S&P keeps Timken on watch

Standard & Poor's said Timken Co. remains on CreditWatch Negative including its corporate credit at BBB-.

S&P noted that Timken announced that it has issued an additional 3.5 million of common shares with net proceeds of $55 million mainly to reduce outstanding debt.

S&P said the action is consistent with Timken's financial policy of remaining an investment-grade company.

Nevertheless, Timken's balance sheet is stretched, particularly when considering meaningful pension fund obligations and postretirement benefits, S&P said.

S&P puts Edison Mission Energy on watch

Standard & Poor's put Edison Mission Energy on CreditWatch negative including its $400 million 10% senior unsecured notes due 2008, $600 million 7.73% notes due 2009 and $600 million 9.875% notes due 2011 at BB-, Edison Mission Capital's cumulative monthly income preferred securities at B and Mission Energy Holding Co.'s $385 million 7.5% senior secured term loan due 2006 and $800 million 13.5% senior secured notes due 2008 at B-.

S&P said the CreditWatch listing on Edison Mission Energy and Mission Energy Holding reflects the substantial refinancing risk at their largest wholly owned subsidiary, Edison Mission Midwest Holdings Co., which faces a Dec. 11, 2003 maturity of $911 million, and the execution risk associated with a refinancing or restructuring plan.

Edison Mission Midwest Holdings has limited access to the capital markets and lacks adequate liquid funds to make the Dec. 11, 2003 payment, S&P said.

Consequently, Edison Mission Midwest Holdings's ability to address the imminent maturity depends entirely on its ability either to reach terms with its bank lenders to extend, restructure, or refinance the loan or to repay the debt through asset sales or other means.

Should Edison Mission Midwest Holdings fail to reach an agreement by Dec. 11, a default could occur, S&P said. A default or insolvency event at Edison Mission Midwest Holdings could, under certain scenarios, trigger a cross default on the Mission Energy Holding bonds or Edison Mission Energy obligations.

S&P puts Edison Mission Midwest on watch

Standard & Poor's put Edison Mission Midwest Holdings Co. on CreditWatch negative including its $150 million revolving credit facility due 2004, $808 million revolving credit facility due 2004 and $911 million revolving credit facility bank loan due 2003 at BB-.

S&P said the action results from increased risk that Edison Mission Midwest Holdings may not be able to refinance its $911 million loan by its Dec. 11 maturity date and that the company may not be able to restructure debt and lease obligations to enable it to comfortably meet debt and lease obligations over the next decade.

Edison Mission Energy has been discussing various debt refinancing possibilities with its bank lending group for some time, and the company reports that progress has been made in these negotiations, S&P said. Nonetheless, successful refinancing or renegotiation will require the consent of all bank lenders, and potentially of lease equity, which could be difficult to accomplish given the large and varied amounts of debt associated with the Midwest assets.

Under terms of Edison Mission Midwest's credit agreement, a rating downgrade would result in Edison Mission Midwest having to apply funds in the cash flow recapture fund (currently approximately $245 million) to make a mandatory prepayment of outstanding credit facility loans on a pro rata basis. Excess cash flow generated in future quarters will, upon deposit in the cash flow recapture fund, be similarly applied to debt prepayments.

S&P lowers Dura outlook

Standard & Poor's lowered its outlook on Dura Automotive Systems Inc. to negative from stable and confirmed its ratings including its senior secured debt at BB, senior unsecured debt at B+ and subordinated debt at B.

S&P said the outlook revision is because of the expectation that slow growth, difficult industry conditions and only modest expected free cash flow generation will delay improvement of the company's weak financial profile.

Dura's heavy debt load has resulted from numerous acquisitions, S&P said. During 1999 and 2000, the company purchased six businesses for about $820 million, mostly financed with debt.

Although Dura reduced debt by about $200 million during 2001 and 2002, the company's credit statistics have remained weak because of reduced operating cash flow.

EBITDA is expected to decline 15%-20% during 2003 because of reduced automotive production, especially among the Big Three domestic car makers, weaker recreational vehicle markets, intense pricing pressure and higher employee benefit, insurance and raw material costs, S&P said.

Dura's recent $57 million purchase of Creation Group, the potential $24 million acquisition of Methode Electronics Inc., and weaker operating cash flow will result in limited to no debt reduction during 2003.

Total debt (adjusted for off-balance sheet accounts receivable financing, operating leases, and cash balances in excess of operating needs, estimated at about $50 million) to EBITDA is expected to exceed 5x for fiscal 2003, S&P added.

Moody's rates dj Orthopedics loan B1

Moody's Investors Service assigned a B1 rating to dj Orthopedics LLC's $100 million guaranteed senior secured term loan and $25 million guaranteed senior secured revolving credit facility and confirmed its existing ratings including its $15.8 million guaranteed senior secured term loan due 2005 and $25 million guaranteed senior secured revolving credit facility due 2005 at B1 and $75 million 12.625% guaranteed senior subordinated global notes due 2009 at B3. The outlook is stable.

The new facility is to finance the company's acquisition of the bone growth stimulation business of OrthoLogic Corp.

Moody's said its rating is based on likely evolutionary, rather than revolutionary, nature of any erosion of the market for bone growth stimulators by alternatives to spinal surgery, increased use of instrumentation in spinal surgery, or biological treatment.

The cash flows that the assets are likely to generate, together with the improved cash flows from the company's existing businesses, will therefore be adequate to service its increased debt, in Moody's view.

Further supporting the ratings are favorable demographic trends, dj Orthopedic's strong market position in its existing business and its improving financial performance. The ratings are constrained by the risks associated with integrating a relatively large acquisition, the competitive nature of the industry and the ongoing pressures on pricing exerted by third-party payers.

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