Moody's cuts Vivendi Universal to junk

Moody's Investors Service downgraded of Vivendi Universal SA to junk and kept them on review for possible further downgrade, affecting €7.1 billion of debt. Ratings lowered include the long-term senior debt, cut to Ba1 from Baa3, the Seagram Co. Ltd.'s SFR250 million bonds due 2085 to Ba1 from Baa3 and Houghton Mifflin Co.'s senior unsecured ratings to Ba1 from Baa3.

Moody's said its action is in response to growing doubts about the company's ability to achieve the level of debt reduction factored into the previous Baa3 rating and to arrange refinancings of debt falling due over the next 12 months despite its broad and deep asset base.

Additional uncertainty is created by a challenging capital markets environment, the lack of clarity about the company's further strategic development and the possibility that the company might decide to review its overall strategic options in-depth, Moody's said.

Against this background Moody's said it expects, however, that Vivendi Universal's banks will provide continued support for the company and will assist it in the orderly implementation of its financing and asset disposal plans.

Moody's noted the company needs to refinance at least €3.5 billion of debt over the next 12 months and that its €1.8 billion bond exchangeable into Vivendi Environment (due 2006) has the potential to be put to the company in March 2003.

In this context the new rating and the review for possible further downgrade reflect Moody's expectation that current market conditions will make it more difficult for Vivendi Universal's to achieve its refinancing plans while terms and conditions of new financing will likely be more onerous than existing borrowing.

S&P cuts WorldCom

Standard & Poor's downgraded WorldCom, Inc. and kept it on CreditWatch with negative implications. Ratings lowered include WorldCom's senior unsecured debt, cut to CC from CCC-.

S&P said the action follows WorldCom's announcement it has received a notice of termination of its $1.5 billion accounts receivable securitization program.

In addition, WorldCom has been notified by its lenders under its $2.65 billion and $1.6 billion senior unsecured credit facilities that events of default had occurred and that they have reserved their rights and remedies under the facilities, S&P noted. The company drew down the full $2.65 billion facility in May 2002. These events of default permit the lenders, holding 51% of the loans under the $2.65 billion, to vote to accelerate and demand immediate repayment of the loans.

S&P said it lowered WorldCom's ratings because of the high degree of uncertainty surrounding the company's liquidity position and its ability to ultimately pay its outstanding debt. Furthermore, additional negative news regarding the quality of the company's financial statements, along with the ongoing SEC investigation, increases the likelihood of a debt restructuring or Chapter 11 filing in the near term.

S&P says no change to Xerox ratings

Standard & Poor's said Xerox's Corp. announcement of a restatement of earnings for 1997 through 2000 and adjustments to 2001 is not expected to have an impact on the company's ratings or outlook. S&P gives Xerox a BB- corporate credit rating with a negative outlook.

S&P commented: "However, Xerox's ability to meet future debt service requirements depends on a successful transition to third-party equipment financing arrangements, material improvement in operating cash flow, and the predictability of cash flow run-off from the equipment-financing portfolio."

S&P rates Casella Waste Systems loan BB-, notes B

Standard & Poor's assigned a BB- rating to Casella Waste Systems Inc.'s new $300 million senior secured credit facilities and a B rating to its $175 million senior subordinated notes due 2012. Furthermore, the company's BB- corporate credit rating was affirmed. The outlook is stable.

The credit facilities consist of a $175 million five-year revolver, with a $65 million sublimit for letters of credit, and a $125 million seven-year term loan B. Security is a first priority perfected interest in all assets of the company and its subsidiaries, including a pledge of the stock of the significant subsidiaries and partnership interests. Proceeds will be used to repay borrowings under an existing credit facility, the rating on which is being withdrawn.

In the intermediate term, debt to EBIDTA is expected to be 3.0 times to 3.5 times, EBIDTA interest coverage about 3.0 times and debt to capital of 55% to 60%.

Moody's rates Casella Waste's loan B1, notes B3, raises outlook

Moody's Investors Service assigned a B1 rating to Casella Waste Systems Inc.'s proposed $300 million senior secured credit facility and a B3 to its proposed $175 million senior subordinated notes due 2012. In addition, the company's B1 senior implied rating and B2 senior unsecured issuer rating were confirmed. The rating outlook was changed to stable from negative.

