Moody's downgrades Kmart two notches, still on review

Moody's Investors Service downgraded Kmart Corp. and left the ratings on review for further possible downgrade. The action affects $4.7 billion of debt, including Kmart's senior unsecured debt and medium-term notes, both lowered to Caa1 from B2, and its lease certificates, lowered to Caa2 from B3;

Moody's said that while it "anticipates that the company is currently trying to arrange financing, there is little clarity at this point in time about the company's financial plan to support its 2002 business objectives and what these will entail."

Kmart's weak operating performance and the widening competitive gap create uncertainty about the prospects of its franchise longer term, as well as the traction of management's turnaround strategy, Moody's said.

S&P downgrades Kmart three notches, still on watch

Standard & Poor's downgraded Kmart Corp. and its Kmart Financing I unit. The ratings remain on CreditWatch with negative implications. Ratings affected include Kmart's debentures, notes, lease certificates and credit facility, cut to CCC- from B-, and Kmart Financing I's $1 billion convertible trust preferred stock, lowered to C from CCC-.

S&P said that since the most recent downgrade on Jan. 14 - which cited concerns regarding vendor confidence - two factoring companies, which provide intermediary financing for suppliers, have begun advising their clients to withhold shipments to Kmart.

"Management's lack of communication regarding the company's plans has increased Standard & Poor's concerns that the company could implement a financial strategy with high risk for creditors," the rating agency said.

Fitch downgrades Kmart multiple notches, still on watch

Fitch downgraded Kmart Corp., cutting its bank facility to CCC from BB-, its notes and debentures to CCC from B+, its lease certificates to CCC from B+, and its convertible preferred securities to CC from B-. The ratings are on Rating Watch Negative.

Fitch said the downgrades reflect "the company's tenuous financial position and the rapid decline in confidence in the marketplace, including significant concerns on the part of Kmart's vendor base."

Some vendors are withholding shipments, Fitch said, adding that "there is continuing uncertainty as to Kmart's current financial strategy in the absence of any communication from the company."

Fitch said a Chapter 11 filing appears "increasingly likely" in part as a means to eliminate undesirable leased store locations.

S&P downgrades Conseco, removes from watch

Standard & Poor's downgraded Conseco Inc. and removed the company from CreditWatch. The outlook is stable.

Ratings affected include Conseco Inc.'s various series of senior notes, lowered to B from B+; its $500 million FELINE PRIDES, lowered to CCC from CCC+; and its trust preferreds, lowered to CCC from CCC+.

S&P took no action on Conseco Finance Corp., leaving the unit's ratings on CreditWatch with negative implications.

S&P said Conseco has made "considerable progress" in reducing debt over the past 18 months but said the current economic weakness will likely reduce Conseco's flexibility in making further reductions.

In 2002, S&P anticipates Conseco will increasingly rely on dividends from its insurance operations to support the needs of the parent company.

Financial leverage, interest coverage, operating earnings, and operating cash flow remain in line with S&P's previous expectations.

However "further asset sales will be necessary for the parent to continue to meet its debt-reduction objectives," S&P said.

America West fails to make lease payment in grace period, will pay when loan closes

America West Airlines said it failed to make $49 million of aircraft lease payments within the grace period that expired Wednesday but added that it will pay the amount due when it closes on a new $429 million loan, expected later this week.

The Phoenix, Ariz. airline said it is "confident that, prior to the anticipated loan closing, it would suffer no materially adverse legal or financial consequences as the result of the lease payment deferrals."

The new loan will be supported by a guarantee from the Air Transportation Stabilization Board.

S&P keeps Continental on negative watch

Standard & Poor's said it kept Continental Airlines on CreditWatch with negative implications but added that it expects to resolve the watch "fairly soon."

S&P made its comments after Continental reported a "moderate" fourth quarter 2001 net loss of $220 million before federal government cash grants and other special items or $149 million net loss as reported.

The rating agency described the fourth quarter earnings as "relatively good, given the very difficult airline industry environment."

Revenue is recovering gradually, with revenue per available seat mile improving each month from negative 25.6% versus the prior year in September 2001 to negative 14.3% in December, S&P noted. "So far, most of that improvement, as at other airlines, has been due to increased traffic and load factors, rather than better pricing, which remains weak."

