industry at large, to $1.21 billion, from $2.07 billion in 2000. Revenues fell another 11% in 2002.

ON's results reflect a high cost base, which has impeded the company's ability to compete effectively, S&P said. Resulting operating margins were 4% in 2002 and 6% in 2001, also reflecting a steep decline in the company's high-margin "emitter coupled logic" product line, used in high-speed communications.

ON restructured in 2001, intending to reduce operating expenses by $360 million by the end of 2002. Although sales have remained flat at the September 2001 quarterly level, operating profitability has generally improved, due to the cost reduction programs instituted in mid-2001, S&P noted. Still, because of price pressures, only about half of the planned profitability gains have been realized. The company announced further restructuring steps in the fourth quarter of 2002, targeted to achieve another $125 million in annualized savings by the end of 2003.

Adjusted EBITDA for the December 2002 quarter was $47 million, 18% of sales, and $37 million above the year-earlier period, S&P said. Adjusted EBITDA coverage of interest expense in the December 2002 quarter was 1.25x, still weak for the rating level. Debt of $1.6 billion, including capitalized operating leases, was 8x adjusted EBITDA for full-year 2002.

S&P raises Partner Communications outlook

Standard & Poor's raised its outlook on Partner Communications Co. Ltd. to positive from stable and confirmed its ratings including its senior unsecured debt at B-.

S&P said the revision reflects Partner Communications' strong operating and financial performance since ratings were assigned in July 2000.

In addition, S&P said it expects further organic growth - though at a more moderate pace - which should allow the company to further improve its credit protection metrics and operating cash flow generation within the next two years.

Over the last two and a half years, Partner has grown to become the second-largest operator in, and has captured a 29% market share of, the Israeli wireless telephony market, S&P noted. This is despite being the latest entrant of the four main players in Israel.

Moody's cuts BGF notes

Moody's Investors Service downgraded BGF Industries, Inc.'s $100 million 10¼% senior subordinated notes due 2009 to Ca from Caa3 and confirmed its $16 million guaranteed senior secured credit facility due 2003 at B3. The outlook remains negative.

Moody's said the action reflects weaker prospects for principal recovery in the wake of the company's second missed coupon payment in six months.

Moody's noted that BGF was unable to make timely interest payment on Jan. 15 on the notes. A similar payment was missed on July 15, 2002 as a result of a payment blockage effected by the company's bank lenders but that payment was cured within 30 days after a forbearance agreement was signed with the banks.

However Moody's said that the company's minimal liquidity means its continued ability to operate is in doubt without significant restructuring of its debt obligations.

Moody's expects a recovery in the company's electronic and composite markets, which accounted for 70% of fiscal 2001 revenues, will be delayed longer than was previously estimated.

BGF, now operating with a lockbox in place under the forbearance agreement, is highly leveraged with debt-to-capitalization of 151% as of the end of third quarter of fiscal 2002. EBITDA for the 12 months ending with the third quarter of fiscal 2002 was negative $2.3 million, Moody's said.

Fitch upgrades U.S. Industries, rates notes, loan B

Fitch Ratings assigned a B rating to U.S. Industries, Inc.'s 11.25% senior secured notes and its senior secured bank facilities, upgraded its 7.25% senior secured notes to B from B- and removed it from Rating Watch Negative. The outlook is stable.

Fitch said the ratings recognize U.S. Industries leading brands in its bath and plumbing segment, the strong operating results of the Rexair segment and the company's early success at turning around the Jacuzzi operations.

The ratings also consider U.S. Industries' sensitivity to changes in levels of consumer spending and construction activity.

The Rating Watch Negative was based on the execution risk related to the debt restructuring and is removed as U.S. Industries has successfully restructured its debt, reducing outstanding balances and extending the maturities by several years, Fitch said.

U.S. Industries' asset sale program and other small transactions completed over the past 14 months, generated significant proceeds which allowed the company to reduce debt by about $650 million over the same period, Fitch noted. In addition, U.S. Industries successfully restructured its debt, extending the maturity on its bank debt by two years to October 2004 and exchanging its $250 million of notes due in October 2003 for cash plus notes due in December 2005. As a result, U.S. Industries substantially improved its credit measures and is no longer at risk for imminent default.

Moody's rates Meritage add on Ba3

Moody's Investors Service assigned a Ba3 rating to Meritage Corp.'s $50 million add-on to its 9.75% senior unsecured notes and confirmed its existing ratings including its senior unsecured notes at Ba3. The outlook remains stable.

