Moody's cuts PG&E National Energy

Moody's Investors Service downgraded PG&E National Energy Group, Inc. and some of its subsidiaries. Ratings affected include PG&E National Energy Group's senior unsecured debt and unsecured bank credit facility to Ca from B3, PG&E Gas Transmission Northwest's senior unsecured debt to B1 from Ba1, USGen New England, Inc.'s passthrough certificates and bank credit facility to Caa1 from B2 and Attala Generating Co., LLC's senior secured debt to Caa2 from B2. The outlook for PG&E National Energy, USGen and Attala is negative. PG&E Gas Transmission Northwest remains on downgrade review.

Moody's said the downgrade reflects PG&E National Energy's disclosure that it will not make certain interest and principal payments, including the repayment of principal due on a $431 million revolving credit facility and the payment of interest due on senior unsecured bonds.

PG&E National Energy continues to work with its lenders on a comprehensive restructuring that could include the abandonment or the sale of certain of its assets along with monetization of tax benefits generated by PG&E National Energy for PG&E Corp.

PG&E National Energy financial results continue to be beset by weak operating cash flows relative to debt levels, along with strained liquidity, caused in large part by low merchant wholesale power prices, Moody's said.

S&P puts Playtex on developing watch

Standard & Poor's put Playtex Products Inc. on CreditWatch with developing implications. The company had previously had a negative outlook. Ratings affected include Playtex's $125 million revolving bank loan due 2007 and $450 million senior secured term C loan due 2009 at BB- and $350 million 9.375% notes due 2011 at B.

S&P said the action follows Playtex's decision to explore strategic alternatives to maximize long-term shareholder value, including the possible sale of the entire company. Playtex has hired J.P. Morgan Securities Inc. to act as financial adviser in this process.

Playtex's management has announced that it is considering four options to provide maximum long-term value to shareholders, including the possible sale of the company, combination of the business with one or more parties to form a larger company, divestment of one or more business lines, or the acquisition of strategic business lines.

Should management pursue either the option of selling the company or merging with another company, the ratings on Playtex could be raised, lowered, or affirmed depending on the business and financial strength of the acquiring or new company, S&P said.

S&P cuts Mission Resources

Standard & Poor's downgraded Mission Resources Corp., removed it from CreditWatch with negative implications and assigned a negative outlook. Ratings affected include Mission Resources' $100 million senior secured revolver due 2004, cut to BB- from BB, and $100 million 10.875% senior subordinated notes due 2007 and $125 million 10.875% senior subordinated notes due 2007, cut to CCC+ from B-.

S&P said the downgrade reflects Mission's burdensome debt leverage with limited, near-term prospects for significant deleveraging, an eroding financial profile, and likely decline in production through 2003 because of reduced capital spending and asset sales completed during 2002.

As of Jan. 1, 2002, Mission had proven reserves of 67 million barrels of oil equivalent (boe) (74% proved developed, 60% oil) located primarily in the Permian Basin (39% of reserves) and the onshore Gulf Coast (39%) and East Texas (10%). Management has not publicly released information regarding the total amount of reserves sold over the first three quarters of 2002, thus making it difficult to estimate the size of Mission's diminished reserve base pro forma for asset sales, S&P said.

Mission's current operating costs (second-quarter 2002) are much worse than average, at $9.30 per boe, compared with peer averages of about $4.20 per boe, S&P added. The averages are attributed to the high costs associated with secondary recovery techniques employed in the Permian basin and East Texas. In the future, management expects that operating costs will fall to about $8.00 per boe, because of the recent divestiture of high-cost properties in the Permian and in East Texas.

Nevertheless, the company's cost structure will remain much worse than the industry average, which places the company at a substantial competitive disadvantage, especially during periods of depressed hydrocarbon pricing, S&P said.

With the installation of a new management team during third-quarter 2002, Mission is expected to implement certain initiatives for operational and financial improvement, including the continuation of the asset rationalization program initiated after the merger with Bargo Energy Co. in May 2001, and the pursuit of a possible transaction that would deleverage the company, S&P said. Until significant deleveraging has occurred, S&P added that it expects the company to curtail acquisitions unless funded primarily through new equity sales or asset sale proceeds.

S&P lowers Pathmark outlook

Standard & Poor's lowered its outlook on Pathmark Stores Inc. to negative from stable. Ratings affected include Pathmark's subordinated debt at B.

S&P said it changed Pathmark's outlook in response to the company's revised earnings guidance for both its fiscal third quarter 2002 and full-year 2002. The company now expects EBITDA for fiscal 2002 will be between $175 million and $180 million compared with previous guidance of $190 million - $195 million.

The company also amended its credit agreement in the third quarter, changing its leverage ratio covenant through third quarter 2002 and has initiated discussions with its bank group about further amending its leverage ratio covenant beyond fiscal 2002.

