Moody's cuts HealthSouth, still on review

Moody's Investors Service downgraded HealthSouth Corp. and kept it on review for further downgrade, affecting $3.5 billion of debt. Ratings lowered include HealthSouth's senior notes and bank facility, cut to Ba3 from Ba1, and convertible subordinated notes, cut to B2 from Ba2.

Moody's said it lowered HealthSouth because of its concerns about expectations for weaker cash flow associated with Medicare outpatient therapy reimbursement, potential negative implications for future managed care contracts, as well as uncertainty associated with a recently announced SEC investigation.

Moody's said it believes that credit quality has diminished regardless of whether HealthSouth separates from its outpatient surgery centers.

The rating agency added that it is also concerned that these reimbursement policies and a more narrow service line - should the separation occur - may negatively affect reimbursement from managed care companies. Although HealthSouth plans to eliminate references to Medicare in its managed care contracts to minimize the impact, Moody's said it is concerned that HealthSouth may experience push-back from payors who will clearly want to negotiate the lowest possible rates.

In addition, should the separation and any subsequent divestitures occur, we believe negotiating leverage with managed care companies may further weaken as HealthSouth has less to offer from a service standpoint, Moody's said.

Moody's puts Alcatel on review

Moody's Investors Service put Alcatel on review for possible downgrade, affecting its €5.4 billion of senior debt at Ba1.

Moody's said it began the review in response to Alcatel's recent business update and its announcement of further restructuring measures as a result of the continued deterioration of the telecom markets.

The further downward adjustment to the company's revenue forecast reflects the continuing lack of visibility on the evolution of the current market trends and the need for Alcatel to adjust its cost base accordingly, Moody's said.

Alcatel has so far maintained positive cash flows and ample liquidity with €4.8 billion of cash available at the end of the second quarter of 2002 mainly through the release of working capital, cost reduction programs and asset disposals, Moody's said.

S&P cuts Time Warner Telecom

Standard & Poor's downgraded Time Warner Telecom Inc. and put the company on CreditWatch with negative implications. Ratings lowered include Time Warner Telecom's $400 million 9.75% senior unsecured notes due 2008 and $400 million senior notes due 2011, cut to CCC+ from B-, and Time Warner Telecom Holdings Inc.'s $225 million term loan A due 2007, $300 million term loan B due 2008 and $475 million revolving credit facility due 2007, cut to B from BB-.

S&P said the downgrade reflects a higher degree of business risk for Time Warner Telecom in light of its dependence on many distressed and/or bankrupt long distance carriers as customers and the weak fundamentals of the CLEC business.

As of mid-year, about 17% of Time Warner Telecom's recurring revenues were attributable to bankrupt companies, including WorldCom Inc., the company's largest single customer, S&P said. In addition, the company has faced continued disconnects by carriers grooming and paring down their network requirements and, to a lesser extent, by enterprise customers cutting back telecommunications services spending.

The company has identified these losses of revenues at about $228 million on an annualized basis, based on experience over the past five quarters, which has largely offset growth from new business, S&P added.

As a result, S&P said it expects 2002 EBITDA levels to be relatively flat with 2001 recurring EBITDA levels, resulting in debt to total EBITDA of about 6.2 times versus about 5.8x for 2001, excluding restructuring charges.

Performance for 2003 remains even more uncertain, given the lack of visibility about the economic environment and the potential for further loss of business to bankrupt or financially distressed companies, S&P said.

Moody's rates TI Automotive notes B3

Moody's Investors Service assigned a B3 rating to the planned $215 million guaranteed senior unsecured notes due 2012 to be issued by TI Automotive Finance plc, a subsidiary of TI Automotive Ltd. The outlook is stable.

Moody's said the ratings reflect TI Automotive's high pro forma leverage; modest pro forma EBITA interest coverage; rising working capital requirements; limited liquidity in Moody's opinion relative to the company's overall size; negative tangible equity; exposure to automotive industry cyclicality given a high fixed cost base; ongoing potential for additional OEM price concessions; intense competitive pressures; and high customer concentrations.

TI Automotive also has substantial ongoing capital expenditure and technology investment requirements to continue providing value-added product lines, avoid the risk of obsolescence or an inability to comply with updated environmental laws, achieve continued new program wins, and realize steady content per vehicle revenue growth.

