Moody's confirms Tyco, outlook now stable

Moody's Investors Service confirmed Tyco International Ltd. and assigned a Ba2 rating to its proposed $3.25 billion convertible debentures. Ratings confirmed include Tyco International Ltd.'s LYONs at Ba3, Tyco International Group SA's senior notes and debentures and revolving credit facility at Ba2, Tyco International (US) Inc.'s senior unsecured notes and debentures at Ba1, ADT Operations, Inc.'s senior subordinated notes and LYONs at Ba2, Raychem Corp.'s senior unsecured notes at Ba3 and Mallinckrodt Inc.'s senior unsecured notes and debentures at Ba3. The outlook is now stable. Tyco had previously been on review for downgrade.

Moody's said the action reflects the reduced uncertainty surrounding Tyco's credit as a result of the release of the findings of Phase II of the Boies investigation.

The investigation, which focused on Tyco's accounting and governance practices, incorporated recommendations for a number of improvements related to internal controls, and resulted in relatively modest additional adjustments to the company's audited financials, Moody's said.

Despite the disruptions of the past year, Tyco's core business units retain sound competitive positions, Moody's said, adding that it anticipates intermediate-term earnings and cash flow will provide adequate debt protection measurements.

Although certain risks remain, including the need to address an ongoing SEC investigation and shareholder litigation, the ratings anticipate that resolution of these matters will not materially adversely affect the credit, Moody's said.

Although refinancing risks are also present, Moody's believes that the refinancing plan developed by management is achievable.

S&P cuts Dayton Superior loan

Standard & Poor's downgraded Dayton Superior Corp.'s bank debt including cuttings its $23.5 million term loan A due June 2006, $30 million acquisition facility due June 2006, $50 million revolving credit facility due June 2006 and $98.5 million term loan B due June 2008 to B+ from BB-. Other ratings were confirmed including its subordinated debt at B-.

S&P said the downgrade is in response to its reassessment of recovery prospects due to a deeper than expected downturn in commercial construction markets and a gradual increase in the amount of the company's secured debt during the past few years.

The company's bank loan rating is now the same as the corporate credit rating.

S&P said that although it believes there is a strong possibility of substantial recovery of principal in the event of default or bankruptcy, its level of confidence in full recovery is not sufficient to warrant the bank loan rating being one notch higher than the corporate credit rating.

S&P said it recognizes Dayton Superior's leading shares in niche construction markets and substantial cost reduction efforts. However, the value of the collateral, including accounts receivable, inventory, property, plant, and equipment under a distressed scenario may not fully cover the amount of secured debt.

Moody's rates Remington notes B2

Moody's Investors Service assigned a B2 rating to Remington Arms Co., Inc.'s proposed $175 million senior unsecured notes and confirmed its existing ratings senior unsecured issuer rating at B2. The outlook is stable.

The notes will be used to repay existing indebtedness and fund a special dividend to Remington's parent.

Moody's said the rating action reflects the additional leverage and change in ownership indicated by this and auxiliary proposed transactions, as well as Remington's consistently strong generation of operating cash flows.

Remington's ratings are restrained by its pro forma high leverage and moderate free cash flow relative to debt and by its participation in a highly competitive and mature industry which is subject to political/regulatory shifts, land development issues and discretionary spending trends as well as contingent product and environmental liabilities, Moody's said.

Additional risks include the company's varying and material working capital needs due to the seasonal nature of the business and its practice of extended dating terms and the meaningful degree of sales and profit concentration from certain customers and products.

Remington's ratings are supported by leading market positions (#1 or #2 in all core markets) and well-known brands, as developed over the company's 186-year history, Moody's added. The ratings reflect Remington's stable operating cash flows which benefit from management's focus on operating efficiency, cost control and product development as well as Remington's stable market share position in almost all categories and the generally stable market aggregates for its industry overall.

Sales for Remington from 1997 to the 12 months ending Sept. 30, 2002 have averaged $390 million (within a range of -1.8% and +4.1%) and EBITDA has averaged approximately $64 million, (ranging from $52 to $74 million for this same period), Moody's noted. Further, from 1997 to the 12 months ended Sept. 30, 2002, EBITDA leverage has gone from 3.8x to 2.2x and EBITA interest coverage has gone from 1.7x to 4.1x (inclusive of a $79 million in cash dividends & special payments made by the company in 2000 & 2002).

