S&P cuts Corus to junk

Standard & Poor's downgraded Corus Group plc to junk. Ratings lowered include Corus' €2.4 billion bank loan and €307 million 3% notes due 2007, cut to BB from BBB-, and Corus Finance plc's €400 million 5.375% bonds due 2006 and £200 million 6.75% bonds due 2008, cut to BB from BBB-. The ratings were removed from CreditWatch with negative implications. The outlook is stable.

S&P said the downgrade reflects Corus' continuing poor operating profits despite a better pricing environment and improving exchange rates of the pound against the euro.

The company's business position remains weak despite its continuous efforts and progress in the restructuring of its U.K. and European operations, S&P said.

Operating margins and cash flow generation in 2003 are, however, expected to continue improving as the company gradually shows the benefit of these efforts, the rating agency added.

S&P said it expects Corus will continue to lag behind its main European competitors in terms of margins and return on capital.

Helping the ratings is a reduction in debt levels arising from the £456 million ($724 million) proceeds the company has already received from the disposals of its stakes in AvestaPolarit Oy and the Alouette smelter, and expected future disposal proceeds from, for example, Pechiney SA for the main part of Corus' aluminum assets in Europe, S&P said.

Moody's cuts Corus to junk

Moody's Investors Service downgraded Corus Group plc to junk including cutting its €400 million notes due 2006 and £200 million notes due 2008 to Ba2 from Baa3. The outlook is negative.

The action concludes a review begun on July 17.

Moody's said that although the CSN acquisition, which originally triggered the review, was terminated, the slower than anticipated performance improvement and return to operating profitability as well as Moody's expectation of a more prolonged market weakness prompted the downgrade.

Although Moody's said it recognizes the progress achieved in reducing costs as well as debt levels through asset disposals, the further prolongation of the operating loss situation and Corus' weak financial earnings profile, which continue to position the company outside its rating category, have resulted in the downgrade.

Moody's said it does not believe that one-time cash flow effects, including working capital measures as well as asset disposals, can be relied on to offset weak operating performance.

Therefore the rating agency believes a near-term return to profitability is critical to avoid an increase in debt levels and an erosion of the balance sheet after the completion of the disposal program.

Moody's cuts Elan

Moody's Investors Service downgraded Elan Corp. plc, affecting $2.4 billion of debt including Elan Finance Corp. Ltd.'s guaranteed notes, Elan Pharmaceutical Investments II Ltd.'s guaranteed notes and Elan Pharmaceutical Investments III Ltd.'s guaranteed notes to Ca from Caa1 and Athena Neurosciences Finance, LLC's guaranteed notes to Caa2 from B2. The outlook is negative.

Moody's said Elan's current capital structure is unlikely to be sustainable, given the company's high debt level, upcoming debt maturities and future cash generation capability following its planned business divestitures.

Moody's also said it is concerned about Elan's heavy dependence on asset sales to meet upcoming debt maturities, uncertainty about the value of its assets as the company seeks to divest a significant number of business lines in a short period of time and the company's consumption of cash in recent months as a result of debt paydown and product acquisition payments, as well as higher than anticipated restructuring costs and payments under a guarantee of debt.

The negative outlook reflects ongoing uncertainty about the value of Elan's assets relative to its liabilities.

Elan has a high debt level at $2.4 billion and significant upcoming debt maturities, including approximately $1 billion of subordinated LYONS which are putable in December 2003 and which can be satisfied in cash or stock, Moody's noted. It is still uncertain whether Elan will have generated sufficient proceeds from asset divestitures by December 2003 to allow the company to repay the LYONS in cash; it is also unclear whether Elan would be prepared to satisfy the put, if it occurs, with stock.

S&P cuts American Commercial Lines, on watch

Standard & Poor's downgraded American Commercial Lines LLC and put it on CreditWatch with negative implications. Ratings affected include American Commercial's $535 million credit facility, cut to B- from B, and $140 million 11.25% senior notes due 2008 and $116.507 million 12% pay-in-kind senior subordinated notes due 2008, cut to CCC- from CCC.

S&P said the action follows American Commercial's announcement that it is formulating a restructuring plan to resolve liquidity and covenant compliance issues and that it will likely default under its senior credit facilities and receivables facility if lenders do not accept a restructuring plan and reset covenants or waive compliance by the end of the first quarter of 2003.

American Commercial suffers from severely constrained liquidity position and an identifiable risk of default over the near term, S&P said.

Poor weather conditions and the economic downturn have negatively affected American Commercial's earnings over the past few years, S&P said.

American Commercial was recapitalized in 1998, leaving it with an onerous debt burden. Although American Commercial was recently acquired by Danielson Holding Corp. and recapitalized again in conjunction with the acquisition, it is still highly levered, S&P noted. Debt/EBITDA is currently estimated to be over 8 times. The company's heavy debt burden is making it especially vulnerable to current industry pressures.

American Commercial recently reported that its EBITDA for the first nine months of 2002 was $39.5 million, a decline of $38.8 million from the comparable period of 2001. (The $78.3 million in reported EBITDA for the first nine months of 2001 included $18.8 million of gains on property dispositions.)

S&P keeps Fleming on watch

Standard & Poor's said it is keeping Fleming Cos. Inc. ratings on negative watch, including the senior unsecured debt at B+, subordinated debt at B and senior secured bank loan at BB. reflecting uncertainties related to the divestiture of its retail division.

A new concern is Fleming's announcement on Wednesday that it is the subject of an informal inquiry by the SEC into vendor trade practices, second quarter 2001 adjusted EPS data, accounting for sales in discontinued retail operations and comparable-store sales in discontinued retail operations, S&P said.