Moody's added that a substantial portion of TI Automotive's historical revenue growth has been derived through acquisition, while future growth is projected to be predominantly organic.

Positives include TI Automotive being a global Tier 1 automotive supplier for more than 85% of its pro forma revenue base; its leading market shares; its position as a vertically integrated and specialized niche player for integrated fluid storage and delivery systems; and the cost-saving benefits of a restructuring and rationalization program which is substantially completed.

Pro forma annualized results upon closing the transaction include total debt/EBITDA leverage approximating 4.2x and 6.3x, respectively, before and after including the approximately $486 million on-balance sheet preferred stock balance plus assumptions regarding any undeclared preference dividends, Moody's said. Pro forma net debt/EBITDA before and after preferred stock approximate 3.6x and 5.7x, respectively. Pro forma total debt/revenues (excluding the preferred stock) is material at about 47%, while pro forma total debt/ book capitalization exceeds 100%.

Moody's rates GXS notes B2, loan Ba3

Moody's Investors Service assigned a B2 rating to GXS Corp.'s planned $235 million 12% guaranteed senior subordinated notes due 2009 and a Ba3 rating to its $175 million guaranteed senior secured bank term loan B due 2008 and its $35 million guaranteed senior secured bank revolving credit facility due 2007, which will be unfunded on closing. The outlook is stable.

Moody's said the ratings reflect GXS' "moderately high" 3.2 times pro forma debt to adjusted EBITDA; the uncertainty over revenues contributed by other transaction management solutions (OTMS), the company's enterprise application software business, as long as overall information technology spending remains constrained; and the company's separation from General Electric.

As a result of the spin-off, the company will exist as an independent, medium-size franchise without the benefits of the GE brand identity and advertising, Moody's noted.

Positives include the company's market position as a leading provider of EDI (electronic data interchange), the automated, computer-to-computer exchange of structured business data and documents, Moody's said. Savings in operating costs accruing from the restructuring activities implemented in 2001 and 2002; a seasoned management team; and a commitment evidenced by the substantial $408 million equity contribution toward the company's recapitalization from sponsors led by Francisco Partners engender additional confidence in the ratings.

Moody's added that its stable outlook reflects its expectation that revenues, after having declined significantly in 2000, 2001, and over the 12 months to June 30, 2002, should begin to stabilize, with a more concentrated focus of resources on EDI Services and OTMS.

Moody's cuts Penton subordinated notes

Moody's Investors Service downgraded Penton Media, Inc.'s $171.3 million of 10.375% senior subordinated notes due 2011 to Ca from Caa2 and confirmed its $157.5 million 11.875% senior secured notes at B3. The outlook is negative.

Moody's said the downgrade reflects the rapid deterioration of cash flow with operating performance that continues to be below Moody's expectations and management projections.

Further, the company is likely to continue to generate negative free cash flow as a result of continued weakness in the economy as well as due to the company's sizable interest payments and restructuring charges, the rating agency said.

Given Penton's small size and disappointing operating performance, it is unlikely that it will be able to attract a meaningful amount of additional capital, Moody's added.

However, significant losses over the past year may allow for certain tax benefits and consequently additional cash balances. In addition, as of June 30, Penton had access to $23.5 million of a $40 million undrawn asset based loan based on the level of qualified receivables at quarter end. The company can not draw on the facility until its cash balance falls below $7.5 million ($22.6 million as of June 30).

Moody's said it lowered the senior subordinated notes to Ca because it expects the ultimate credit loss to be material given the lack of recovery in several of Penton's markets.

The negative outlook reflects the challenge the company faces in restoring its cash flow to previously expected levels, Moody's added.

Fitch cuts DVI

Fitch Ratings lowered DVI's $155 million of senior unsecured debt due 2004 to B+ from BB-. The outlook remains negative.

Fitch said the downgrade reflects DVI's weak operating performance, asset growth exceeding internal capital formation, rise in encumbered assets as a percentage of total assets, and increased financial leverage.

The negative outlook is because DVI faces significant challenges in reversing the trends in leverage and capitalization, Fitch said. If current trends continue, the cushion available to unsecured debtholders may become further compromised.