S&P puts Vintage Petroleum on watch

Standard & Poor's put Vintage Petroleum Inc. on CreditWatch with negative implications. Ratings affected include Vintage's $150 million 9% senior subordinated notes due 2005, $100 million 8.625% senior subordinated notes due 2009, $150 million 9.75% senior subordinated notes due 2009 and its $200 million 7.875% senior subordinated notes due 2011, all rated BB-.

S&P said its action results from ongoing concerns over political and economic uncertainty in Argentina. Vintage expects 40% of its 2002 total oil and gas production from Argentina.

Foreign oil companies operating in Argentina are facing the possibility of a five-year tax on oil and gas exports that is likely to be about 20% or more, S&P said. The tax would be in addition to the current 12% royalty payments and 35% earnings tax.

"While Vintage will most certainly suffer negative financial consequences as a result of the current crisis, Standard & Poor's is unable to assess the ultimate effect until a final plan regarding the Argentine government's treatment of foreign oil and gas companies is announced," S&P said.

Moody's rates Coinmach planned notes B2

Moody's Investors Service assigned a B2 rating to Coinmach Corp.'s planned offering of $40 million senior notes and a B1 rating to its planned $395 million senior secured credit facility. Moody's also confirmed the company's existing ratings. The outlook is stable.

Moody's said the ratings "reflect Coinmach's significant indebtedness, negative tangible equity, a history of consistent losses, and moderate interest coverage. The ratings also factor in the company's strong market position, steady operating performance and cash flows based on long-term leases with a high renewal rate, a large installed base of laundry machines, an experienced management team, and the resilient nature of laundry services with low sensitivity to fluctuations in economic conditions."

The new debt is for a refinancing.

Moody's said it believes that the new financing will have the benefit of extending maturities and reducing interest expenses by about $14 million while keeping the total debt largely unchanged.

Moody's rates new Azteca Holdings notes B3

Moody's Investors Service assigned a B3 rating to Azteca Holdings, SA de CV's planned $150 million offering of senior secured notes due 2003 and confirmed the company's existing ratings and those of its TV Azteca, SA de CV unit. The outlook is positive. Ratings affected include Azteca Holdings's $129 million of senior secured notes due 2005 at B3 and TV Azteca's $425 million of senior unsecured notes due 2004 and 2007 at B1.

Moody's said its ratings reflect "moderate financial leverage and modest cash flow coverage, the costs of producing television programming, and the company's investment in various speculative ventures, including Todito.com, Unefon and Azteca America."

The rating agency said it is concerned Azteca may invest further cash into these ventures if necessary to fund operating losses and/or to support capital investment for further growth.

In particular, Moody's said it originally expected the company would contribute only programming to the developing Azteca America Network but under the current structure owns 100% of the network and has invested $70 million to date with an option to increase its investment to approximately $100 million to acquire a 25% interest in certain stations.

"Azteca America will likely be challenged to grow its presence in the US market because the number of operators targeting the Hispanic broadcasting market is growing," Moody's noted.

Moody's rates new PanAmSat notes Ba3, downgrades existing notes to junk, cuts Hughes

Moody's Investors Service rated PanAmSat Corp.'s planned $500 million offering of senior unsecured notes offering due 2012 at Ba3 and its new $1.25 billion senior secured credit facility at Ba2. Moody's also lowered PanAmSat's $750 million outstanding senior unsecured notes to Ba2 from Baa3. It also lowered Hughes Electronics Corp.'s senior unsecured bank debt rating to Ba3 from Ba1. All the ratings remain on review for possible further downgrade.

Moody's said the new ratings are at the highest level the rating agency believes likely for the range of possible outcomes for EchoStar Communications Corp.'s proposed merger with Hughes.

Moody's said it downgraded PanAmSat because EchoStar has committed to acquire Hughes' 81% stake in the company.

PanAmSat's debt capital structure is anticipated to consist of 80% senior secured debt (fully drawn) and 20% senior unsecured debt and Moody's believes it likely PanAmSat's senior secured debt ratings will move in conjunction with EchoStar's senior implied rating, with a one-notch lift to account for PanAmSat's stronger credit profile but constrained by the Echostar overhang.

The current PanAmSat ratings ceiling (the current levels) take into account a possible upgrade of EchoStar.

If EchoStar is confirmed, PanAmSat's senior secured rating would be lowered to Ba3 and its senior unsecured rating could be lowered to B2.

In the lower probability scenario that EchoStar's senior implied rating is downgraded, then PanAmSat's senior secured rating would drop accordingly, Moody's said.