Moody's cuts American Commercial Lines

Moody's Investors Service downgraded American Commercial Lines LLC including cutting its $50 million revolving credit due 2005, $46 million tranche A term loan due 2005, $132 million tranche B term loan due 2006 and $155 million tranche C term loan due 2007 to Caa1 from B3, $137 million senior unsecured notes due 2008 to Caa3 from Caa2 and $116 million senior subordinated notes due 2008 to Ca from Caa3. The outlook is stable.

Moody's said the downgrade reflects further weakness in American Commercial Lines' operating performance and financial statistics, contrary to previous expectations at the time of the recent re-capitalization.

Moody's said its prior assignment of ratings and outlook were done with the expectation that following the re-capitalization of the company by Danielson Holding Corp. in May 2002 improvement in American Commercial Lines' operating performance would be sufficient to gradually de-lever the company.

Instead, EBITDA has deteriorated ($27 million, net of $14 million restructuring costs, for the nine months ending September 2002 on $520 million of revenue versus $73 million for the same period in 2001 on $573 million of revenue) in a continued difficult operating environment, Moody's said.

Total debt remained essentially unchanged since the re-capitalization ($613 million as of September 2002 versus $612 million as of June 2002).

Moody's noted American Commercial Lines has a "thin" liquidity position, as the $50 million revolving credit facility is fully drawn, and cash balances are decreasing ($15 million as of September 2002, versus $47 million as of December 2001).

Moody's confirms Del Monte senior secured, upgrades notes

Moody's Investors Service confirmed Del Monte Corp.'s senior secured rating at Ba3 and upgraded its senior subordinated notes to B2 ratings following the closing of its acquisition of businesses from H.J. Heinz Co. The new ratings are consistent with Moody's previously announced prospective ratings. Moody's also rated the $450 million of senior subordinated notes issued for the Heinz acquisition at B2. The outlook is stable.

The ratings are supported by Del Monte's scale ($3.1 billion pro forma sales, including the businesses acquired from Heinz), its product and category diversification, and its portfolio of well known brands (including Del Monte, Contadina, StarKist, 9-Lives, and Kibble n'Bits), Moody's said. Del Monte's products benefit from relatively stable consumption trends and durable sales.

In addition, Del Monte's management team has been effective in implementing operating, acquisition and financial strategies, Moody's added. The common dry goods nature of the historical Del Monte and acquired Heinz businesses, the overlap in customers and suppliers, and the expected retention of Heinz staff should facilitate the integration process of the new Heinz businesses.

The ratings are limited by material financial leverage and the significant challenges to reinvigorate and integrate the Heinz businesses, Moody's added. The Heinz businesses have exhibited volatility, had negative sales and cash flow trends over the past few years, and have lost market share in several product lines (especially pet food). Del Monte plans incremental spending on product improvement, marketing and advertising to reverse these trends.

S&P rates American Media notes B-, loan B+

Standard & Poor's assigned a B+ rating to American Media Operations Inc.'s new $140 million tranche C-1 term bank loan due 2007 and a B- rating to its $150 million senior notes due 2011. S&P also confirmed the company's existing ratings including its senior secured bank loan at B+ and subordinated debt at B-. The outlook is stable.

S&P said American Media's pending acquisition of Weider Publications LLC for $350 million, while largely debt financed, will not materially alter credit measures over the near term due to potential operating synergies and cost-saving opportunities through the leveraging of American Media's existing infrastructure.

Weider is a leading publisher in the growing health and fitness special interest magazine niche. Its stand-alone EBITDA growth has been strong during the past two years reflecting a stable readership base and increasing advertising revenues, S&P noted. The acquisition provides a good strategic fit and diversifies American Media's cash flow streams by raising advertising and subscription revenues. The Weider titles generate about two-thirds of sales from advertising, versus only 11% for American Media.