The loan will consist of a $175 million revolver due 2007 and $125 million term loan B due 2009. Security is a first priority perfected interest in all assets of the company and its subsidiaries, including a pledge of the stock of the significant subsidiaries and partnership interests of the company. Proceeds from the loan and notes will be used to refinance existing debt. According to Moody's, $156.8 million will be used to pay down the existing revolver, $119.3 million will refinance the existing term loan B, $7.9 million will provide financing for general corporate purposes, and $16 million will pay for transaction fees and expenses.

Negative factors influencing the ratings are low consolidated EBIT return on total assets, weak balance sheet, acquisition risk and anticipated expenditures needed to expand disposal capacity, Moody's said.

Supporting the ratings is the benefits associated with the continuing divestiture of lower margin, non-core assets, good EBIT returns on MSW assets and leading market shares, Moody's said.

"The stable outlook reflects improving earnings and cash flow generation as a result of divesting the under-performing assets of KTI," Moody's said.

The new financing will result in approximately $312.75 million of total debt, which is 3.4 times pro forma EBITDA. Pro forma leverage measured as total debt to free cash flow is about 9 times. Expected pro forma interest coverage as measured by estimated fiscal year 2002 EBIT to interest expense should improve to 1.3 times from less than 1.0 times a year ago, according to Moody's. Similarly, EBITDA to interest expense should improve to 2.9 times for the estimated fiscal 2002 from 2.3 times in fiscal 2001.

Moody's lowers Petroleum Geo-Services to junk

Moody's Investors Service downgraded Petroleum Geo-Services ASA's senior unsecured rating to Ba1 from Baa3, its junior subordinated debt securities to Ba2 from Ba1, the guaranteed first preferred mortgage notes of Oslo Seismic Services, Inc. to Baa3 from Baa2 and the guaranteed trust preferred securities of PGS Trust I to Ba2 from Ba1, affecting $1.9 billion of debt. The outlook is developing.

Moody's said it cut PGS' rating because of continued delays in the sale of the company's Atlantis subsidiary to Sinochem.

Also contributing to the downgrade, the rating agency said that PGS and Veritas DGC Inc. (rated Ba3) could go ahead with their merger under a revised agreement even without the sale of Atlantis prior to closing or the issuance of at least $200 million of equity or equity-linked securities at closing.

Moody's also noted that the amount and timing of additional equity issuance and/or asset sales required to reduce the merged entity's financial leverage to an appropriate level following consummation of the merger is uncertain at this time.

The developing outlook reflects Moody's view that there are several potential outcomes. If the merger is concluded as planned, Moody's said it will most likely confirm the Ba1 rating with a stable outlook. If subsequent to the merger the combined entity achieves a significant reduction in its financial leverage, Moody's will consider upgrading the merged entity's senior unsecured rating to investment grade. However, the combined entity would need to demonstrate the ability to reduce its financial obligations by at least $600 million.

If the merger is not completed, PGS' ratings could come under pressure, unless the company is able to improve materially its near-term liquidity position through asset sales, securitizations or other means without weakening materially the position of its senior unsecured bondholders, Moody's said.

Moody's also said Veritas DGC remains under review for possible upgrade. Moody's will most likely upgrade Veritas' senior unsecured note rating to Ba1 with a stable outlook if the merger with PGS is concluded. If the merger is not concluded, Moody's will consider Veritas' business and financial strategies as a stand-alone entity going forward.

Moody's keeps Focus Wickes on upgrade review

Moody's Investors Service said Focus Wickes plc and subsidiaries remain on review for upgrade, including its £345 million senior secured credit facilities at B1 and £170 million senior notes due 2010 at B3.

Moody's said it is continuing the review despite the postponement by the company of its planned stock flotation in light of unfavorable market conditions.

Moody's said its review will continue to incorporate: (i) the company's financial strategy going forward, and the expected likelihood of a public flotation over the short-term, (ii) the company's strong operating and financial performance over the past 12 months, with meaningful de-leveraging and strengthening in creditworthiness since the initial ratings assignment in 2001, and (iii) an ongoing assessment of further cash flow growth and de-leveraging expectations going forward, with or without the impact of a potential IPO by the company.

