Moody's upgrades EchoStar

Moody's Investors Service upgraded EchoStar Communications Corp. and subsidiary EchoStar DBS Corp. including raising EchoStar Communications' $1 billion 4 7/8% convertible subordinated notes due 2007 and $1 billion of 5¾% convertible subordinated notes due 2008 to B2 from Caa1 and EchoStar DBS' $1.625 billion 9 3/8% senior unsecured notes due 2009, $700 million 9 1/8% senior unsecured notes due 2009 and $1 billion of 10 3/8% senior unsecured notes due 2007 to Ba3 from B1. The outlook is stable. The action ends a review for upgrade begun on March 7.

Moody's said the upgrade principally reflects the company's strong liquidity position, reduced financial leverage, and correspondingly improved financial flexibility following blockage of the proposed merger with Hughes by the Department of Justice, cessation of the former commitment to acquire PanAmSat, and extinguishment of the Vivendi preferred equity stake on attractive terms, all of which are additive to the ongoing strength of operating performance and overall successful execution of the company's business plan.

However the revised ratings continue to incorporate certain key risks, including the company's still high (albeit moderating) financial leverage and only modest coverage of interest and fixed charges by EBITDA; the highly and increasingly competitive operating environment for the pay television industry in general, and direct broadcast satellite (DBS) companies in particular; concerns about the long-term viability of DBS vis-à-vis cable TV operators once cable network upgrades and rebuilds have been completed, and particularly given the noteworthy absence of an economical Internet access product offering for DBS operators; and the aggressiveness and entrepreneurial nature of EchoStar, which Moody's believes may contribute to further escalation of subscriber acquisition costs as a means of supporting incremental growth and market share gains.

However, the ratings garner support from the company's strong liquidity position, and the perceived lack of an obvious large-scale use for its liquidity other than to repay debt; strong operating performance, which is expected to continue over the forward period; the reduced likelihood of future debt-financings, particularly of a senior (and secured, as previously expected given the substantial flexibility to do so as the subscriber base has grown so dramatically over time) nature; and the general competitiveness of the EchoStar pay TV product and service offering, which leads the market initially through a value-oriented proposition and probably retains and upsells subscribers better than most thereafter, Moody's said.

The stable outlook incorporates Moody's belief that EchoStar will continue to successfully execute on its business plan, and will notably operate in a fiscally prudent manner, including the anticipated usage of current excess liquidity to accelerate the deleveraging of its balance sheet through the early redemption of certain obligations, either on the open market or as they become callable beginning next year.

The outlook also reflects Moody's expectation that the company will generate more than $350 million of positive free cash flow over the forward 12-month period, a considerable improvement over 2002 even after the larger amount of capital expenditures that will be made in 2003 and the one-time $600 million breakup fee that was paid to Hughes in 2002.

S&P says Kansas City Southern still on watch

Standard & Poor's said Kansas City Southern and Kansas City Southern Railway Co., both rated BB, remain on CreditWatch with negative implications where they were placed April 1.

The CreditWatch update followed Kansas City Southern's April 21 announcement of a series of agreements with Grupo TMM SA in which Kansas City Southern will gain control of TFM SA de CV and the Texas Mexican Railway Co., S&P said.

Ratings on Kansas City Southern remain on CreditWatch pending a review of the financial impact of the proposed transaction as well as a review of the company's future funding requirements and near-to-intermediate term operating outlook, S&P said.

Based on 2002 results, the combined entity would generate about $1.3 billion in revenues and $368 million in EBITDA. Under the proposed deal, TMM Multimodal (a subsidiary of TMM) will receive 18 million shares of NAFTA Rail (representing approximately 22% of the company); $200 million in cash; and a potential incentive payment of between $100 million and $180 million, based on the resolution of certain future contingencies, including TFM's long-running value-added-tax dispute with the Mexican government, S&P noted. This dispute, which dates back to the privatization of TFM in 1997, could result in a significant payment to TFM. The face value of the VAT credit certificate is $206 million.

Although Kansas City Southern is a Class 1 railroad, its scale and location make it more vulnerable than its peers to economic and competitive pressures. While the proposed deal should enhance the company's business profile, the increase in debt following the completion of the transaction will make the company more vulnerable to cyclical pressures, S&P said.

As of Dec. 31, 2002, the combined companies had about $1.6 billion in total balance sheet debt. Adding to financial risk and uncertainty in the near-to-intermediate term is the Mexican government's right to put its ownership in TFM in the fall of 2003. Measured as of Dec. 31, 2002, the total purchase price of the government's stake was about $485 million.

