Fitch downgrades CMS

Fitch Ratings downgraded CMS Energy and its subsidiaries Consumers Energy Co. and CMS Panhandle Eastern Pipe Line Co. and kept them on Rating Watch Negative. Ratings lowered include CMS Energy's senior unsecured debt, cut to BB- from BB+ and preferred stock and trust preferred securities, cut to B- from BB-, Consumers Energy's senior secured debt, cut to BBB from BBB+, senior unsecured debt, cut to BB+ from BBB, and preferred stock and trust preferred securities, cut to BB- from BB+, Consumers Power Financing Trust I trust preferred securities, cut to BB- from BB+ and Panhandle Eastern's senior unsecured debt, cut to BB+ from BBB.

Fitch said it originally put the companies on watch on June 11 because of concerns surrounding CMS' weak liquidity position, high parent debt levels and limited financial flexibility.

CMS' market access continues to be constrained by the company's need to restate its 2000 and 2001 financial statements to eliminate the effects of 'wash trades' with other energy companies, Fitch said.

While Consumers and Panhandle Eastern are fundamentally sound, the companies' financial condition and credit ratings may be adversely affected by the financial stress of their parent, Fitch added.

The downgrades reflect the negative impact on unsecured creditors of the company's newly restructured bank credit facility agreements announced Monday.

CMS has replaced its expired $450 million credit line with a smaller $295.8 million facility that is secured by a second lien on the equity of CMS Enterprises, which is the parent of CMS Generation, CMS Oil & Gas, CMS Gas Transmission, CMS Field Services, CMS International Ventures, CMS Capital and PEPL.

The new $295.8 million facility, which is fully drawn, will expire on March 31, 2003. CMS' existing $300 million credit facility, which is also fully drawn, has become similarly secured and the maturity has been shortened by six months to Dec. 15, 2003.

CMS also announced a new $150 million credit facility has been established for CMS Enterprises. This facility, which will mature on Dec. 13, 2002, is secured by a first lien on the stock of CMS Enterprises. CMS intends to fully draw on this facility to meet working capital needs.

The new facilities, which total $750 million, are secured credits with mandatory prepayment conditions based on the proceeds from asset sales and capital market issuances.

CMS has announced plans to sell CMS Oil and Gas, which has a book value of $350 million, an interest in Centennial Pipeline and CMS Viron, a unit of CMS Marketing Services and Trading.

Proceeds from these asset sales were initially targeted to reduce debt at CMS, which is highly leveraged with a consolidated debt ratio of 66%, Fitch noted.

Also, the new facilities contain financial covenants, including a consolidated debt to consolidated EBITDA test of not more than 5.75-to-1, and a cash dividend income to interest expense test of not less than 1.25-to-1 for the immediately preceding for quarters.

As a result of dividend restrictions imposed in the credit agreements, CMS intends to cut its common stock dividend by around 50%.

S&P upgrades Resource America

Standard & Poor's upgraded Resource America Inc. including raising its senior unsecured debt to B from B-. The outlook is stable.

S&P said Resource America's ratings reflect the support provided by recurring earnings and a commitment to maintain a strong cash position.

Resource America is a proprietary asset management company with interests in Appalachian natural gas and oil fields, real estate, and leasing. Of these, the most important is the oil and gas operations, which contributed roughly 77% of EBITDA for fiscal year-end 2001.

Resource America's oil and gas operations are conducted through investment partnerships, which typically reduce Resource's portion of drilling costs to an average 25% interest. Once drilling is completed, Resource America receives the benefit of an extra 7% interest in the partnership (33% in total), which yields a 29% interest in the well's production. Resource America's drilling program features low risk wells (98% success rate) and reliably producing properties with an average reserve life of 17.5 years, S&P noted. At 129 billion cubic feet equivalent (bcfe), its reserve pool is small; but good success rates plus slow and steady production, averaging 6.6 Bcfe per year, should help maintain reserve and production levels.

