Moody's puts Levi Strauss on review

Moody's Investors Service put Levi Strauss & Co. on review for possible downgrade, affecting $1.7 billion of debt. Ratings affected include Levi's $619 million guaranteed senior secured revolving facility due 2003, $28 million guaranteed senior secured term loan A due 2003 and $125 million guaranteed senior secured term loan B due 2003, all rated Ba3, and its $350 million 6.8% senior unsecured eurobonds due 2003, $450 million 7% senior unsecured eurobonds due 2006, $380 million 11.625% unsecured global senior notes due 2008, and €125 million 11.625% unsecured global senior notes due 2008, all rated B2.

Moody's said it started the review because it is concerned about Levi Strauss' continuing decline in sales, which started in 1997; the company's level of cash generation and ability to reduce debt and address upcoming 2003 maturities; significant upcoming cash outlays for plant closures and systems improvements; perceived negative price pressure on its core products; reliance on new product innovation, improved delivery and channel or market share expansion to grow sales; and the uncertain impact of a weak economy and broad global competition on the basis of price and fashion.

S&P keeps Tyco on watch

Standard & Poor's said Tyco International Ltd. remains on CreditWatch with negative implications following completion of the IPO of its commercial finance subsidiary the CIT Group Inc. Ratings affected include Tyco's senior unsecured debt at BBB-, subordinated debt at BB+ and preferred stock at BB.

S&P said the IPO is an important step in strengthening Tyco's liquidity. Management intends to use IPO proceeds totaling $4.6 billion, together with a significant portion of cash balances (between $2.5 billion and $3.0 billion currently) to reduce debt.

During the next 18 months, the company will have public and bank debt maturities totaling about $6.8 billion, plus the potential put of two zero-coupon debt issues totaling about $5.9 billion. (Tyco has the option to satisfy $2.3 billion of the latter amount in common stock at the February 2003 put date. However, it may choose not to do so because at the current low common share price, this would cause significant dilution.)

Debt reduction will also increase financial flexibility under the maximum-debt-to-capital covenant in the company's bank loan agreements, S&P said. Following the writedown of its investment in CIT in the restated March 2002 quarter and the further writedown of about $2 billion that will be required in the June 2002 quarter (before any sale proceeds are received), this ratio should be approximately 50% (the covenant limit is 52.5%).

However removing the ratings from CreditWatch will depend on management's addressing the gap between IPO proceeds, cash balances, and operating cash flow (expected to total about $3 billion in the current fiscal year) and obligations coming due in the next 18 months, S&P said.

This could be done through a combination of restoring bank line availability, selling additional assets, and accessing the public capital markets, S&P added.

The rating agency said it continue to monitor developments in connection with the ongoing investigations by the Manhattan District Attorney's office and the SEC of alleged tax evasion by Tyco's former CEO, as well as corporate governance issues.

S&P lowers some US Airways ratings

Standard & Poor's downgraded some US Airways Inc. equipment trust certificates to D from B- following the company's announcement it had deferred interest payments due July 1. Ratings affected are equipment trust certificate series 1988E-L and passthrough certificate series 1989A.

Ratings were lowered because although there is a grace period to cure payment defaults it is not expected that payments will be made in that period, S&P said.

S&P also lowered various other equipment trust certificates and enhanced equipment trust certificates that finance Boeing aircraft and are judged to be at risk of similar payment deferrals. Ratings affected are equipment trust certificates series 1987A-F, series 1988A-D, 1990 series A-D, passthrough certificates series 1990A, 1990B, 1991A, 1991B, 1991C, 1991D, 1993A, equipment trust certificates series A, B, C and series 1988D-K, all lowered to CCC- from B-, and ETC Repackaging Trust, Series 1998-1

class B lowered to B from BB and class C lowered to CCC from B. Those and other ratings of paying securities remain on CreditWatch with developing implications.

The July 1 payment deferral of about $17 million affects selected publicly and privately rated equipment trust certificates originally issued by USAir Inc. (predecessor of US Airways Inc.) to finance B737-300, B737-400, and B757-200 aircraft, all of which are gradually being phased out by the airline in favor of newer Airbus models, S&P noted.

The action follows a similar payment deferral of private, unrated financings, and is intended to accelerate negotiations with creditors whose collateral has lost value due to the current adverse airline industry environment, S&P said.

The deferral of payments on the public equipment trust certificates is somewhat riskier for US Airways than its previous action affecting private, unrated aircraft debt and leases, because the public securities are more widely held and bondholders are less used to renegotiating terms outside of a formal bankruptcy proceeding than are leasing companies and banks providing private financing, S&P added.