The ratings on Pathmark reflect its participation in the highly competitive supermarket industry and its continued need to make improvements to its store base since its emergence from bankruptcy in September 2000, S&P said. These risks are somewhat mitigated by the company's leading market position in the greater New York metropolitan area.

Pathmark's emergence from Chapter 11 bankruptcy in September 2000 greatly reduced its debt burden, allowing the company to begin making significant investments to improve its store base and to promote more aggressively. These initiatives contributed to a same-store sales increase of 2.5% in 2001, compared with slightly positive same-store sales increases in previous years. However, weakened economic conditions and increased promotional activity in the greater New York metropolitan market resulted in same-store sales declining about 1.5% for the first nine months of 2002, S&P said.

Moody's raises Actuant

Moody's Investors Service upgraded Actuant Corp. Ratings affected include Actuant's $113 million 13% senior subordinated notes due 2009, raised to B2 from B3, and $100 million senior secured revolving credit facility due 2006 and $66 million senior secured term loan due 2006, raised to Ba3 from B1. The outlook is stable.

Moody's said the upgrade reflects Actuant's improving credit profile as a result of considerable de-leveraging through both internal cash flow generation and an equity offering, continuing good operating performance including strong operating margins and return on assets, good liquidity condition, and a focused management team.

However, the ratings continue to be constrained by the prevailing weak economic environment, concerns over the sustainability of certain of the company's end-markets that are susceptible to consumer confidence and spending, its relatively small size, and contingent liabilities related to its exposure to APW, the now spun off electronics enclosure business, Moody's said.

The stable rating outlook reflects Moody's expectation of continuing good operating performance and cash flow generation at Actuant over the near-to-medium term, offset by possible softening in some of the company's end-markets.

Moody's said Actuant has considerably lowered its debt level since the spin-off of APW in July

2000. The company's total debt was reduced from $451 million to $215 million (including $25 million under an accounts receivable securitization facility) as of August 31, 2002, and accordingly its EBITDA debt leverage declined from 4.1 times to 2.6 times in the respective periods.

In addition, Actuant has shown improvements in its operating performance. Although revenues (excluding non-continuing business) in fiscal 2002 (ended August 2002) remained relatively flat compared to fiscal 2001, adjusted operating profits rose 6.6% while operating margins improved to 15.4% in fiscal 2002 from 14.4% in fiscal 2001, Moody's said.

S&P rates CenterPoint Energy Houston Electric loan BBB

Standard & Poor's rated CenterPoint Energy Houston Electric LLC's $1.31 billion three-year term loan secured by general mortgage bonds at BBB. Concurrently, a BBB- rating was assigned to CenterPoint Energy Inc.'s $3.85 billion one-year unsecured bank facility, which was renegotiated on Oct. 10.

The corporate credit ratings of CenterPoint Houston, CenterPoint Energy Resources Corp. and CenterPoint Energy, Inc. remain on CreditWatch with negative implications.

"Although CenterPoint Energy Houston's general mortgage bond lien represents a 2nd lien on assets, Standard & Poor's believes that sufficient collateral exists, in terms of the bonding ratio, to warrant a rating pari passu with that of first mortgage bonds," S&P said.

Proceeds from the $1.31 billion loan will be used to retire a $300 million maturity at a subsidiary of CenterPoint Houston, to repay $100 million of intercompany loans and to repay an $850 million credit facility.

Although the new loan has a high interest rate of Libor plus 975 basis points, it removes refinancing risks for three years at Houston Electric and provides sufficient coverage to avoid early termination of the $3.85 billion credit facility at CenterPoint Energy.

However, refinancing risk for CenterPoint Energy is ongoing since failure to meet two prepayments, $600 million in February 2003 and $600 million in June 2003, would result in the acceleration of the $3.85 billion facility.

Consolidated debt is expected to remain high until 2004/2005 when the Texas generation assets are sold and proceeds are received from the securitization of stranded costs associated with the generation assets.

At Nov. 1, Center Point Energy had cash on hand in excess of $500 million, which is expected to be more than adequate to fund any increased inventories or higher cost gas purchases at CERC.

S&P lowers Steinway outlook

Standard & Poor's lowered its outlook on Steinway Musical Instruments Inc. to negative from stable. Ratings affected include Steinway's senior unsecured debt at BB-.

S&P said the revision reflects the weakening market for both pianos and band instruments, and consequently, the declining profitability and credit ratios at Steinway.

The ratings are based on Steinway's narrow product category and some cyclicality in its Steinway piano business, S&P said. These factors are somewhat mitigated by the company's well-established market positions in both the concert hall and institutional markets, its widely recognized brand names, geographic diversification, and moderate financial profile.