Fitch says Dean Foods convertibles redemption positive

Fitch Ratings said Dean Foods Co.'s redemption of $100 million of its $600 million trust-issued preferred equity securities (TIPES) on April 17 is a credit positive. Fitch rates Dean's secured credit facility BB+, its senior unsecured notes BB- and its trust convertible preferred securities B-. The outlook is stable.

Holders of the TIPES that had been called for redemption had until April 16 to convert their TIPES to common stock. Approximately 99.2% of these holders elected to convert their securities prior to the redemption date, thereby significantly reducing the cash requirements, Fitch said. As a result, this transaction has positively impacted Dean's credit statistics. Total debt including TIPES to EBITDA is expected to improve to 3.8 times from 4.0x at Dec. 31, 2002.

S&P says Packaging Corp. unchanged

Standard & Poor's said Packaging Corp. of America's ratings are unchanged including its corporate credit at BBB- with a stable outlook.

S&P's comments came after the company reported a modest decline in net income for the first quarter of 2003 compared with the same period in 2002.

During the quarter, rapidly rising fiber and energy costs reduced earnings, S&P noted. However, the company's ability to alter its fiber mix as well as its relatively limited reliance on natural gas at its mills muted the impact compared with other forest products companies.

In addition, Packaging Corp. benefits from increasing containerboard and corrugated products volumes despite the cyclical downturn, a high degree of forward integration, and limited exposure to export markets.

Modest price increases should also gradually improve results over the next few quarters. Packaging Corp.'s attractive cost position is a key support for the ratings, and S&P said it expects the company to continue generating solid operating cash flow and credit measures appropriate for the ratings.

S&P rates Millennium Chemical notes BB+

Standard & Poor's assigned a BB+ rating to Millennium America Inc.'s new $75 million senior unsecured notes due 2008 and confirmed other ratings of the company and its parent Millennium Chemicals Inc. including Millennium America's senior secured bank loan and senior unsecured notes at BB+.

S&P noted that the proposed transaction and a recent bank facility amendment will restore near full availability under the committed $175 million revolving credit facility, and will replace secured debt with longer dated unsecured obligations.

Despite some indications that business trends are improving, Millennium's extension of debt maturities and the recent amendment to its bank credit facilities, to relieve concerns related to restrictive financial covenants, are viewed as prudent actions that should ensure access to sufficient liquidity in the event that business conditions fail to improve in line with expectations, S&P said.

Near-term challenges include the still-uncertain global economic recovery - although current pricing has constrained new capacity additions to debottlenecking projects at existing plants as opposed to large-scale greenfield investment projects. Accordingly, pricing and margins should improve steadily from current levels, provided that the U.S. economy can rebound to extend demand improvement in North America and other key regions, S&P said. Higher operating rates, initiatives to increase pricing among several top producers, and Millennium's efforts to reduce costs bode well for higher profits in TiO2 this year.

In the near term, Equistar's earnings and cash flow generation are expected to remain depressed by industry overcapacity, still-uncertain demand growth, and renewed concerns related to substantially higher energy and feedstock costs. Still, Millennium's interests in Equistar should bolster the firm's opportunities to improve its financial profile as the petrochemical cycle improves; although recent geopolitical turmoil has raised concerns related to the timing of recovery.

At the current ratings, credit protection measures are expected to improve over the next two years, with funds from operations to total debt approaching 25%, from approximately 10%, S&P said. Total debt to total capitalization (adjusted to capitalize leases) is above 70%, compared with the appropriate 55%.

Moody's confirms Century Aluminum

Moody's Investors Service confirmed Century Aluminum Co. including its $100 million guaranteed senior secured revolving credit facility due 2006 at Ba3 and $325 million 11.75% first mortgage notes due 2008 at B1, concluding a review begun on Jan. 29. The outlook is stable.

Moody's said the confirmation was prompted by the completion of Century's acquisition of the 20% ownership interest in the Hawesville aluminum reduction facility previously owned by Glencore International AG.

The ratings confirmation reflects the stability provided by Century's off-take agreements; its purchase agreements; which provide access to stable sources of raw materials, such as alumina and electrical power, through long-term contracts; and its forward sales contracts that over the next year fix a large percentage of its output at prices above the current market price, Moody's said.

The ratings also reflect Century's efforts in improving various operations to lower costs and its adequate liquidity.

The ratings also incorporate the company's weak operating performance, its focus on a single commodity-priced product, primary aluminum, and Moody's view that low aluminum prices will persist over the intermediate term. The company's financial performance has been negatively impacted by soft aluminum demand and the resulting weakness in aluminum prices.

Despite current difficulties, the stable outlook reflects Moody's view that the company's current operations, liquidity position, and cost structure, as well as the absence of any material debt service requirements in the near term, will enable the company to operate in the current low price environment as it has in the recent past, absent any significant events.