Accordingly, the negotiations on public debt could take longer and create a greater risk of default notices eventually causing cross defaults to other US Airways obligations and forcing a bankruptcy filing.

Moody's lowers General Cable's outlook to negative

Moody's Investors Service confirmed General Cable Corp.'s ratings and lowered the outlook to negative. Ratings affected include the Ba3 senior implied rating, the B1 senior unsecured issuer rating and the Ba3 rating for the $592.8 million senior secured credit facilities.

The negative outlook reflects the continuing difficult operating environment in the North American wire and cable market as a result of the protracted slump in the telecommunications industry and sluggish demand from the broad industrial sector, Moody's said.

The company reduced its earning guidance for the first and second quarter of 2002 due to the expectation of further declines in telephone and industrial cable demand. In the second quarter the company expects telephone cable sales to drop to 40% and for all of 2002 sales are expected to drop to 15% of operating income from the comparable prior periods.

However, the company is well positioned and has well established customer relationships and distribution channels. In 2002, the company expects to generate $50 to $60 million of free cash flow for debt repayment, according to Moody's.

At March 31, total debt was about $535 million, or 4.2 times last 12 months EBIDTA. Given revised revenue and earnings outlook, total debt is expected to increase to about 5 times EBIDTA at the end of 2002.

Moody's lowers Maxim Crane Works' ratings

Moody's Investors Service lowered the debt ratings of Maxim Crane Works (previously Anthony Crane Rental LP). Lowered ratings include Maxim's $300 million secured revolver due 2004 and $243 million first-priority term loan due 2006 to Caa2 from B2, $50 million second-priority term loan due 2006 to C from B3, $155 million of 10 3/8% senior unsecured notes due 2008 to C from Caa1, senior implied to Caa3 from B3 and senior unsecured to C from Caa2. The outlook remains negative.

The downgrade was a result of the company's reduced liquidity position and heightened concerns over the ability to meet debt obligations, Moody's said. The company recently amended its credit facility, reducing the revolver to $300 million from $425 million. As a result, the company used cash on hand to reduce outstanding borrowings under the revolver, decreasing liquidity to $18.1 million on June 17.

The Caa2 rating on the revolver and the first-priority term loan reflects likely principal losses on the approximately $555 million outstanding amount, Moody's said. The C rating on the second-priority term loan and the senior unsecured notes reflects the expectation of minimal recovery.

Operating income in 2001 dropped 52% to $28.7 million from $60.1 million in 2000, while EBITDA dropped about 17%. At June 28, the company had not yet filed its 10-Q for the first quarter ended March 31.

Moody's confirms Yell

Moody's Investors Service confirmed Yell Finance BV including its £250 million 10.75% senior notes due 2011, $200 million senior notes due 2011 and $288 million 13.5% senior discount notes due 2011 at B2 and its £1.05 billion of senior bank facilities at Ba3.

Moody's said the confirmation follows the announcement that the company has withdrawn its planned initial public offering and flotation on the London Stock Exchange due to adverse market conditions.

Moody's noted Yell's $250 million bridge facility taken out in connection with the recent acquisition of McLeodUSA Media Group, which was to be repaid from IPO proceeds, has a term-out option and thus there is no immediate refinancing pressure on the company.

Moody's withdraws William Hill ratings

Moody's Investors Service withdrew its ratings on William Hill plc including the B1 rating on William Hill Finance plc's senior subordinated bonds.

The withdrawal follows the successful tender for approximately 95% of the company's outstanding notes with a portion of the proceeds from the company's recently completed IPO, Moody's said.

Fitch keeps AES Drax on watch

Fitch Ratings said AES Drax remains on Rating Watch Negative including AES Drax Holdings Ltd.'s senior secured bonds and Inpower Ltd.'s senior secured bank loan at BB+ and AES Drax Energy Ltd.'s senior notes at B+.

Fitch said its comments agreement from a majority of senior lenders waiving the minimum insurance covenant, amending trading restrictions and allowing modification of the turbine maintenance cycle to postpone some capex requirements.

Despite the changes, Fitch said the ratings remain on watch as a result of remaining concerns over decreasing coverage ratios, and reliance on the TXE contract.

S&P takes AES Drax off watch

Standard & Poor's removed AES Drax Energy Ltd. from CreditWatch with negative implications, confirmed the ratings and assigned a negative outlook.

Ratings affected include AES Drax's £135 million 11.25% bonds due 2010 and $200 million 11.5% bonds due 2010, both at B+.

