Moody's cuts Sequa, rates notes B1

Moody's Investors Service downgraded Sequa Corp. including cutting its $200 million 8 7/8% senior unsecured notes due 2008 and $500 million 9% senior unsecured notes due 2009 to B1 from Ba3 and assigned a B1 rating to its proposed $100 million 8 7/8% add-on notes. The rating outlook was changed to stable from negative.

Moody's said the downgrade was prompted by continued weakness in earnings in Sequa's Chromalloy unit owing to a prolonged downturn in the commercial aerospace sector, resulting in thin cash flow generation against a substantial level of debt.

The stable ratings outlook reflects Moody's expectations that operating results in the commercial aerospace will at least cease in its downward trend, and that earnings in the other operating units of the company will improve in the near-term, while company-wide margins improve from cost reduction programs currently underway.

The stable outlook also reflects Sequa's continued strong liquidity position, post-transaction, which should be further enhanced by the company's recently announced sale of its ARC Propulsion unit to GenCorp.

The purpose of the proposed notes issue is to provide additional liquidity on top of the company's substantial cash position, with $113 million in cash reported as of March 2003, Moody's said.

Moody's noted Sequa's thin near term cash flow generation from operations. Despite having EBITDA of $153 million in 2002 (total debt of 4.6x EBITDA, 2.4x interest coverage), outlays for capital expenditures and interest expense ($74 million and $64 million, respectively), as well as changes in working capital resulted in the company being approximately free cash flow neutral for the year.

With similar levels of capital expenditures and interest expense anticipated in the near term, along with anticipated substantial contributions to the company's under funded pension plans, Moody's expects Sequa to be free cash flow negative to slightly positive in the next two years.

S&P cuts Elektrownia Turow

Standard & Poor's downgraded Elektrownia Turow SA including cutting Elektrownia Turow BV's €270 million 9.75% bonds due 2011 to B from BB. The ratings were removed from CreditWatch negative. The outlook is developing.

S&P said the downgrade reflects the increased uncertainty and risk arising from the Polish government's commitment to opening the electricity generation sector to competition by July 2004. The government plans to achieve this by means of terminating long-term power purchase agreements in exchange for one-time stranded-cost compensation.

The downgrade also reflects increased regulatory risk in the Polish electricity sector. Management and operational performance, however, remains satisfactory and modernization is progressing according to plan.

The government's effort to terminate power purchase agreements was triggered by Poland's likely medium-term accession to the EU, which requires electricity sector competition, S&P noted.

Major questions remain about the level of compensation, S&P said. It is intended to calculate compensation as the difference between enterprise values with and without the PPAs, not looking at the debt obligations per se.

Obviously, this is somewhat arbitrary and based on assumptions about critical factors such as future power and fuel prices, inflation, and interest and exchange rates, S&P said.

Moody's keeps Jupiters on upgrade review

Moody's Investors Service said its review for upgrade on Jupiters Ltd. is continuing including its $135 million senior unsecured notes due 2006 at Ba2. The review was begun on March 5.

Moody's noted the proposed acquisition of Jupiters by Tabcorp Ltd. is still proceeding, subject to the signing of merger agreement and the final regulatory and shareholder's approval.

Upon closing of the acquisition, Moody's said it expects to upgrade the ratings of Jupiters, reflecting the benefits of the merged entity under Tabcorp: improved geographic and product diversification, leading position in the gaming industry of Australia, reduced reliance on the more volatile casino revenues, planned sale of the more risky online sports betting business under Centrebet, and the expectation of a sound financial profile, which is anticipated to result in an investment grade profile.

Moody's puts Aerco on review

Moody's Investors Service put seven classes of notes issued by Aerco Ltd. Trust on review for downgrade including its $565 million class A-3 floating rate asset-backed notes due July 15, 2025 at Aa2, $235 million class A-4 floating rate asset-backed notes due July 15, 2025 at Aa2, $85 million class B-1 floating rate asset-backed notes due July 15, 2023 at A2, $80 million class B-2 floating rate asset-backed notes due July 15, 2025 at A2, $85 million class C-1 floating rate asset-backed notes due July 15, 2023 at Baa2, $80 million class C-2 floating rate asset-backed notes due July 15, 2025 at Baa2 and $100 million class D-2 fixed rate asset-backed notes due July 15, 2025 at Ba3.

Moody's said Aerco has been experiencing reduced cash flows due to lessee defaults, lease restructurings and extensions and renewals with lower lease rates.

Moody's review will focus on several factors, including: the potential lease revenues that might be generated on the aircraft that are currently off-lease or that will be coming off-lease within the next 12 months; the impact of delinquent lease payments on revenues; current and future expenses relating to repossession, remarketing and maintenance of aircraft from current lessees; the marketability of mid-life and old technology aircraft in the current environment; and the impact of SARS on the Asian market.

S&P lowers Hudson's Bay outlook

Standard & Poor's lowered its outlook on Hudson's Bay Co. to negative from stable including its senior unsecured debt at BB+.

S&P said Hudson's Bay has experienced continued weak profitability, exacerbated by poor first-quarter results; continued market share declines; debt protection measures that remain slightly weak for the ratings category; and material upcoming debt maturities.

These factors are partially offset by a commitment to competitive merchandising strategies at both The Bay and Zellers stores, continued efforts to contain costs, and a strengthened capital structure given a reduction in long-term debt.

HBC's first-quarter ended April 30, 2003 results were negatively affected by a number of factors, including unseasonably cold weather in Ontario and Alberta that affected softlines, lower traffic in some urban stores due to the outbreak of severe acute respiratory syndrome (SARS), and weaker results at the company's financial services division, S&P said.

Same-store sales declined 4% at The Bay, after having declined 3.3% in fiscal 2003, while comparable-store sales rose 0.2% at Zellers, after having declined by 0.5% in 2003.

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