For the first nine months of fiscal 2002 ended Sept. 28, unit piano sales fell 9%, as gains in the mid-priced Boston brand and consistent sales to educational institutions were not strong enough to offset an 18% fall in unit sales of Steinway & Sons grand pianos, S&P said. With lower shipments of band instruments, Steinway's consolidated sales for the first nine months of 2002 fell 9.9%. Lower production volume has resulted in unabsorbed factory overhead, and so lower profitability.

For the first nine months of 2002, the gross margin was 29.4%, down from 31.0% for the same period in 2001, as better performance in the piano division was offset by lower profitability in the band instrument division. For similar reasons, operating income fell to $23.2 million for the first nine months of 2002 from $31.2 million the year before.

Lower interest expense from the company's debt reduction somewhat offset the contraction in profitability. As a result, EBITDA coverage of interest expense, adjusted for operating leases, was 2.7 times for the 12 months ended Sept. 28, 2002, down slightly from 2.8x at year-end 2001 and a five-year average of 3.3x.

The company has made progress in strengthening its balance sheet, reducing debt by more than $30 million since September 2001, S&P noted. Lower profitability, however, has somewhat eroded debt leverage, with total debt to EBITDA, adjusted for operating leases, at 4.5x versus 4.2 in 2001.

Moody's cuts Elektra

Moody's Investors Service downgraded Grupo Elektra, SA and kept it on review for downgrade. Ratings lowered include Elektra's $275 million 12% senior unsecured notes due 2008, cut to B2 from B1.

Moody's said the downgrade reflects concerns about a weakening in Elektra's business and financial profile through the first three quarters of this year.

The continuing review is in response to concerns about changes to the company's corporate and financial status.

Elektra is facing challenges from a weak economic environment which has resulted in lower operating profits and profit margins for the first nine months of 2002 versus the prior year, Moody's said. Elektra is facing increasing competition from other major retailers, some of which are offering more competitive credit terms to customers.

The conversion of a sizable number of The One stores to Elektra formats may cause some cannibalization and lower profit margins in the near term. Additional concerns arise because of uncertainty about the long term resolution of amounts receivable from Unefon, an affiliate of Elektra which defaulted on a third-party obligation in August. Gross margins and operating margins did improve slightly for the third quarter, but on a lower rate of sales growth.

Elektra has extended the average terms of customer receivables in response to the weak environment, which increases portfolio default risk while potentially increasing spread income over the next year, Moody's noted. Write-offs for the nine months of 2002 relative to the level of net receivables on the balance sheet increased from the prior year, but are down slightly relative to the gross receivables portfolio. The company has said that it intends to liquidate existing receivables on its balance sheet and in existing securitizations at whatever time the bank begins to finance new receivables.

Moody's concerns extend to Elektra's financial profile as reported at the end of the third quarter. Bank borrowings were higher at the end of the third quarter of 2002 than in the prior year, despite lower levels of inventory and receivables on the company's balance sheet. Moody's believes that bank borrowings were used for capital expenditures earlier in the year, and also to increase cash balances at the end of the third quarter.

S&P cuts Asarco

Standard & Poor's downgraded Asarco Inc. including cutting its $450 million floating-rate revolver to D from CC.

S&P said the action follows the company's missed principal payment on the bank facility.

The restructuring negotiations between GMexico's subsidiaries (Asarco, Southern Peru Copper Corp., and Grupo Minero Mexico S.A. de C.V.) and their creditors continue under an understanding agreement that has halted the acceleration of several principal payments, including those on Asarco's revolving credit facility, which accounts for about 44% of this subsidiary's total debt as of September 2002, S&P noted.

According to the company, the payment of this facility will be extended until the beginning of 2003 when Asarco expects to pay in full this facility using proceeds recently obtained from a financing at its railroad affiliate, Ferromex, as well as a new financing that is being negotiated for its subsidiary Americas Mining Corp. (AMC), which groups all the mining subsidiaries of GMexico, S&P added.

Still, S&P said it views this missed payment at the due date as a default.

Moody's puts American Axle on upgrade review

Moody's Investors Service put American Axle & Manufacturing, Inc. on review for possible upgrade including its $300 million of 9.75% guaranteed senior subordinated notes due March 2009 at Ba3 and $378.8 million guaranteed senior secured revolving credit due October 2004 and $375 million guaranteed senior secured term loan B due April 2006 at Ba2.

Moody's said the review is in response to American Axle's improved cash flow performance and favorable future operating prospects.

Moody's said its review will focus on the relative weights of the positive and negative rating factors affecting the company combined with its evaluation of the likely impact of current economic and industry-specific trends on American Axle's near-to-intermediate term performance.

In addition to the improving operating cash flow performance, Moody's noted American Axle's anticipated ability to realize sustainable reductions in capital expenditure levels, now that a wholesale refurbishment of the heritage General Motors manufacturing facilities has been completed.