Moody's noted it lowered PanAmSat's outstanding notes because they will receive a senior secured priority that will be pari passu to the senior secured credit facility.

The downgrade of Hughes reflects rising debt leverage and weak operating performance, Moody's said.

S&P downgrades Covanta six notches to junk, still on watch

Standard & Poor's downgraded Covanta Energy Corp. including lowering its senior unsecured debt to B from BBB and its subordinated debt to B- from BBB-. All ratings remain on CreditWatch with negative implications.

S&P said Covanta has not reached cash balance targets required by a bank facility covenant as a result of slower-than-anticipated asset sales and delays in the collection of accounts receivable from California utilities.

The company is reviewing options to strengthen short-term liquidity and to extend covenant waivers that currently run through the end of January, S&P said. "Although there are currently no draws under the bank facility, if the banks grant no further extension, the resultant default could cause draws on a number of LOC facilities, making it difficult for Covanta to remain solvent."

S&P noted Covanta has $149 million in convertible subordinated debentures coming due during the next 12 months ($85 million on June 1 and $64 million on Oct. 1).

"Covanta needs to formulate and execute a credible recapitalization plan, pay down these debentures when they come due, and provide liquidity for near-term operations. If the company does not soon implement an adequate plan and secure the requisite financing, a further downgrade will likely occur," S&P said.

Fitch downgrades Union Acceptance, outlook negative

Fitch downgraded Union Acceptance Corp.'s senior debt to B from B+. The outlook is negative. Fitch said it previously had a private rating on Union Acceptance.

Fitch said its downgrade primarily reflects Union Acceptance's "challenges in addressing maturing debt over the next 12-15 months."

The rating agency said it recognizes steps taken by Union Acceptance to improve creditor protection by raising over $88 million of additional equity. That extra cash should be sufficient for senior debt obligations due in March and August 2002 but Fitch estimates the company will still need additional financing for the senior debt maturing in December 2002 and subordinate debt due in March 2003.

With a viable refinancing plan, current debtholders should receive timely payment of principal and interest, Fitch said. Without a credible plan there could be further pressure on the ratings.

Fitch downgrades Riggs Bank

Fitch downgraded Riggs Bank NA, including lowering its long-term ratings to BB+ from BBB-. Ratings for Riggs National Corp. were confirmed including the preferred stock at BB. The outlook is stable.

Fitch said its downgrade follows Riggs' announcement of charges for various items, including technology-related contract cost overruns, impairment charges on capitalized technology costs and other restructuring charges.

"Looking ahead, even after these actions, we believe Riggs will be challenged to achieve profitability levels consistent with higher rated banking peers," Fitch said.

But the rating agency also noted Riggs retains a liquid balance sheet and an ample parent company cash position that supports a meaningful amount of trust preferred securities.

Like its peers, Riggs will be challenged by the slowdown in the capital markets and overall economy but unlike similar companies it faces a high expense base, Fitch said.

Fitch confirms Boyd Gaming, outlook negative

Fitch confirmed its ratings on Boyd Gaming Corp. and removed them from Rating Watch Negative but said the outlook is negative. Affected ratings include Boyd Gaming's $613 million senior secured bank credit facility at BB, its $200 million 9.25% senior unsecured notes due 2003 and $200 million 9.25% senior unsecured notes due 2009 at BB- and its $250 million 9.50% senior subordinated notes at B.

The Rating Watch Negative placement was in response to concerns related to the Sept. 11 terrorist attacks.

Fitch said the ratings incorporate Boyd's "favorable earnings mix and growing cash flow visibility."

It noted more than 60% of revenues are from slot play, which is generally a more consistent source of earnings. In addition, for the nine months to Sept. 30, 2001, more than 60% of property EBITDA was generated from the Blue Chip, Par-A-Dice and Treasure Chest properties, which are drive-to locations.

Drive-to casinos have done relatively better than the Las Vegas Strip recently, Fitch said.

S&P downgrades Airxcel

Standard & Poor's downgraded Airxcel Inc. The outlook is stable. Ratings affected include Airxcel's $90 million 11% senior subordinated notes due 2007, lowered to CCC+ from B-.

S&P said it lowered Airxcel because it expects the company's cash flow protection and debt leverage measures will remain below levels appropriate for the previous ratings, even as its markets improve.