Only about 29% of the combined total will be from advertising. About 45% of Weider's circulation revenue comes from stable subscriptions, versus only 12% for American Media, which is highly dependent on single copy circulation. Opportunities exist to expand Weider's circulation through American Media's newsstand distribution channel.

For the existing operations, EBITDA declined 3% in the 12 months ended Sept. 23, 2002, versus peak EBITDA achieved in fiscal 2001; cover price hikes, a modest increase in advertising revenues, and cost reductions did not offset declining circulation, S&P said. The rating agency added that it believes that the company's ability to reverse the secular decline in circulation is doubtful, especially given its small subscriber base, aggressive cover price hikes, and increased competition from other publications, television and radio programs, and Internet sites.

The 13x EBITDA purchase price multiple appears to be based on Weider's good market position, favorable growth and cost savings opportunities, as well as tax savings resulting from the structure of the deal, S&P said. The Weider purchase is being partially financed with a $50 million equity contribution, $20 million of existing cash balances, and the balance in debt.

Fitch cuts Petroleum Geo-Services, on watch

Fitch Ratings downgraded Petroleum Geo-Services ASA's senior unsecured debt to C from CCC and its trust preferred securities to C from CCC- and put the ratings on Ratings Watch Negative.

Fitch said the downgrade is due to the company's recent announcement that it will use the 30-day grace period for payment of interest due Dec. 30, 2002 on its 6 5/8% senior notes due 2008 and its 7 1/8% senior notes due 2028.

Failure to make such payment within the 30-day grace period will be considered to be an event of default, and the rating will be lowered to D, Fitch added. Should the coupon payment default be cured in the grace period, a new rating will be assigned, but reflective of the just cured default.

Petroleum Geo-Services also announced that it is deferring distribution payments on the preferred securities issued by its wholly owned trust subsidiary PGS Trust I. The deferral is made in accordance with instrument covenants and the deferral period may extend for five years. Within this five year deferral period, Fitch said it does not consider nonpayment an event of default. Trust preferreds, however, are debt and therefore upon expiration of the deferral time period, nonpayment would result in a D category rating.

The ratings have been placed on Rating Watch Negative reflecting the probability of Petroleum Geo-Services not making the previously mentioned interest payment within the grace period, thereby resulting in default, Fitch added.

S&P rates Peabody loan BB+

Standard & Poor's assigned a BB+ rating to Peabody Energy Corp.'s $480 million secured revolving credit facility and confirmed its existing ratings including its senior unsecured debt at BB and subordinated debt at B+.

S&P noted that the facility (as well as the company's 8.875% senior notes and the 9.625% senior subordinated notes) is guaranteed by all of Peabody's restricted subsidiaries except those at its 81.7%-owned Black Beauty Coal Co.

Because specific assets secure the facility, S&P said it used its discrete asset methodology to evaluate the collateral under a liquidation scenario. Although the collateral will incur substantial devaluation in a default scenario, S&P said it expects there is a strong likelihood secured creditors will realize full recovery of principal in event of default or bankruptcy, assuming a fully drawn bank facility.

The ratings reflect Peabody Energy's leading market position, its substantial diversified reserve base, and contractual sales, S&P added. The ratings also reflect its aggressive financial leverage, uncertainties pertaining to its eastern coal operations, and the turbulence in the power generation markets.

In an effort to diversify its energy strategy and to utilize its extensive reserves and holdings, Peabody is in the early stages of developing two 1,500-megawatt "mine mouth" power projects, which will be extremely economical given the elimination of coal transportation costs, S&P said. However, there are significant costs to develop these projects, which would take at least four to five years to construct. The credit concerns and difficulties in the power generation industry have delayed Peabody's efforts to find suitable power generating partners

During the past three years, Peabody has achieved significant debt reduction of approximately $1.4 billion through a combination of asset sales and a $452 million initial public offering, S&P said. Total debt to total capital (not adjusted for OPEB and pension liabilities) stands at a fairly moderate 48%. Yet, the company's overall financial leverage remains burdened by onerous health care, workers compensation, and reclamation liabilities totaling $1.8 billion.

