S&P puts Park Place on watch

Standard & Poor's put Park Place Entertainment Corp. on CreditWatch negative including its $1.5 billion revolving credit facility due 2003, $650 million 364-day bank loan, $300 million 7% notes due 2013, $400 million 8.5% senior notes due 2006 and $425 million 7.5% senior notes due 2009 at BBB- and $350 million 8.125% senior subordinated notes due 2011, $375 million 7.875% senior subordinated notes due 2010, $400 million 7.875% senior subordinated notes due 2005, $400 million 8.875% subordinated notes due 2008 and $500 million 9.375% senior subordinated notes due 2007 at BB+.

S&P said the watch placement follows Park Place's announcement that it had submitted a bid to build and operate a Caesars brand casino in the Chicago market.

Given the company's high debt leverage for the rating, S&P said it had continued to expect Park Place management would be committed to debt reduction and that debt reduction would take precedence over growth opportunities and/or share repurchases in light of ongoing difficult business conditions.

While the company did reduce debt by $170 million during the six months ended June 30, 2003, consolidated EBITDA declined more than 10% during the same period, resulting in credit measures remaining relatively flat from the end of 2002 levels.

Moody's cuts Caraustar

Moody's Investors Service downgraded Caraustar Industries Inc. senior unsecured debt to Ba3 from Ba1 and senior subordinated notes to B2 from Ba2. The outlook is negative.

Moody's said the action concludes a review prompted by Caraustar's deteriorating financial performance, high financial leverage, the potential for continued volatility in key raw material (primarily old corrugated containers) costs in 2003 and the adverse effect of increasing energy costs.

The company's financial results have declined in 2003, due to a combination of weak demand, higher raw material costs, integration costs and other expenditures. As a result, financial leverage is high and coverage metrics are weak.

For the 12 month period ended June 30, 2003, TD to EBITDA was 12.2x and EBIT interest coverage was 1.0x. Further, during the first six months of 2003, the company did not generate sufficient retained cash flow (excluding tax refunds and proceeds from unwinding a swap) to even cover its level of capital spending.

The negative rating outlook reflects Moody's concern that leverage is high and that Caraustar may be slow in recovering without an improvement in market conditions.

S&P cuts Terra

Standard & Poor's downgraded Terra Industries Inc. including cutting Terra Capital Inc.'s $175 million revolving credit facility due 2005 to BB- from BB, $200 million 12.875% senior secured notes due 2008 to B+ from BB- and $202 million 11.5% second priority senior secured notes due 2010 to B- from B. The outlook is negative.

S&P said it cut Terra because of weakness in the company's operating results for the important second quarter, higher-than-expected debt borrowings and a decline in the company's liquidity.

Poor profitability and other cash requirements, including tightened trade terms and natural gas margin calls, have resulted in an unexpected increase in debt, a deterioration in credit protection measures and lower-than-expected availability under the company's revolving credit facility, S&P said.

Recent profitability has been negatively affected by high natural gas costs and low sales volume. Consequently, the improvement in Terra's financial profile that had been expected will likely be pushed back at least another year and remains subject to an increasingly volatile price environment for natural gas in North America.

Debt levels are high because of acquisitions and an aggressive capital spending program, S&P added. Funds from operations to total debt is about 10%, below the 15% level considered appropriate for the new ratings. The high debt levels continue to strain financial flexibility and the significant upswing in pricing and profitability needed to provide meaningful and sustainable improvements in cash flows is not expected to occur in the near term.

Moody's upgrades infoUSA, rates loan Ba3

Moody's Investors Service upgraded infoUSA Inc. including raising its $30 million 9.5% senior subordinated notes due 2008 to B2 from B3 and assigned a Ba3 rating to its $45 million senior secured reducing revolving credit facility due 2006 and $100 million senior secured term loan due 2007.

The ratings upgrade reflects recent years' debt reduction, high recurring sales, impressive competitive business position and impressive growth track record, Moody' said. The ratings consider InfoUSA's role as one of the premier providers of business and consumer information, data processing and data base marketing services.

The company's revenue predictability is supported by a recurring revenue stream with about 50% of revenues from contracts, licenses, or subscription based services. The ratings also reflect the company's impressive client diversification with no one client representing over 5% of sales.

The ratings also consider the potential for price-based competition, high data base maintenance costs, small revenue base , acquisition appetite, high level of intangible assets and uncertainty surrounding the impact of the new "do not call list."

The stable ratings outlook reflects InfoUSA's revenue predictability, strong competitive position, and recurring nature of the company's revenues. The company has had a track record of growth through acquisitions. Since its Donnelley Marketing acquisition in July of 1999 of $200 million, no acquisition has had a transaction value greater than $10 million.

Projected 2004 debt to EBITDA is expected to be around 1.7x, Moody's said. Projected EBITDA coverage of interest is expected to be slightly over 7.0x while EBITDA less capital expenditures coverage of interest is expected to be around 6.8x. Debt to free cash flow (after capital expenditures) for 2004 is expected to approximate 3.0x, while debt to capital is about 50%.

S&P rates Monitronics notes B-, loan B+

Standard & Poor's assigned a B- rating to Monitronics International Inc.'s planned 200 million senior subordinated notes due 2010 and a B+ rating to its proposed $175 million senior secured term loan B due 2009 and $150 million senior secured revolving credit facility due 2008. The outlook is negative.

