Moody's puts Trump AC on upgrade review, rates Trump Casino notes B3, Caa1

Moody's Investors Service put Trump Atlantic City Associates on review for possible upgrade including TAC Funding I's $1.2 billion first mortgage notes due 2006, TAC Funding II's $75.0 million first mortgage notes due 2006 and TAC Funding III's $25.0 million first mortgage notes due 2006 at Caa1.

Moody's said the review follows the announcement by Trump Hotels & Casino Resorts, LP that it plans to issue $420 million first mortgage notes due 2012 and $65 million second mortgage notes due 2013 through Trump Casino Holdings, LLC.

The review is based on the expected improvement in financial flexibility afforded by Trump's proposed recapitalization that will eliminate Trump Atlantic City's exposure to potential problems related to near-term maturities at Trump's Castle and high coupon debt at Trump Hotels and Casino Resorts, Moody's said.

Moody's also assigned a B3 rating to Trump Casino Holdings, LLC's and Trump Casino Funding, Inc.'s proposed $420 million first mortgage notes due 2012 and a Caa1 rating to their $65 million second mortgage notes due 2013. Moody's also assigned an SGL-3 speculative-grade liquidity rating. The outlook is stable.

The B3 senior implied rating considers that Trump Casino Holdings will generate limited amounts of cash flow after interest, taxes, and maintenance capital expenditures, all of which is expected to be applied to expansion and facilities improvement, Moody's said, adding that it expects that cash flow after interest, taxes and maintenance capital expenditures in fiscal 2003 will near $20 million.

The ratings continue to incorporate the historically aggressive financing tactics of Donald Trump, the company's chairman, chief executive officer and president, as well as increased competition from new supply in Atlantic City once the Borgata opens in the summer of 2003.

While the Borgata project is viewed as a positive with respect to the overall development of the Atlantic City market, it could also result in a significant amount of near-term direct competition, Moody's said. Longer-term, tribal gaming in New York as well as the expansion of gaming in other neighboring jurisdictions could have an eventual impact, however the timing and degree of competition from these sources is still largely unknown.

Positive ratings consideration is given to the favorable impact the new notes will have with respect to eliminating certain near-term scheduled debt maturities and simplifying Trump Hotels & Casino Resorts Holdings, LP's capital structure. Also considered is the secured nature of the transaction as well as the limitations imposed by the note indenture that include a cash flow sweep mechanism, and limitations on additional debt, restricted payments and permitted investments, Moody's added.

S&P rates Pantry loans B+, B-

Standard & Poor's assigned a B+ rating to The Pantry Inc.'s new $250 million first lien bank loan due 2007 and $60 million secured revolving credit facility due 2007 and a B- rating to its new $50 million second lien bank loan due 2007 and confirmed the existing ratings including its corporate credit rating at B+. The outlook is stable.

S&P said the confirmation is based on The Pantry's stabilized operating performance over the past year and the planned bank loan refinancing, which is expected to reduce amortization requirements and enhance liquidity. Proceeds from the planned bank loan refinancing will be used to repay the existing bank loan and for general corporate purposes.

The ratings on The Pantry reflect its participation in the competitive and highly fragmented convenience store industry; significant exposure to the volatility of gasoline prices; and market concentrations in resort communities in the southeastern U.S., in which economic slowdowns can impact operations, S&P said. These risks are somewhat mitigated by the company's leading position in the industry and a less aggressive expansion strategy over the next two years that should allow the company to reduce debt levels.

Although the company's gross profits typically benefit from declining gasoline costs because there is usually a retail price lag, a highly competitive pricing environment in the first quarter of 2002 resulted in a gross margin per gallon decline of 2 cents despite a 31 cent-per-gallon decline in the average retail gasoline price. S&P said it believes that competitive pricing and price volatility may continue into 2003 given the weakened U.S. economy and the potential war with Iraq, which could further impact The Pantry's operations.

Lease-adjusted EBITDA coverage of interest was 1.7x and total debt to EBITDA was 6.0x in 2002, S&P said. These credit measures could improve somewhat over the next two years as reduced acquisition activity should allow the company to use free cash flow to pay down debt.

In a distressed scenario used to analyze the bank loan, S&P assumed that further significant gasoline price increases would pressure gasoline margins, and greatly reduce traffic and purchases in resort areas and The Pantry's other key markets. These factors would significantly pressure earnings and liquidity, resulting in a default. S&P said it believes that in this event, the company could continue to operate as part of a reorganized entity or be sold to other convenience store operators. For the first priority portion, S&P concluded that there would be a strong likelihood of substantial recovery of principal in the event of bankruptcy or default with minimal loss expected while there would be only marginal enterprise value to cover the junior portion.

S&P confirms Hollinger, off watch

Standard & Poor's confirmed Hollinger Inc. and removed it from CreditWatch with negative implications including its $120 million senior secured notes due 2018 at B and C$104.62 million 7% preferred shares due 2004 at B-, Hollinger International Publishing Inc.'s $220 million amortizing term loan B due 2009, $45 million amortizing term loan A due 2008 and $45 million senior secured revolving credit facility due 2008 at BB- and $300 million 9% senior notes due 2010 at B. The outlook is negative.