The ratings reflect the financial and integration risks associated with an acquisition-based growth strategy, modest size, dual corporate structure in Arizona and Texas, each led by a co-chairman, that may give rise to potential inefficiencies, heavy reliance on land bank options, and the cyclicality of the homebuilding industry, Moody's said.

At the same time, the ratings consider the company's profitable track record to date (with 15 consecutive years of record revenues and profits for the company and its predecessor operations), the current strength of Meritage's markets (Arizona, Texas, and California, and the recently-entered Las Vegas, Nevada market), improved credit profile since the time of the company's initial rating in May 2001, and the company's modest owned lot inventory, Moody's added.

S&P cuts Nash Finch

Standard & Poor's downgraded Nash Finch Co. and changed the CreditWatch to developing from negative. Ratings lowered include Nash Finch's $165 million 8.5% senior subordinated notes due 2008, cut to CC from B-, and $250 million secured revolving credit facility due 2005, cut to CCC- from B+.

S&P said it lowered Nash Finch because of concerns about the company's liquidity as a result of the notification by the trustee for the 8.5% notes that a default has occurred under the indenture as a result of the company's failure to file certain financial reports with the SEC and that, unless remedied within the 30-day grace period, such failure would constitute an event of default under the indenture.

Nash Finch has yet to file its third quarter financial statements of fiscal 2002 due to the SEC's ongoing formal inquiry into certain practices and procedures related to promotional allowances from vendors that reduce cost of goods sold. In addition, the company is in discussions with its bank lenders concerning a waiver of a potential event of default if the default under the bond indenture is not remedied within 30 days.

On Jan. 28 Deloitte & Touche LLP resigned as Nash Finch's independent auditor. Nash Finch stated on Jan. 28 that during the period of Deloitte's engagement certain information came to Deloitte's attention that Deloitte determined if further investigated may materially impact the fairness or reliability of a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued. However, due to Deloitte's resignation, Deloitte was not able to conclude what effect, if any, these matters have on the company's previously issued or to be issued financial statements.

On Feb. 7 Nash Finch announced it was seeking SEC concurrence with the company's conclusion that count-related charges were properly accounted for.

S&P puts Volume Services on developing watch

Standard & Poor's put Volume Services America, Inc. on CreditWatch with developing implications including its $100 million 11.25% senior subordinated notes due 2009 at B- and $120 million term B loan due 2007 and $75 million revolving credit facility due 2005 at B+.

S&P said the watch placement follows the filing by the company's parent Volume Services America Holdings Inc. of a registration statement with the SEC for an initial public offering of income deposit securities.

In connection with this offering, Volume Services America is expected to commence a tender offer for its outstanding subordinated notes due 2009.

S&P said it will meet with management to discuss the financial and business impact of the proposed transaction and evaluate the impact on credit quality before taking further rating action.

Fitch puts Fairfax on watch

Fitch Ratings put Fairfax Financial Holdings Ltd. and its insurance company subsidiaries on Rating Watch Negative including its senior debt at BB and TIG Holdings, Inc.'s senior debt at B+ and trust preferreds at B-.

Fitch said the action reflects its heightened concern about Fairfax's ability to service its considerable holding company cash obligations, including interest payments and debt maturities.

The action is being taken both as a result of Fitch's ongoing analysis of the company's credit fundamentals and following a review of additional disclosures made by management in connection with its reporting of yearend 2002 financial results this week.

Fitch said it expects to conclude its Rating Watch in the next several weeks after reviewing Fairfax's 2003 annual report and other detailed year-end financial statements.

Fitch said Fairfax could be lowered more than one notch.

Fairfax faces sizable financing risks over the next year associated with upcoming debt and hybrid securities maturities, as well as meeting the benchmarks to release assets from the trust set up in connection with restructuring of TIG Insurance Co., including the financing and placement of an external $300 million adverse loss development cover, Fitch said. Fitch estimated that Fairfax may need to fund over C$800 million of cash obligations in 2003.

Sources to fund its obligations include slightly over C$500 million of holding company cash, potential tax receipts of roughly C$150 million from operating loss carryforwards upon the tax consolidation of Odyssey Re as well as other U.S. subsidiaries, management fees and upstream dividends from operating subsidiaries, Fitch said. The primary source of upstream dividends is ORC Re, an offshore subsidiary formed to conduct various affiliated transactions. Upstream dividend capacity from Fairfax's core operating subsidiaries currently is quite modest, which is of concern to Fitch.