S&P noted that Monitronics acquires security contracts, which generate a predictable recurring revenue stream, through its exclusive network of more than 400 dealers. Its dealer network model allows the company to minimize operating expenses by outsourcing the services associated with the sale, maintenance and installation of security systems.

Instead of incurring these operating expenses, Monitronics purchases customer accounts from its dealers; the purchases are reflected on the cash flow statement. Since customer attrition is about 12% annually, significant customer acquisitions are necessary to maintain level operating cash flow.

S&P said it views customer-acquisition costs as an essential part of Monitronics' business.

S&P added that it expects internal cash flow to be sufficient to fund these customer account purchases to offset attrition but growth will continue to be debt-financed for at least several years.

Customer-acquisition costs are considerable and have averaged more than 75% of total revenues over the past three years. Still, increased company standards for customer-account acceptance have slowed attrition in recent years and industry growth trends remain favorable, S&P said.

Moody's rates Advance Auto liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Advance Auto Parts, Inc.

Moody's said the rating reflects its expectation that Advance Auto will maintain good liquidity and that its internally generated cash flow and cash on hand will be sufficient to fund its working capital, capital expenditure and debt amortization requirements for the next 12 to 18 months.

The company's $160 million revolving credit facility is expected to remain largely undrawn and to be used only for seasonal needs and letter of credit support.

Advance has made significant improvements to both its top line and margins. EBITDA margins are expected to approach 11% of sales, with improvements mainly driven by improved gross margin. The company has shown historically that is able to successfully execute acquisitions and it is currently entering the final stages of integrating the Discount Auto Parts acquisition, Moody's said. Free cash flow is expected to be significantly in excess of required debt amortization for the next 12 to 18 months and the company's SGL-2 speculative grade liquidity rating reflects an expectation that the majority of the company's excess free cash flow will continue to be used for debt reduction rather than acquisition activity or share repurchases.

Moody's cuts AAR

Moody's Investors Service downgraded AAR Corp. including cutting its $22.6 million of 7.25% senior unsecured notes due 2003 and its $60 million 6.875% senior unsecured notes due 2007 to B2 from B1. The outlook is negative.

Moody's said the downgrade reflects AAR's low level of performance, albeit having recently stabilized and its continuing weak debt protection measures; the expectation that its performance and debt protection measurements will remain weak for some time due to persisting weak airline traffic, weak demand for its aftermarket services and pressures on used aircraft and engine values that the company leases or resells in the used aircraft market; Moody's concerns about AAR's business potential, even after the civil aircraft market begins to recover, due to fundamental changes in the company's business, which include increasing competition from OEMs as they continue to aggressively pursue the aftermarket business through internal expansions, acquisitions and joint-ventures worldwide; the effective subordination of the senior unsecured notes to the outstandings under the company's secured credit facilities.

The negative outlook reflects ongoing difficult market conditions as a result of the poor operating and cash flow performance of the airlines; concerns about the company's ability to show profitable and sustainable growth in such a difficult business environment; execution risks associated with management's plan to complete asset sales and further reduce debt, Moody's said.

Moody's noted that AAR's credit metrics remain very weak, and that it will be quite some time before the company's credit metrics show meaningful improvement due to the extended duration of the downturn in the aerospace industry. In fiscal 2003 ending May 31, 2003, the company's operating profit as a percent of sales was 0.6%, cash interest coverage was 0.2x, and adjusted debt to EBITDAR was 2.8x.

S&P confirms Edison Mission

Standard & Poor's confirmed Edison Mission Energy including its senior unsecured debt at BB- and preferred securities at B and Mission Energy Holding Co.'s $1.185 billion in secured debt at B-. The outlook is negative.

S&P said Edison Mission Energy's largest problems remain the excess leverage, the complicated lease and debt financing structures and current maturities at its largest subsidiary, Edison Mission Midwest Holdings. Edison Mission Midwest is currently trapping about $350 million in cash because of a rating downgrade covenant that began preventing distributions to Edison Mission Energy last fall. Consequently, the trap is preventing Edison Mission Energy from securing the cash needed to reduce leverage.

Absent a refinancing or restructuring of Edison Mission Midwest's debt, as well as a reduction of Edison Mission Energy's debt load, credit quality will worsen.

But S&P added that it anticipates the likelihood that Edison Mission Energy and its lenders will arrive at a viable solution to the Edison Mission Midwest problem before year-end 2003.

Unlike other companies that have had to face maturing loans this year and have arranged new financing, Edison Mission Energy's situation is different. It has no construction program or material energy trading operations that can drain liquidity, S&P noted. Nor has it had to face time-consuming regulatory investigations or shareholder lawsuits or problems releasing its financial statements. Finally, the Edison Mission Midwest coal-fired generation assets, despite the reduction in contracted revenues, have demonstrated value vis a vis their solid cash flow potential.

S&P says Westar unchanged

Standard & Poor's said the ratings of Westar Energy Inc. and its subsidiary Kansas Gas & Electric Co. ratings are unchanged including the corporate credit at BB+ with a developing outlook after Westar announced it plans a secondary offering of 9.5 million shares of its Oneok Inc. stock holdings.

But S&P said the offering, which was expected, is as positive because the after-tax proceeds will be used to reduce Westar's onerous debt burden.

If the gross proceeds to Westar from the public offering are at least $150 million, Oneok will purchase from Westar $50 million of Oneok common shares at the public offering price.

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