Moody's also said it is comfortable regarding American Axle's present liquidity position with its $378.8 million revolving credit facility unused, a substantial cushion under existing bank covenant requirements and a $100 million debt reduction realized over the past 12 months.

The ownership interests of equity sponsor Blackstone and of CEO Richard Dauch have also been reduced through secondary equity offerings to 27% and 14%, respectively. Moody's therefore perceives the risk of a re-leveraging of American Axle upon the ultimate exit of these investors to be substantially reduced.

The rating review furthermore reflects American Axle's net new business totaling in excess of $1.3 billion (annualized) awarded over the past three years; the company's successful third quarter launch of the new Dodge Ram and GM Hummer/Baby Hummer driveline systems; the company's new business awards for certain major next-generation vehicle programs such as the GMT 900 and the GMT 370 series, which extend out for a minimum of seven more years; the increased diversification of the company's customer base achieved to date and prospectively, while simultaneously growing the company's absolute level of GM revenues; the rising average content per vehicle to in excess of $1,100; the introduction of new state-of-the-art technology, with 80% of current revenues attributable to products introduced since 1999; and the realization of measurable improvements in manufacturing productivity, flexibility, and quality.

American Axle's ratings remain constrained by the company's still highly significant customer concentration with GM, which continues to exceed 80% of total revenues through the third quarter of 2002.

The company therefore remains particularly exposed in the event that GM experiences a strike or other disruption of production flow, Moody's said.

American Axle also remains characterized by relatively limited diversification relative to most of its peers with regard to both its product mix and geographic coverage.

Another significant risk to the sustainability of American Axle's strengthened cash flow performance is the possibility that new vehicle sales over the past year were actually pulled-forward from the future, rather than just having satisfied pent-up demand.

S&P upgrades Cumulus

Standard & Poor's upgraded Cumulus Media, Inc. The outlook continues to be stable. Ratings raised include Cumulus' bank debt, raised to B+ from B, $150 million 10.375% senior subordinated notes due 2008, raised to B- from CCC+, and $125 million cumulative redeemable preferred stock, raised to CCC+ from CCC.

S&P said the upgrade reflects expectations that Cumulus will preserve improvements to its financial profile resulting from the company's $200 million common stock offering in May 2002 and increasing advertising demand.

Equity proceeds were used to repurchase expensive debt-like preferred stock, helping to reduce total debt and debt-like preferred stock to EBITDA to approximately 5.6 times at the 2002 third quarter end from around 8x in 2001, S&P noted.

Despite radio advertising's positive momentum, the economic outlook remains soft and near-term visibility is limited, S&P said. Given the potential for the advertising environment to again weaken, adherence to a deleveraging financial policy will be important for maintaining key credit ratios. Cumulus is likely to continue consolidating the small- to mid-size radio markets, and is expected to use equity financing to help temper potential financial risk.

Moody's upgrades Simmons

Moody's Investors Service upgraded Simmons Co. including raising its $60 million senior secured revolving credit facility due 2004 and $85 million senior secured term loan facilities due 2004-2006 to Ba2 from Ba3 and $150 million 10.25% senior subordinated notes due 2009 to B2 from B3. The outlook is stable.

Moody's said the upgrade reflects Simmons' ability to regain distribution channels and sales momentum and improve profitability levels, following material revenue losses in 2001 that were caused by retailer bankruptcies and liquidations.

In a challenging period for the economy generally, and the mattress industry in particular, Moody's said it believes that Simmons has gained market share over the past year, with at or near double-digit sales growth.

More importantly, Simmons' focus on product innovation and cost control (shift to one-sided mattress and zero-waste programs) has enabled the company to achieve this growth while increasing its EBITDA margins and free cash flow after capital expenditures, Moody's said.

Finally, the robust cash flows generated from Simmons' strong performance, totaling over $60 million for the 12 months ended September 2002, were applied mostly to debt reduction, significantly improving the company's financial flexibility, Moody's said.

S&P upgrades Bay View Capital

Standard & Poor's upgraded Bay View Capital Corp., removed it from CreditWatch with positive implications and assigned a stable outlook. Ratings affected include Bay View Capital's $100 million 9.125% subordinated notes due 2007, raised to B from CC, and Bay View Bank NA's $100 million subordinated notes due 2007 and $50 million 10% subordinated notes due 2009, raised to B+ from CCC. Bay View Capital Trust I's preferred stock remains on CreditWatch with positive implications and will be upgraded to B- when the dividend is brought up to date.

S&P said the upgrade is in response to the successful completion of the sale of the branch network and most of the deposit base to U.S. Bancorp's lead bank, U.S. Bank NA.

These transactions are part of the company's plan to liquidate.

The company has received approval and filed notice to redeem its outstanding debt, S&P said. It has also received approval to bring its preferred stock dividends out of arrears.

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