S&P noted the company is the leading manufacturer of air conditioners for RVs, offset by the modest size and cyclicality of this market, Airxcel's small financial base and very aggressive debt leverage.

The rating agency noted favorable demographic trends bolster the likelihood for long-term expansion of RV ownership. But it said the OEM customer base is "highly concentrated and sales are sensitive to general economic conditions and the price and availability of gasoline."

A downturn in the RV industry begin in mid-2000 and unit shipments for 2001 were expected to be down significantly from 2000, which was estimated to be the second-strongest year since the late 1970s, with 1999 being the strongest, S&P said.

S&P lowers Applica outlook to stable

Standard & Poor's lowered its outlook on Applica Inc. to stable from positive and assigned a B+ rating to its new $205 million revolving credit facility due December 2005. S&P also affirmed the company's existing ratings including its senior secured debt at B+ and subordinated debt at B-.

S&P said it lowered the outlook because of "weaker-than-expected sales for the important fourth quarter holiday selling season and the challenging retail environment for home appliances."

Applica announced that because of the current recession fourth quarter sales would be $210 million, about 10% below the similar period in 2000, S&P said. In addition to a previously announced $15 million fourth quarter after-tax charges for cost reduction and debt refinancing, the company may take an additional after-tax charge of about $12 million for a product recall and devaluation of the Argentinean peso.

However S&P said Applica reduced its inventory by $60 million in 2001, helping produce cash flow partially used for the retirement of debt.

S&P lowers Impsat senior notes to D

Standard & Poor's downgraded Impsat Fiber Networks Inc.'s $125 million senior notes due 2003 to D from CC.

S&P said the downgrade follows Impsat's failure to make the interest payment due Jan. 15.

S&P lowers IT Group to D

Standard & Poor's downgraded IT Group Inc. to D.

S&P said the downgrade follows IT's announcement it has filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

Ratings lowered to D include IT Group's $221 million term loan B due 2006, $185 million revolving credit facility due 2004 and $100 million term loan C due 2007, all previously CCC-, its $225 million 11.25% senior subordinated notes due 2009, previously C, and OHM Corp.'s $57.5 million 8% convertible subordinated debentures due 2006, previously C.

S&P lowers Pac-West Telecomm, still on watch

Standard & Poor's downgraded Pac-West Telecomm Inc. and kept its ratings on CreditWatch with negative implications. Ratings affected include Pac-West's senior secured bank loan cut to CCC from B- and its $150 million senior unsecured notes due 2009, cut to CC from CCC.

S&P said it lowered Pac-West because of increased concerns that Pac-West "may be challenged to have adequate funding for its business plan beyond 2002 despite having taken measures to reduce capital spending and overhead over the past year to conserve capital."

S&P projected Pac-West will use $20 million of cash in 2002 compared to an estimated $70 million in cash and $30 million in bank availability at the end of 2001.

However it the company cannot renew its $40 million bank facility which expires in June 2002 or obtain alternative financing liquidity could become even tighter.

Leaving aside the bank facility, S&P said it is also concerned Pac-West may not have sufficient cushion "against significant execution risks because of its exposure to Internet service providers and reciprocal compensation, change in strategy, and weak fundamentals of the competitive local exchange carrier business."

S&P rates Rayovac loan BB

Standard & Poor's rated Rayovac Corp.'s existing $250 million senior secured revolving credit facility due 2004 and $34 million senior secured term loan due 2004 at BB. The outlook is positive.

S&P said its ratings reflect Rayovac's small size relative to competitors and aggressive growth strategy, partially mitigated by its solid position in certain niches of the highly competitive battery industry.

The rating agency noted the U.S. battery market "experienced good growth, averaging in the mid-to-high single-digit range, for many of the last several years. However, growth of branded products moderated in 2001, and in certain categories, declined due to the slowdown in demand for the computer, electronic and telecommunication sectors, lower consumer spending at retail, and a focus on better inventory management by retailers."

Two financially stronger competitors, Gillette (Duracell) and Energizer (Energizer, Eveready), dominate the U.S. battery industry, S&P added. But Rayovac maintains leading market shares in certain niches, including hearing aid batteries, rechargeable household batteries and lantern batteries.

S&P downgrades Talk America, on negative watch

Standard & Poor's downgraded Talk America Holdings Inc. including lowering its subordinated debt to CC from CCC. The ratings were put on CreditWatch with negative implications.