Fitch keeps Shopko on negative outlook

Fitch Ratings confirmed Shopko Stores Inc.'s bank credit facility at BB- and its senior notes at B and maintained a negative outlook.

Fitch said the outlook reflects Shopko's weakened financial profile and competitive challenges longer term.

Shopko has competed against the top two specialty discounters (Wal-Mart and Target ) for some time, with the level of their penetration in Shopko's key markets continuing to increase, Fitch noted. Nonetheless, the Shopko division, which accounts for 75% of total revenues, has recently shown a slight increase in comparable store sales, up 2.9% for the first quarter of FY 2003. The Pamida division's sales continue to lag - with same store sales for the quarter of -5.5%. Despite negative sales trends operating margins at Pamida have improved as this division appears to have controlled its inefficiencies in its warehouse and inventory management.

Despite mixed operating results, the company has improved its credit profile by focusing on debt reduction, Fitch said.

The company has retired approximately $200 million of total debt in the past year by redirecting its focus from growing/adding new stores to utilizing excess cash flow to retire long-term debt. While capital expenditures will likely increase in 2002 from the maintenance levels in 2001 ($17 million), further debt retirement is anticipated, Fitch added.

Longer term, the company's operating results need to improve in order to shift the focus from debt refinancing to becoming a more competitive operator, Fitch said. Also, the company is in the midst of a search for a new CEO. Fitch anticipates that there may be further operating changes once new management is in place.

S&P keeps Petroleum Geo-Services on watch

Standard & Poor's said Petroleum Geo-Services ASA remains on CreditWatch with negative implications including its senior unsecured debt at BBB- and preferred stock at BB.

Veritas DGC Inc. remains on CreditWatch with positive implications.

The two companies are planning to merge and in the past week they agreed an amended merger agreement dropping the sale of Atlantis as a condition of closing; completion is now conditioned on any of the following: the sale of Atlantis for at least $195 million, asset sales totaling $200 million, or a commitment assuring the placement of at least $200 million of the merged company's equity. In addition an exclusive negotiating period between Petroleum Geo-Services and China National Chemicals Import and Export Corp. (Sinochem) for the sale of Atlantis expired. Petroleum Geo-Services now is free to solicit bids from other potential buyers.

S&P said it views the failure to close the sale of Atlantis to Sinochem as disappointing as it prolongs the risk that the Veritas transaction does not close but added that it believes that Veritas and Petroleum Geo-Services remain motivated merger partners, as the transaction offers substantial consolidation benefits for each party.

S&P anticipates the combined company will be rated in the investment-grade category on completion of the transaction because of likely merger synergies and management's commitment to reduce total debt by at least $600 million over the next 18 months.

If the merger is not completed, S&P said it would likely affirm Veritas' ratings and downgrade Petroleum Geo-Services ratings, given the company's diminished visibility of cash flow beyond 2002 and the challenges posed by nearly $1 billion of maturing debt in 2003.

Moody's keeps Tyco on review

Moody's Investors Service said it is keeping Tyco International Ltd. on review for possible downgrade. Ratings affected include Tyco's International Ltd.'s convertible debentures at Ba3, Tyco International Group SA's senior notes and debentures and revolving credit facility at Ba2, Tyco International (US) Inc.'s senior unsecured notes and debentures at Ba1, ADT Operations, Inc.'s senior subordinated notes and subordinated Liquid Yield Option Notes at Ba2, Raychem Corp.'s $388 million senior, unsecured notes at Ba3 and Mallinckrodt Inc.'s senior unsecured notes and debentures at Ba3.

Moody's said completion of the IPO of CIT, which provides net proceeds of $4.6 billion to begin needed debt reduction, is a positive development.

However, Moody's said it believes Tyco will continue to face a significant debt burden with sizable maturities over the next 18 months.

The rating agency noted that in addition to the CIT IPO proceeds, Tyco anticipates cash liquidity of $2.5-$3.0 billion as of June 30 (after fully drawing its available bank lines earlier this year), as well as free cash flow which should enable it to meet funding needs during the current calendar year.

The company expects free cash flow in the range of $4.2-$4.5 billion in its 2003 fiscal year, and a refinancing need of $1.5 billion in November, 2003, Moody's added.

S&P cuts MCI QUIPS to D

Standard & Poor's downgraded MCI Capital I's 8% $30 million QUIPS to D from C.

S&P said the action follows non-payment of the interest payment due June 30, 2002.