S&P said the confirmation follows completion of Hollinger's previously announced sale of $120 million 11.875% senior secured notes due 2011. Net proceeds were used to repay Hollinger Inc.'s C$90.8 million bank facility due March 14, 2003, and debt owed to its controlling shareholder, Ravelston Corp. Ltd., to make an advance to Ravelston, and for general corporate purposes.

Hollinger's refinancing, along with refinancings at the Hollinger International and Hollinger International Publishing levels in December 2002, have alleviated concerns about near-term maturities and cash flow restrictions, S&P said.

Ratings reflect the strong market positions of the company's two key newspapers, The Daily Telegraph (U.K.) and the Chicago Sun-Times (U.S.), and the geographic diversity they provide, which helps to mitigate regional downturns, S&P said. These factors are offset by the inherent cyclical nature of the advertising revenues and newsprint prices, and by Hollinger's relatively aggressive financial profile and policy.

The negative outlook reflects Hollinger's financial profile and policy that remain aggressive for the ratings category, S&P added. To maintain the BB-, S&P anticipates that Hollinger will reduce its consolidated debt burden in 2003 from the sale of non-core assets and from the application of internal cash flows.

Moody's rates Overseas Shipholding notes Ba1

Moody's Investors Service assigned a Ba1 rating to Overseas Shipholding Group's $200 million 8¼% senior unsecured notes due 2013. The outlook is negative.

Moody's said the Ba1 rating assigned to the notes is the same as Overseas Shipholding's senior implied rating, reflecting the minimal amount of secured debt senior to the notes, as well as the significant level of unencumbered assets available to cover these notes under the company's current financial structure.

Moody's said it believes Overseas Shipholding's liquidity will be adequate to support its operations and market position in very volatile shipping markets.

Moody's notes the net improvement in credit fundamentals that these notes provide. While the issue results in effectively unchanged total and unsecured debt levels, these notes do provide the benefit of additional liquidity over the near term owing to the net increase in average debt maturity because of the repayment of existing notes and reduction of shorter term revolvers. Further, Moody's notes that the terms associated with the notes are essentially similar to those of the 2003 notes they are replacing. As such, the ratings are supported by limitations on additional indebtedness, liens, and restricted payments specific to the indenture.

The negative ratings outlook reflects the relatively high amount of leverage the company carries, Moody's said. As of year-end 2002, the company's $1.006 billion in debt and capital leases represented 56% of total capital. However, Moody's recognizes the current strength in the tanker markets in which Overseas Shipholding operates, and expects that the substantial cash flow generated in this period will be used to reduce debt levels in the near term.

Moody's puts EES Coke on upgrade review

Moody's Investors Service put EES Coke Battery Co. Inc.'s series B notes at Caa2 on review for possible upgrade.

The rating action has been prompted by the possibility that National Steel Corp. will be acquired by a third-party. National Steel is currently the contractual offtaker for coke produced by the coke battery, which is located at National Steel's River Rouge steel complex.

Potential acquirers of National Steel include AK Steel Corporation (Ba3 senior implied, under review for possible downgrade) and United States Steel Corp. (Ba2 senior implied, under review for possible downgrade).

S&P confirms Interpublic, off watch

Standard & Poor's confirmed Interpublic Group of Cos. Inc.'s ratings and removed it from CreditWatch with negative implications. Ratings confirmed include Interpublic's $375 million five-year revolving credit facility due 2005, $500 million senior unsecured 364-day credit facility, $500 million 7.25% senior unsecured notes due 2011 and $500 million 7.875% notes due 2005 and $610.4 million zero-coupon senior notes due 2021 at BB+ and $361 million 1.87% convertible subordinated notes due 2006 at BB. S&P also assigned a BB+ rating to its $700 million 4.5% convertible senior note issue due 2023. The outlook is negative.

Proceeds are expected to be used to fund the company's concurrent offer to purchase its outstanding zero-coupon convertible senior notes due 2021, and for general corporate purposes.

The refinancing mitigates the risk related to the potential Dec. 14, 2003 put for cash of the company's senior note issue due 2021, S&P said.

S&P said Interpublic's ratings reflect the company's recent record of weak profitability, operating performance challenges in the uncertain economic environment, and the likelihood that restoring earnings prospects and improving key credit ratios could be somewhat delayed. These factors are offset by its portfolio of distinguished advertising and communications services brands known for their creative capabilities, broad geographical and business diversity, and historically good discretionary cash flow.