S&P said it took the action because it has increased concerns Talk America may not have adequate liquidity to meet the redemption of $66.9 million in outstanding 4.5% convertible subordinated notes when they mature in September 2002.

Talk America "has not been able to improve its cash position, estimated to be in the low-$20 million area at the end of 2001, due to execution problems in aggressively expanding into new markets and payment of cash to settle an arbitration involving a previous marketing partner," S&P said.

Although the company has improved its EBITDA margin recently through high operating leverage, overhead reduction and more careful screening of customers, S&P said it is concerned Talk America will not be able to improve its liquidity materially before the notes mature.

S&P changes Tri-Union watch to developing

Standard & Poor's changed its CreditWatch assessment on Tri-Union Development Corp. to developing from negative. Ratings affected include Tri-Union's senior secured debt at B-.

S&P said its action follows the announcement that during 2002 Tri-Union plans to sell all, or most, of its Texas and Louisiana Gulf Coast properties, in addition to its Gulf of Mexico reserves.

These properties make up 76% of Tri-Union's assets, S&P said. Tri-Union then plans to focus on its California properties. Sale proceeds would be used for debt reduction and working capital.

S&P upgrades Charles River, rates new convertibles B+

Standard & Poor's upgraded Charles River Laboratories Inc. and assigned a B+ rating to its planned offering of $150 million senior convertible debentures due 2022.

Ratings raised include its bank facilities, raised to BB from BB-, its $150 million 13.5% senior subordinated notes due 2009, raised to B from B.

S&P puts Sun World on positive watch

Standard & Poor's put Sun World International Inc. on CreditWatch with positive implications.

Ratings affected include Sun World's $115 million of 11.25% first mortgage notes due 2004 rated B.

S&P rates new Azteca notes B-, raises outlook

Standard & Poor's assigned a B- rating to Azteca Holdings SA de CV's planned offering of $150 million notes due 2003 and raised the company's outlook to positive from stable.

S&P puts Maxxam on negative watch

Standard & Poor's put Maxxam Group Holdings, Inc.'s $100 million of 12% senior secured notes due 2003 rated CCC+ on CreditWatch with negative implications.

S&P downgrades Kaiser, on watch

Standard & Poor's downgraded Kaiser Aluminum & Chemical Corp. and put its ratings on CreditWatch with negative implications.

Ratings affected include Kaiser's $225 million 9.875% senior notes due 2002 and $175 million 10.875% senior notes series C due 2006, both lowered to CCC from B, and its $400 million 12.75% senior subordinated notes due 2003, lowered to CC from CCC+,

S&P revises watch on Railtrack exchangeables to negative

Following the rejection of the standstill arrangements by holders of Railtrack plc's €400 million 3.5% exchangeable bonds, Standard & Poor's Wednesday revised the watch implications on the bond's BB+ rating to negative from developing. The rating was placed on watch with developing implications on Oct. 9, following the application of the Railway Administration Order on the company. The ongoing receipt of payments of principal and interest from a loan provided by the U.K. government to the Railway Administrators was contingent, beyond Jan. 16 on bondholders accepting the standstill arrangements. As a result of their rejection of the standstill arrangements, the exchangeable bondholders will no longer explicitly benefit from this loan, S&P sid.

There are now a number of options for these bonds that will largely be determined by the actions of the U.K. government. The Secretary of State for Transport, Local Government, and the Regions may continue to allow the bonds to be serviced from the government loan mentioned above irrespective of the bondholders' vote, in which case, S&P said it would take no further rating action at this time. However, should the Secretary of State issue a "Stop" notice specifically preventing the Railway Administrators from funding debt service payments to the exchangeable bondholders, then S&P said it would lower the rating on this bond issue only to reflect the decreased likelihood of debt service from Railtrack. Following the failure to make a debt service payment - the next scheduled payment on the 2009 bonds is due on March 18 - the rating would be lowered to D, S&P said. The ratings on the other debt securities, all of which are participating in the standstill arrangements, would be unaffected by this rating action. Nevertheless, Railtrack's corporate credit rating would be lowered to SD, S&P said, indicating selective default.

It is also possible that the bondholders could enter into standstill arrangements acceptable to the Secretary of State following a further vote prior to the next interest payment date. In such a case, S&P said there might be scope for revising the watch implications on the bond issue to developing, in line with the other bond issues participating in the standstill arrangements.

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