Liquidity remains adequate with sufficient room under its $550 million revolving credit facility for further borrowings if needed. Fleming has no debt maturities until 2007.

Moody's puts Fairfax Financial on review

Moody's Investors Service put Fairfax Financial Holdings Ltd. and some of its subsidiaries on review for possible downgrade, affecting C$2.7 billion of debt. Ratings affected include Fairfax Financial's senior debt at Ba2, TIG Holdings, Inc.'s senior debt at Ba3 and TIG Capital Trust I's capital securities at B1.

Moody's said the action follows Fairfax Financial's third quarter earnings announcement.

The review will focus on Fairfax's future operating earnings and cash flow prospects, reserve adequacy on business written in recent years as well as on asbestos and environmental exposures, dividend capacity from its insurance operations, and its liquidity position, including cash at the holding company, Moody's said.

Moody's will also focus on the collectibility of reinsurance recoverables, which are substantial relative to shareholders' equity.

Moody's said it is concerned that operating earnings, although improved, continue to be weak, particularly in light of the positive pricing environment.

S&P puts Sea Containers on watch

Standard & Poor's put Sea Containers Ltd. on CreditWatch with negative implications. Ratings affected include Sea Containers' $100 million 12.5% subordinated debentures due 2004, $100 million 7.875% senior notes due 2008, $100 million 9.5% senior notes due 2003, $115 million 10.75% senior notes due 2006, $25 million 12.5% senior subordinated debentures series B due 2004 and $65 million 10.5% senior notes due 2003 at B+.

S&P said the watch placement is due to Sea Containers' heavy upcoming debt repayments, including $158 million of senior notes due on July 1, 2003, prompting consideration of suspending the common share dividend and pursuing substantial asset sales.

Possible actions recently disclosed by the company include the sale of certain assets, the reduction in its Orient-Express Hotels stake to less than 50% from the current 57%, increasing borrowings at its Silja Oyj Abp ferry subsidiary, and suspending payment of its common dividends, S&P noted. The company had originally planned to sell a portion of its stake in Orient Express to repay this debt, which S&P had viewed negatively because it would reduce Sea Containers' financial flexibility and leave it with reduced cash flow to service debt. The company has since backed off that plan as a result of Orient-Express's low share price.

The CreditWatch reflects uncertainty regarding the outcome of Sea Containers' potential actions to raise funds, S&P said. Questions remain regarding the successful sale of assets and the costs of raising additional capital in a difficult financial environment.

S&P cuts Key3Media, on watch

Standard & Poor's downgraded Key3Media Group Inc. and put it on CreditWatch with negative implications. Ratings affected include Key3Media's $150 million revolving credit facility due 2004, cut to CCC from CCC+, and $300 million 11.25% notes due 2011, cut to C from CC.

S&P said the action follows Key3Media's announcement that it is exploring various strategic alternatives to alleviate the burden of its current capital structure, including a possible debt restructuring or sale of the company. Key3Media also said that these steps could be accompanied by a Chapter 11 filing.

These developments highlight the severity of the challenges facing Key3Media due to the considerable problems being experienced in its technology end markets and the decline in business travel and trade show participation after the Sept. 11 terrorist attacks, S&P said.

S&P said it is concerned that these actions may be detrimental to bondholders, and would consider any debt restructuring or exchange at less than par value as tantamount to a default.

S&P cuts PG&E National Energy

Standard & Poor's downgraded PG&E National Energy Group. Ratings lowered include PG&E National Energy's $1 billion 10.375% senior unsecured notes due 2011 and $625 million revolving credit facility tranche A due 2003, cut to D from B-, PG&E Gas Transmission-Northwest's $150 million 7.8% senior debentures due 2025 and $250 million 7.1% senior notes due 2005, cut to CCC from BB-, USGen New England, Inc.'s $100 million unsecured credit facility due 2003 and $413.643 million passthrough certificates series 1998, cut to C from B-, and Attala Generating Co. Inc.'s $258 million passthrough certificates due 2023, cut to C from B-.

S&P said the follow the PG&E National Energy's announcement that it would allow defaults to occur on obligations as they come due over the next several months.

Fitch raises Nextel outlook

Fitch Ratings raised its outlook on Nextel Communications Inc. to stable from negative including its senior unsecured notes at B+, senior secured bank facility at BB and preferred stock at B-.

Fitch said the revision reflects Fitch's view that favorable financial trends will continue over Nextel's current rating horizon based on the positive momentum created from the accelerated improvement in operating performance, significant reduction in debt and associated obligations and strong cost containment despite a somewhat unfavorable climate within the wireless industry and weak economic environment.

Fitch added that it believes Nextel's operating performance, improvement to its capital structure and remaining liquidity offsets existing credit risk leaving a margin of safety consistent with a stable B+ rated credit.

Expectations are for Nextel to further strengthen credit protection measures in 2003 to 4.0 times debt-to-last 12 months EBITDA or less. The improving cash flows should lead to at least a free cash flow neutral position for 2003, Fitch said.

Nextel's strong cost controls, stable ARPU and solid net additions over the last three quarters have increased margins to 39% compared to 29% during the third quarter of 2001 driving expected operating cash flow to at least $3.1 billion for 2002, an increase of $1.2 billion from 2001, Fitch said. CCPU costs are down approximately 13% year-over-year due to the outsourcing of customer care and back office support costs along with cost improvements associated with the new billing platform. Additional improvement in costs of equipment sales with lower priced handsets have contributed to stronger cash flows.

These cost enhancements and further scaling of operations can be seen through the amount of revenue growth falling to EBITDA, which has averaged 75% over the last two quarters, Fitch said. The strength in ARPU is attributable to Nextel's differentiated push-to-talk feature and high value business customers, which depend on Nextel's ability to provide lifeline type services for their operations.

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