Moody's confirms Regal

Moody's Investors Service confirmed Regal Cinemas, Inc. and withdrew the ratings for United

Artists Theatre Company and Edwards Theatres, Inc., concluding a review begun in April. Ratings affected include Regal's $100 million senior secured revolving credit due 2007 and $270 million senior secured term loan due 2008 at B1 and $350 million of 9.375% senior subordinated notes due 2012 at B3. Ratings withdrawn include United Artists' $240 million senior secured term loan due 2005 at B3 and Edwards' $180 million senior secured term loan due 2005 at B2. The outlook is stable.

The bank loan rating withdrawals follow the permanent retirement of the Edwards bank facility using proceeds from Regal's tack-on offering of senior subordinated notes and the retirement of the United Artists facility using proceeds from the recent Regal Entertainment Group equity offering, which had been anticipated and was largely responsible for the former positive rating outlook and review for possible upgrade of Edwards' and United Artists' debt, respectively, Moody's said.

Regal's ratings continue to reflect the company's still high consolidated financial leverage, particularly in consideration of a significant amount of off-balance sheet operating leases and even after improvements following the successful initial public offering of parent Regal Entertainment Group, and the ensuing contribution of the equity capital raised to affect the reduction of bank borrowings at Regal, Edwards and United Artists upon their subsequent roll-up. Also incorporated in the ratings are continued concerns about the company's susceptibility to box office volatility, which if currently strong market conditions were to reverse course might prompt the need for more theater closings at the enlarged circuit; and continued systemic over capacity in the theatrical exhibition industry, and correspondingly heightened competitive risk.

However Regal has a strong liquidity position, as notably measured by the fully available revolving credit facility and large cash position following the aforementioned equity offering and which is expected to grow further as capital investment activities are curtailed considerably; renewed capital markets support both for the company and the industry sector more broadly, as evidenced by the recent round of financings by Regal and most other theatre operators; and the additional scale afforded to the company by the recent roll-up of the assets of United Artists, Edwards and Regal under a common umbrella of holdings, Moody's said.

The stable outlook reflects Moody's expectation that Regal will continue to improve operating performance and further deleverage its balance sheet through net free cash flow generation and growth thereof, particularly given current box office performance trends, as balanced by the prospect of some renewed new theater build and/or acquisition activity by the company, which is expected to be financed in a fiscally prudent manner, Moody's said.

S&P raises Michaels outlook

Standard & Poor's raised its outlook on Michaels Stores Inc. to positive from stable and confirmed its ratings including its senior unsecured debt at BB.

S&P said the outlook revision is in response to Michaels' improved operating performance, which has benefited from better inventory management and a trend toward home-based activities.

EBITDA rose 58% to $59 million in the first quarter of 2002 following a gain of 19% to $259 million in all of 2001, S&P noted.

Moreover, Michaels has been able to maintain its credit protection measures and generate free operating cash flow while expanding its store base and significantly upgrading its infrastructure and technology systems, S&P said.

S&P takes Yell off positive watch

Standard & Poor's removed Yell Group Ltd. from CreditWatch with positive implications and confirmed its ratings.

Ratings affected include Yell Finance BV's £250 million 10.75% notes due 2011, $200 million 10.75% notes due 2011 and $288.25 million discount notes due 2011, all at B, and Yell Group Ltd.'s £500 million notes due 2011 at B and £1.05 billion bank loan due 2009 at BB-.

S&P takes Focus Retail off positive watch

Standard & Poor's removed Focus Retail Group plc from CreditWatch with positive implications.

Ratings affected include Focus' £45 million 13% callable notes due 2010 and £125 million 11% callable bonds due 2010, both at B.

S&P rates YUM!'s loan BB

Standard & Poor's assigned a BB rating to YUM! Brands Inc.'s $1.4 billion senior unsecured revolving credit facility due June 2005. The new loan replaced the company's previous facility that was due to expire in Oct. 2002.

Furthermore, the company's BB corporate credit rating, BB senior unsecured debt rating and BB senior unsecured bank loan rating were affirmed. The rating outlook is positive.

The rating on Yum! Brands reflects the risks associated with operating in the intensely competitive quick-service segment of the restaurant industry, the complexity of operating multiple brands, and the unique competitive issues with each of the company's brands, S&P said. These weaknesses are partially offset by the leading market positions held by its three core brands and by Yum! Brands' significant progress in cutting costs and improving store productivity.

Total debt to EBIDTA was 2.5 times in 2001 and EBIDTA coverage of interest is 4.8 times.

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