Fitch also noted that gain-on-sale revenue as a percentage of total revenue has rose sharply in fiscal year 2001 and first the first nine months of fiscal year 2002.

Positives include management's success in navigating the company through one of the most challenging periods in commercial finance, Fitch noted. Additionally, in part due to industry consolidation, DVI has emerged as the leading independent healthcare finance company in the world.

Fitch upgrades Northern Natural Gas

Fitch Ratings raised Northern Natural Gas Co. to investment grade, lifting its senior unsecured debt to BBB+ from B and removing it from Rating Watch Positive. The outlook is stable.

Fitch said the upgrade follows a review of the plans for financing and operating the company by its new owner MidAmerican Energy Holdings Co.

Fitch is assuming the repayment of an outstanding $450 million secured credit facility through a combination of new unsecured debt and equity.

S&P withdraws Atlantis Plastics rating

Standard & Poor's withdrew its rating on Atlantis Plastics Inc. including its $100 million 11% senior notes due 2003, previously at B+.

S&P said the withdrawal was at the company's request.

S&P cuts PDV America, Citgo

Standard & Poor's downgraded PDV America Inc. and Citgo Petroleum Corp.'s ratings. The outlook is negative. The $2.2 billion of debt lowered includes PDV America's $500 million 7.875% notes due 2003, cut to B from B+, and Citgo's $200 million 7.875% senior notes due 2006, cut to BB- from BB.

S&P said the action follows its downgrade of the Republic of Venezuela.

The ratings for PDV America, a large U.S. refining and marketing company, reflect its ownership by Petroleos de Venezuela SA (PDVSA), mitigated by a highly sophisticated asset base, adequate financial flexibility, and debt leverage that would be consistent with a higher debt rating, S&P said.

Although much of PDV America's refining capacity is located in the fiercely competitive U.S. Gulf Coast market, Citgo's refineries are profitable because of their economies of scale and ability to convert low-cost feedstock into a high value product slate, S&P noted. In addition, Citgo has long-term crude procurement contracts with PDVSA that dampen peak profitability in exchange for a hedge against trough refining margins.

Citgo's marketing operations provide added value to Citgo's refinery production and serve as a relatively stable profit center, although it can be a substantial consumer of working capital, S&P said.

S&P cuts PDVSA

Standard & Poor's downgraded Petroleos de Venezuela SA (PDVSA) including cutting its corporate credit rating to B- from B. The outlook is negative.

S&P said the downgrade reflects its downgrade of the credit ratings of the Bolivarian Republic of Venezuela. Future ratings changes will be linked to those on the Bolivarian Republic.

The ratings of PDVSA, the Venezuelan national oil company, reflect the foreign currency rating of its lone shareholder, the Bolivarian Republic of Venezuela, S&P said.

S&P maintains the same rating on PDVSA as on the Republic of Venezuela because of the government's ability to exert substantial control over PDVSA's finances and its dependence on PDVSA's cash flow for meeting its own obligations.

S&P cuts Harvest Natural Resources

Standard & Poor's downgraded Harvest Natural Resources Inc. including lowering its $115 million 9.375% senior notes due 2007 to B- from B. S&P also revised the outlook to negative from stable.

S&P said the action is in response to its downgraded of the Republic of Venezuela .

Harvest relies on its operations in Venezuela and its service agreement with PDVSA for essentially all of its operating cash flow, S&P said. Despite recent improvements to the company's business and financial position, the company's ratings are constrained by the political risk attendant to its operations in Venezuela.

The negative outlook on Harvest reflects S&P's negative outlook for Venezuela, which also has affected PDVSA's ratings.

S&P cuts Petrozuata

Standard & Poor's downgraded Petrozuata Finance Inc.'s bonds including cutting its $300 million 7.63% bonds series A due 2009, $625 million 8.22% bonds series B due 2016 and $75 million 8.37% bonds series C due 2022 to BB- from BB. The outlook remains negative.

S&P cuts Electricidad de Caracas

Standard & Poor's downgraded C.A. La Electricidad De Caracas including cutting its €150 million notes due 2006 to B- from B. The outlook is negative.

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