S&P upgrades Central Garden bank loan

Standard & Poor's upgraded Central Garden & Pet Co.'s corporate credit rating and bank debt, including raising its $175 million revolving credit facility to BB+ from BB-. S&P also confirmed Central Garden's recently issued $150 million subordinated notes at B+ and withdrew the existing B rating on the company's subordinated convertible notes, which were redeemed. The outlook is stable.

S&P said the actions reflect Central Garden's improved financial profile and credit measures, including the extension of debt maturities after the company's recent refinancing of its subordinated convertible notes.

The rating on the bank loan is rated one notch higher than the corporate credit rating.

In connection with the new bond offering, Central Garden increased the size of its revolving credit facility, which expires July 2004, to $175 million from $125 million. The company also refinanced about $15 million in term loans at its All-Glass Aquarium subsidiary, terminating these term loans as well as All Glass' $10 million revolving credit facility. In addition, the company refinanced and terminated the revolving credit facility of its Pennington subsidiary.

Collateral, which includes a significant amount of the company's assets, remains the same under the amended credit agreement, with availability based on a percentage of eligible accounts receivable and inventory, S&P noted.

S&P said it used its discrete asset value methodology to evaluate the recovery prospects for Central Garden's secured lenders under a distressed scenario. The methodology incorporates downward adjustment to the values of accounts receivable and inventory to reflect the stresses inherent in a default scenario. As the business is seasonal, availability fluctuates and is limited to the borrowing base. Given the weak economy and highly competitive environment in which the company competes, pricing pressures could hurt Central Garden's financial performance. Based on this analysis, if a payment default were to occur, S&P said it expects that the collateral value would be sufficient to fully cover the bank debt.

Overall, Central Garden's ratings reflect the strong competition in the company's business segments, significant seasonality in the lawn and garden business, and customer concentration. These risks are somewhat mitigated by the company's broad product portfolio and moderate financial profile, S&p said.

Moody's lowers Juniper outlook

Moody's Investors Service lowered its outlook on Juniper Generation, LLC to stable from positive. Juniper's senior secured debt is rated at B1.

Moody's said the outlook change reflects the downgrade of El Paso Corp. to Caa1. El Paso has an indirect ownership interest in Juniper and operates virtually all of the plants owned by Juniper.

Moody's cuts Cordova Funding

Moody's Investors Service downgraded Cordova Funding Corp.'s senior unsecured debt to B1 from Ba1. The outlook is negative.

Moody's said the downgrade reflects Cordova's substantial exposure to El Paso Corp. for a majority of future cash flow, and the outlook for high natural gas prices and weak merchant power markets.

Cordova has a tolling agreement with El Paso, which supplies gas to the facility and takes any power generated, Moody's noted. Cordova sells 50% of its capacity under contract to MidAmerican Energy Company, a regulated Iowa utility. However, in the longer term, it will be dependent on El Paso or the merchant market.

Due to higher gas prices than originally projected, the plant has been operating at a rate that is well below expectations and this circumstance is likely to continue if natural gas prices remain high, Moody's said. In addition, there are significant amounts of new gas fired plants in the Midwest which could pressure capacity prices and further weaken the cash flows of Cordova.

Fitch cuts Cedar Brakes

Fitch Ratings downgraded Cedar Brakes I LLC's $310.6 million senior secured bonds and Cedar Brakes II LLC's $431.4 million senior secured bonds to B from BB+ and kept them on Rating Watch Negative.

The Cedar Brakes transactions are part of El Paso Corp.'s qualifying facility contract restructuring program, Fitch noted. Cedar Brakes I and II purchase energy from El Paso Merchant Energy and resell that energy to Public Service Electric & Gas Co. under long-term contracts.

Although Cedar Brakes I and II are bankruptcy-remote, indirect subsidiaries of El Paso, their ratings are constrained by the underlying credit quality of El Paso due to El Paso's guarantee of El Paso Merchant Energy's performance under the supply contracts, Fitch said.

The downgrades reflect continued erosion in El Paso's credit quality, including its heightened debt leverage, weakening credit protection measures, and the ultimate financial implications and cash impact of El Paso's ongoing wind down of energy marketing and trading activities.

Fitch said it is particularly concerned with the greater than expected deterioration in El Paso's cash position since the company last reported net liquidity on Dec. 19, 2002.

S&P withdraws Ormet ratings

Standard & Poor's withdrew its ratings on Ormet Corp. including its $100 million revolving credit facility previously at CCC+ and $150 million 11% notes due 2008 previously at CCC-.

S&P said the action was at the company's request.

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