S&P estimates that EBITDA to interest and funds from operations to total debt (not adjusted for OPEB and pension liabilities) should average in the 4x to 5x range and mid-20% area for 2002, respectively. Further meaningful near-term debt reduction is precluded given meaningful pre-payment penalties.

Moody's upgrades Levi Strauss senior unsecured notes

Moody's Investors Service upgraded Levi Strauss & Co.'s senior unsecured debt to B3 from Caa1 and confirmed its other ratings including its bank facility at B1. Ratings raised include its $350 million 6.8% senior unsecured eurobonds due 2003, $450 million 7% senior unsecured eurobonds due 2006, $380 million 11.625% unsecured global senior notes due 2008 and €125 million 11.625% unsecured global senior notes due 2008, all raised to B3 from Caa1. The new $425 million 12.25% senior unsecured notes due 2012 were confirmed at B3 from a provisional B3. The action concludes a review for upgrade on the notes begun on Nov. 25.

Moody's said the upgrade reflects improvement in the company's liquidity from the recent issuance of $425 million in new 12.25% senior unsecured notes. Proceeds from the notes, together with proceeds from a new revolving credit facility and term loan (both unrated and currently in syndication) should be sufficient to retire near-term debt maturities and fund increased working capital needs in 2003.

The narrowing of the notching between the senior implied rating of B2 and the B3 rated senior unsecured notes reflects the decreased probability of default following the anticipated completion of refinancing activity, and greater potential asset coverage in a going-concern scenario, Moody's said.

Completion of both planned refinancings should provide sufficient capital to retire current maturities of long term debt, including the company's existing bank facilities, which mature in August 2003. The refinancings should also provide sufficient funding to support the increased working capital needs for the company's product introduction through the mass merchant market (via Wal-Mart), which is scheduled for mid-2003, the rating agency added.

Levi's ratings continue to reflect a weak level of free cash flow (cash from operations less capital spending) in relation to total debt, Moody's said, adding that it believes that the company's ratio of free cash flow to debt will not exceed 10% for the foreseeable future, and will be substantially lower over the near term. Further debt reduction is likely to be difficult until 2005.

The ratings also reflect the intense competitive pressures that continue to exist in Levi's core business, and heightened operational and market risk related to the new mass merchant initiative. Although the company's recent results show at least a temporary pause in the long-term downward trend in its sales and volumes, there is no assurance of long term stability, or that volume in the core business will improve going forward, or remain at current levels.

Moody's cuts Brown Jordan, on review

Moody's Investors Service downgraded Brown Jordan International, Inc. (formerly Winsloew Furniture, Inc.) and put it on review for further possible downgrade. Ratings lowered include Brown Jordan's $60 million senior secured revolving credit facility due 2006 and $165 million senior secured term loan due 2006, cut to B1 from Ba3, and $105 million senior subordinated notes due 2007, cut to B3 from B2.

Moody's said the downgrade reflects Brown Jordan's diminished operating performance levels and constrained liquidity profile (with respect to covenant proximity) since the May 2001 acquisition of BJI, as well as its ongoing exposure to weak demand in its key operating segments.

Moody's review will focus on Brown Jordan's ability to manage through a difficult near-term operating environment, particularly with respect to available liquidity sources and the ability to manage working capital levels. Moody's will also assess actions that management is taking to improve sustainable long-term sales, profitability and cash flow generation.

Although the company generates enough cash for its mandatory term loan and interest payments, further deterioration could constrain debt repayment capacity and financial flexibility beyond levels appropriate for the B1 rating category, Moody's said. The company's performance in recent quarters has been negatively impacted by margin pressures, particularly with an increasing proportion of sales to mass merchandisers versus dealers, significant sales declines in contract furniture (hospitality), and customer losses in the RTA business.

Brown Jordan's proximity to covenant levels (maximum leverage of 5.65x for the fiscal year ending 2002) could restrict borrowing capacity going forward. Finally, Moody's noted that capital expenditures are currently running below depreciation and historical levels, which could lead to a less efficient production platform if not addressed over time. Debt to EBITA for the 12 months ended September 2002 was near 5.7x compared to the May 2001 pro forma estimate of 4.3x.

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