S&P puts Midwest Generation on watch

Standard & Poor's put Midwest Generation LLC on CreditWatch negative including its $333.5 million 8.3% passthrough certificates due 2009 and $813.5 million 8.56% passthrough certificates due 2016 at BB-.

S&P said the action follows its placement of Edison Mission Energy and Edison Mission Midwest Holdings Co.'s ratings on CreditWatch negative.

Midwest Generation, a wholly owned subsidiary of Edison Mission Midwest, makes lease rent payments that cover debt service on the pass through certificates. Edison Mission Energy guarantees payment on the passthrough certificates.

S&P raises East Coast Power to investment grade

Standard & Poor's upgraded East Coast Power LLC to investment grade including raising its $184 million 7.066% senior secured notes due 2012, $193.5 million 6.737% senior secured notes due 2008 and $248 million 7.536% senior secured notes due 2017 to BBB- from BB+. The ratings were removed from CreditWatch positive. The outlook is stable.

S&P said the action follows the announcement that El Paso Merchant Energy, a business unit of El Paso Corp., closed on its sale of its 99% interest in East Coast Power to GS Linden Power Holdings LLC, a subsidiary of The Goldman Sachs Group Inc. (A+/stable), for $456 million in cash.

The BB+ rating on East Coast Power had been limited due to the ownership of that entity by El Paso. The transfer of ownership to Goldman Sachs allows East Coast Power to be rated at its BBB- stand-alone credit quality, S&P said.

Project performance continues to be steady, S&P noted. Consolidated debt service coverage is expected to be approximately 1.7x for 2003 versus 1.4x projected. The differential is due primarily to higher electricity and steam margins realized under the terms of the long-term contracts and improved efficiency and lower heat rate at the Linden 1-5 project resulting from the first full year of integration of Linden 6 steam supplies in the project.

Fitch confirms Turkcell

Fitch Ratings confirmed Turkcell Iletisim Hizmetleri AS's senior unsecured foreign currency rating at B and local currency rating at B+ and Cellco Finance NV's $400 million senior unsecured notes due 2005 at B and $300 million senior subordinated notes due 2005 at B- and maintained a positive outlook. The comment follows an annual review.

Fitch said the confirmation and outlook reflect macroeconomic improvement in Turkey.

Following Fitch's upgrade of Turkey's ratings to B from B- on Sept. 25, the agency upgraded the long-term foreign currency ratings of nine Turkish companies including Turkcell, mirroring the sovereign action.

Macroeconomic trends are a key driver of Turkcell's credit profile, as shown by its strong operational and financial performance in 2002 and 2003m, Fitch said.

The rating also reflects prudent financial policies, demonstrated by cost control measures and a proven commitment to debt service and liquidity.

Consequently, net leverage ratio adjusted for leases and Ericsson vendor credits has improved to 1.4x range in 2002 compared with 2.4x in 2000.

Fitch views Turkcell's recent $300 million bond buyback as consistent with its refinancing and recapitalization attempts, which should strengthen its balance sheet.

Offsetting these positive factors, Turkcell is entering a period of increasing competitive pressures, driven by regulatory changes such as the new cost-based interconnect regime.

Moody's raises Mitsui Engineering outlook

Moody's Investors Service raised its outlook on Mitsui Engineering & Shipbuilding Co., Ltd. to positive from stable and confirmed its ratings including its senior unsecured debt at B1.

Moody's said the revision reflects its expectation that Mitsui Engineering's earnings and credit profile is likely to continue improving, despite the challenging operating environment.

The company's operating performance has shown improvements over the last few years, mainly supported by its strong competitiveness in shipbuilding and the relatively stable performances of its machinery division, Moody's noted.

Mitsui Engineering derives over 30% of its sales and 55% of its operating profit from shipbuilding, an area where there is fierce competition from other Japanese as well as Korean manufacturers.

Despite this rising competition, Mitsui Engineering has improved its shipbuilding division's operating performance and cash flow, largely due to its effective implementation of cost reduction measures in the past few years, combined with a shift in focus to the construction of high value-added ships.

Furthermore, the favorable operating performance of its subsidiary, MODEC - a leading provider of specialized marine equipment, floating production equipment and project management and engineering services to the offshore industry - is also contributing to the enhancement of the shipbuilding division's profitability.

S&P confirms MNG Airlines, off watch

Standard & Poor's confirmed MNG Airlines Inc. including its corporate credit at B- and removed it from CreditWatch negative. The outlook is stable.

S&P said the action follows a review of the effect on MNG of the hostilities in Iraq and of subsequent business developments in the company.

MNG's rating reflects the company's high financial leverage, the specific risk characteristics of the airline industry and the operating challenges associated with a strategy of rapid growth and diversification.

MNG's credit quality benefits from the company's strategic preference for contracts that guarantee a predetermined rate per hour, diversified customer base and competitive cost position.

MNG's financial metrics are expected to remain broadly unchanged in the medium term, S&P said. Cost reductions through the internalization of external functions - such as maintenance and ground handling - are likely to be offset by incremental expenses related to the company's corporate jet business and a possible dilution of the company's business mix through expansion in activities such as domestic scheduled passenger services, which are unlikely to be as lucrative as existing businesses.

Fitch cuts Vitro

Fitch Ratings downgraded Vitro SA de CV's senior unsecured foreign and local currency ratings to BB- from BB. The ratings remain on Rating Watch Negative.

Fitch said the action reflects continued pressures on Vitro's operating fundamentals and the deterioration of credit protection measures to levels not commensurate with the prior rating category as a consequence of a difficult economic and competitive environment.

The Rating Watch Negative on the ratings reflects Fitch's belief that these challenges and the pressure on credit ratios will continue over the next several months.

For the first half of 2003, revenues declined by 2.7% and the EBITDA margin deteriorated, reflecting lower cost absorption and higher energy costs, Fitch said.

In flat glass, weak demand from the U.S. non-residential construction sector and pricing pressures from original equipment manufacturers have been off-set by higher sales to the domestic construction market, to Mexico's auto replacement market and at Vitro's Spanish operations. The glass containers division, a strong performer in 2002, has also suffered in 2003 due to the negative effect on sales of beer and soft drinks of adverse weather in the U.S. The glassware division remains affected by poor capacity utilization, driven by weak demand from Mexico's industrial segment, lower exports to the U.S. and increased competition from imports.

Lower revenue, profitability and cash flows continue to hinder Vitro's debt repayment goals, Fitch said. For the 12-month period ended June 30, 2003, total debt-to-EBITDA reached 4.3 times compared to 3.8x during 2002 and the ratio of EBITDA-to-interest expense deteriorated to 2.6x from 3.2x in 2002. The company has targeted proceeds from sale of non-strategic assets for debt reduction but these have been limited in 2003. Vitro recently announced the sale of one of its plastic containers businesses for approximately US$18 million.

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