Despite the realization of above-market prices, Century's leverage remained high at about 5.4x on a debt/EBITDA basis and coverage was weak at approximately 1.5x on an EBITDA/interest basis, Moody's said.

Moody's rates Millennium Chemical notes Ba1

Moody's Investors Service assigned a Ba1 rating to Millennium America's $75 million add-on guaranteed senior unsecured notes due 2008 and confirmed Millennium Chemicals' senior secured credit facilities at Baa3. The outlook remains negative.

Proceeds from the new notes will be used to retire amounts outstanding under the revolving credit facility and for general corporate purposes.

The confirmed ratings continue to reflect Millennium's strong market share and competitive cost position in titanium dioxide (Ti02), significant barriers to entry in this market, an improving Ti02 demand outlook, and the company's leading North American position in acetyls, Moody's said.

The ratings also reflect recent improvements in Millennium's operating performance primarily due to higher Ti02 prices.

The ratings, however, also consider Millennium's high leverage with debt to EBITDA, including securitized receivables, of 6.6 times as of Dec. 31, 2002, weak EBIT coverage of interest expense of 1.2 times over the same period, and significant cyclicality in its cash flows which includes potential dividends from its 29.5% stake in Equistar Chemicals, Moody's said.

The ratings also reflect significant competitive pressures in the specialty chemicals business and the potential for raw material pricing pressure in the acetyls business.

The negative outlook reflects Moody's concerns over Millennium's ability to reduce debt through internal cash flow and uncertainty over the timing of a recovery in the company's end-markets. Moody's notes that the amendment to the financial covenants under the credit facility, the favorable outlook for Ti02 pricing, and the company's equity interest in Equistar are key factors sustaining the current ratings. To the extent that recent improvements in Ti02 pricing are reversed, flexibility under the revised covenants is less than expected, or near-term debt metrics do not improve, it is likely that the ratings would be downgraded.

Moody's rates Phillips-Van Heusen notes B2

Moody's Investors Service assigned a provisional B2 rating to the planned senior unsecured notes due 2013 of Phillips-Van Heusen Corp. and confirmed the company's existing ratings including its $100 million 7.75% senior secured debentures due 2023 at B1 and $150 million 9.5% senior subordinated notes due 2008 at B3. The outlook remains stable.

The ratings reflect Phillips-Van Heusen's weaker projected cash flow and higher leverage resulting from the significant purchase price paid for the recent CKI acquisition. Leverage, measured as lease adjusted total debt to free cash flow, pro forma for the CKI acquisition, for the 12 months ending Jan. 30, 2003 is 13 times, or approximately 16.7 times, inclusive of the preferred stock, Moody's said. These metrics are impacted by significant cash contingent purchase price payments for a 15-year period, an expected growth in operating lease payments from outlet growth, and cash transition and integration costs.

Moreover, the expected timing mismatch between the potential cash growth versus the cash outflow related to the acquisition financing increased the company's credit risk profile for the near and intermediate term.

The ratings also reflect Phillips-Van Heusen's leading market share in the dress shirt business, continued growth of the sportswear business and the company's experienced management team albeit with a history of uneven cash generation.

The ratings recognize the significant opportunities for revenue and margin enhancements for PVH from the recently acquired Calvin Klein brand via increased licensing revenue, sub-branding, expertise in the woman's market and potential cost savings within the Calvin Klein infrastructure, Moody's said.

The stable outlook would benefit from increased free cash flows relative to debt inclusive of the preferred stock, the underfunded pension obligation and leases. Moody's said it will monitor Phillips-Van Heusen's progress in the integration of CKI into its operations.

S&P rates Pride convertibles BB

Standard & Poor's assigned a BB rating to Pride International Inc.'s new $250 million senior unsecured 3.25% convertible notes due 2033 and confirmed its existing ratings including its senior secured debt at BBB-, senior unsecured debt at BB and subordinated debt at BB-. The outlook is stable.

Pride is expected to apply roughly $115 million of the proceeds to redeem its zero-coupon convertible debentures due 2018. Pride is obligated to purchase those outstanding debentures on April 24, 2003 at the option of the holders. The company is also expected to use proceeds to opportunistically reduce its higher-cost outstanding debt.

Ratings reflect Pride's competitive position in the cyclical contract drilling market; a broad, geographically diverse fleet; multiyear contracts that provide sufficient cash flow to meet debt service through 2004; and aggressive financial leverage.

Pride's financial leverage is aggressive for a drilling contractor, with the debt to capital ratio around 50% and near-term debt to EBITDA expected to be just under 4x, S&P said. EBITDA interest coverage should be around 3.5x and EBITDA to interest plus capital expenditures would be above 2x, assuming a maintenance level ($80 million to $85 million) spending budget.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.