For the year ended Dec. 31, 2002, EBITDA coverage of interest expense was about 5.8x, compared with 6.8x in 2001, S&P said. Lease-adjusted EBITDA coverage of interest expense was about 3.8x in 2002, versus 4.6x in 2001. EBITDA margins were about 13.6%, compared with close to 20% in 2000 and previous years. At Dec. 31, 2002, pro forma total debt plus acquisition-related earn-out payments, potential puts, plus contingent obligations under guarantees and letters of credit, to EBITDA was approximately 3.7x, compared to 2.9x in 2001. Lease-adjusted total debt, including acquisition-related earn-outs, potential puts, and contingent obligations, to EBITDA was about 4.4x versus 3.5x for the same period.

Although total debt has gone down by about 10% at the end of 2002 compared with 2001, EBITDA declined by about 24%, resulting in higher leverage, S&P said. Notwithstanding its seasonality and working capital cycles, Interpublic's management expects to generate positive discretionary cash flow in 2003. Discretionary cash flow growth has been limited, in part, by the significant cash consumed by capital expenditures and dividends. The company did not declare a dividend for the quarter ended Dec. 31, 2002, and may not for the quarter ending March 31, 2003.

S&P cuts Cherokee

Standard & Poor's downgraded Cherokee International LLC including cutting its $100 million 10.5% senior subordinated notes due 2009 to D from CC and $75 million credit facility due 2005 to D from CCC-.

S&P said the downgrade follows the recent completion of an exchange of Cherokee's $100 million of 10.5% senior subordinated notes for either 5.25% senior secured notes and equity warrants or 12% pay-in-kind senior secured convertible notes. The restructuring also included a refinancing of bank loan at less than full value.

According to S&P criteria, an exchange offer at a substantial discount to original terms recognizes that, in effect, the company is not meeting its obligations as originally promised. Although investors technically accepted the offer voluntarily, and no legal default occurs, the rating treatment is identical to a default on the specific debt issue involved.

Moody's rates WKI exit financing B1, B3, Caa1

Moody's Investors Service assigned ratings to WKI Holding Company, Inc.'s exit financing including a B1 rating to its $75 million first-priority senior secured revolving credit facility due 2007, a B3 rating to its $240 million second-priority senior secured term loan B due 2008 and a Caa1 rating to its $123 million third-priority 12% senior subordinated notes due 2010. The outlook is stable.

Moody's said the ratings reflect WKI's need to execute a product and sales revitalization strategy, while participating in a fragmented, commoditizing and seasonal industry.

The ratings also consider margin and competitive pressures from both other manufacturers and from its increasingly concentrated customer base.

The ratings benefit from WKI's improved post-bankruptcy financial profile, its well-known brand portfolio, and its profitability gains from restructuring initiatives, Moody's added. As a result of its reorganization plan, approved in January 2003, WKI's funded debt has been reduced by over 50%, from $811 million to $388 million, providing WKI with greater flexibility to execute its turnaround plan, which involves improved sourcing, greater service execution levels and the growth and extension of its well-known brands.

During bankruptcy, the company continued implementing a plant rationalization and cost reduction initiative which incorporated the Chapter 11 rejection or favorable renegotiation of leases on many of its factory stores, Moody's said. These actions allowed for meaningful improvement in the company's cash flow profile.

Despite these improvements, WKI has been unable to stabilize sales declines in most of its business segments, and may be challenged to do so going forward, given the difficult economic environment, a highly competitive housewares industry, and increasingly concentrated retail distribution, Moody's said.

S&P rates Constellation loan BB

Standard & Poor's assigned a BB rating to Constellation Brands Inc.'s $1.6 billion senior secured credit facilities and its $450 million senior unsecured bridge loan and confirmed its existing ratings including its senior unsecured debt at BB and subordinated debt at B+. The outlook is negative.

Proceeds of the new loans will be used to finance the company's recently announced acquisition of Australian wine producer BRL Hardy for $1.4 billion (including the assumption of debt).

The ratings on the senior secured credit facilities are the same as the corporate credit rating because of the nature of the collateral and the circumstances surrounding the springing lien, S&P said.

In the event of default, with no operating assets collateralizing the bank loan, the recovery prospects for the loan do not meet S&P's criteria for notching the bank facility above the corporate credit rating. Although S&P generally treats springing liens as if they were perfected from the outset, in this instance, management has committed to delevering and therefore eliminating the springing lien in the near term by applying the proceeds of an intended common equity issuance to the repayment of debt.

As a result, S&P said it believes that the springing lien would be eliminated prior to any potential ratings downgrade that would cause the lien to spring.

Constellation Brands' ratings reflect its strong cash generation from a diverse portfolio of beverage alcohol products, offset in part by the competitive nature of the company's markets and a leveraged financial profile reflecting its acquisitive growth strategy, S&P added.

S&P said it believes that the acquisition of BRL Hardy will strengthen Constellation Brands' business profile, making the company one of the largest global wine producers.

Acquisition risk has been, and will likely continue to be, a key issue in Constellation Brands' business profile, S&P said. The company made almost $1.5 billion of mostly debt-financed acquisitions and joint ventures between November 1998 and February 2002. Nevertheless, these transactions have broadened Constellation's business lines and product portfolio, significantly increased the company's international revenue base, and, in some instances, created distribution synergies.

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