S&P puts Paxson on watch

Standard & Poor's put Paxson Communications Corp. on CreditWatch with negative implications. Ratings affected include Paxson's $200 million 13.25% cumulative junior preferred stock and $150 million 12.5% cumulative exchangeable preferred stock at CCC+, its $25 million senior secured revolving credit facility due 2006, $50 million senior secured term loan A due 2006 and $285 million senior secured term loan B due 2006 at BB and its $200 million senior subordinated notes due 2008 and $486.222 million senior subordinated notes due 2009 at B-.

S&P said the action follows Paxson's release of lower revenue and EBITDA guidance for its 2002 second quarter.

Paxson said it expects relatively flat revenue and reduced EBITDA in the quarter, S&P noted. Paxson indicated that revenue from the important infomercial category would be flat in the second quarter, compared to mid- to high-single-digit year-over-year gains projected earlier.

S&P said it is concerned that the improvement in very weak key credit measures expected for the ratings could be delayed by slower-than-anticipated advertising growth at the still-developing network.

The CreditWatch placement also considers the potential for an unwinding of Paxson's relationship with strategic investor NBC Inc. following the expected August 2002 completion of the binding arbitration proceeding against that company, S&P added. S&P said imputation of financial support from NBC remains fundamental to the rating on Paxson.

S&P cuts Venture

Standard & Poor's downgraded Venture Holdings Co. LLC. Ratings lowered include Venture Holdings' $205 million 9.5% senior notes due 2005 and $125 million 11% senior notes due 2007, cut to D from CCC-, and its $125 million 12% senior subordinated notes due 2009, cut to D from CC.

S&P said it cut Venture's ratings after it failed to make required interest payments on its $125 million 9.5% senior notes due 2005 and $125 million 11% senior notes due 2007 due to restrictive agreements with its bank group. The interest payments were due June 1, 2002. The 30-day grace periods expired at the end of June.

In addition, Venture has failed to make an interest payment on its $205 million 9.5% senior notes due 2005 which was due on July 1,S&P said. The company has agreed with its bank group that it will not make the payment until the expiration of the 30-day grace period.

Moody's cuts Jason

Moody's Investors Service downgraded Jason, Inc. The outlook is stable. Ratings affected include Jason's $40 million guaranteed senior secured revolving credit facility maturing July 2005, $50 million guaranteed senior secured term loan A maturing July 2005 and $105 million guaranteed senior secured term loan B maturing January 2007, cut to B2 from B1, and Jason's $75 million 13% guaranteed senior subordinated notes due November 2008, cut to Caa1 from B3.

Moody's said the downgrades reflect Jason's deteriorated debt protection measures and reduced liquidity to levels below those consistent with the company's former B1 senior implied rating category.

Through 2001, revenue and earnings deterioration caused leverage to materially increase and interest coverage to decline to levels requiring bank amendments, Moody's said.

The fall-off of performance was attributable to the overall weakness in the general U.S. economy, and more specifically in the cyclical motor vehicle and industrial products end markets which Jason serves; reduced European demand; and U.S. dollar exchange rate depreciation.

Jason was not in compliance with its fixed charge coverage ratio as of December 31, 2001, Moody's added. The company's senior secured bank credit agreement was then amended on April 23, 2002 to provide for a loosening of all covenants and for a $10 million reduction in the revolving credit commitment to $40 million, from $50 million.

Jason does not foresee borrowing needs under the revolving credit facility to approach the new $40 million cap at any point during the next year. But Moody's said it is concerned that the bank credit agreement's financial covenant restraints, as amended, could preclude usage of the revolving credit to the extent fully necessary to satisfy all of the company's 2002 cash requirements in the event that actual performance falls below plan.

S&P cuts Elan to junk

Standard & Poor's lowered the corporate credit and senior debt ratings on Elan Corp. plc to BB- from BBB-. The ratings remain on negative watch.

The actions reflect increased risk regarding the potential pressure on Elan to repurchase royalty rights on its product portfolio and drug pipeline in the face of its shrinking access to capital.

Elan's 2001 financial report filing, which provides detail on risk-sharing arrangements, suggests the potential for substantial royalty-payment increases or the repurchase of these rights, pertaining to drugs related to much of Elan's future cash flow.

Such a repurchase could well create a funding need in excess of $1 billion over the next couple of years.

Although cash and investments continue to exceed Elan's debt, the value of its investment portfolio is jeopardized by recent stock market reverses.

Additionally, a potential December put on the $1 billion convertible looms more formidable, given Elan's equity-share price collapse, which reduces the likelihood that the obligation will be converted into Elan shares.

S&P expects to soon meet with Elan's management to examine specific plans to bolster its financial position and business strategy.

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