Finding and development costs net to Resource America are a low 48 cents per million cubic feet equivalent (mcfe), reflecting the partnership structure of its drilling program, fees received for drilling the well, and reimbursements for general and administrative expenses. However, prior to these adjustments, gross finding and development costs would have averaged a very high $1.49 per Mcfe.

Resource America's financial profile is characterized by high financial leverage mitigated by $30 million of cash balances that provide short-term liquidity, S&P said. Expected average EBITDA-interest coverage of 2.5, although low, should remain positive throughout the hydrocarbon pricing cycle, the rating agency added.

Moody's confirms Nortek, off review

Moody's Investors Service confirmed Nortek, Inc.'s ratings and removed them from review for possible downgrade where they were placed following the announcement that Kelso & Co., LP had submitted an offer to acquire the outstanding stock of Nortek for $40 per share, subsequently raised to $46. The outlook is stable. Ratings confirmed include Nortek's $175 million 9.25% senior notes due2007, $310 million 9.125% senior notes due 2007 and $210 million 8.875% senior notes due 2008 at B1, $250 million 9.875% senior subordinated notes due 2011 at B3 and Ply Gem's $45 million Ply Gem secured bank credit facility due 2002 at Ba3.

Moody's said that Nortek's liquidity will remain adequate after the acquisition despite the sharp reduction in its cash balances, which will have been built back up somewhat prior to the transaction's closing.

The rebuilding of the cash balances occurs as a result of the following Nortek's continuing strong cash flow generation despite a lagging economy, the freeing up of $19 million in cash currently backing up bank letters of credit through the utilization of a proposed new $200 million secured bank credit facility for LC issuance and $13 million of cash savings from not having to pay a like amount of taxes as a result of the tax deductions arising from the Kelso transaction, Moody's said.

Cash, which was expected to surpass the first quarter levels by Sept. 29, 2002 without a Kelso buyout, should now exceed $100 million after the transaction closes, and continue growing through year-end, Moody's added.

Absent any unusual items, including future acquisitions, the company should only need to utilize a portion of the new proposed $200 million secured bank credit facility for letter of credit issuance, thus leaving key ratios little affected by the cash draw down, Moody's said. Total debt/capitalization, which was nearly 79% at the end of the first quarter, should be in the low 70% range by the end of the third quarter. Total debt/EBITDA, which was 4.7x on a trailing 12 month basis at March 31, 2002, should come in at a pro forma 4.3x on a trailing 12 month basis at September 29, 2002. EBITDA coverage of interest expense, which was 2.1x in 2001, should improve to a pro forma 2.4x in 2002.

S&P rates Pope & Talbot notes BB

Standard & Poor's assigned a BB rating to Pope & Talbot Inc.'s planned $50 million 8 3/8% senior unsecured notes due 2013 and confirmed its existing ratings. The outlook remains stable.

Proceeds from the debt issue are expected to be used to repay a portion of the amounts outstanding under the company's bank credit facilities. The amount of secured debt and other priority liabilities is expected to be low enough so as not to require a notching-down of the rating on the company's senior unsecured debt, S&P said.

The ratings reflect Pope & Talbot's below average business position as a moderate size pulp and lumber producer and an aggressive financial profile, S&P added.

Pope & Talbot's focus on commodity products in highly cyclical, fragmented, and competitive markets subjects the company to considerable earnings and cash flow volatility. Although prices for pulp and lumber tend to move in opposition to each other, both products experienced weakness in 2001, S&P noted.

However, pulp appears to have reached the bottom of its cycle, which should begin to boost the company's financial performance in the second half of 2002, S&P said. On the other hand, the imposition of 27% import duties on lumber shipped from Canada into the U.S. has clouded the prospects for Canadian producers' lumber realizations, despite still-robust U.S. housing construction markets (a significant portion of Pope & Talbot's lumber production is in Canada, most of which is shipped to the U.S.).

Nonetheless, the company benefits from a geographically diverse revenue base, some stability from long-term fiber supply and customer contracts, and ongoing cost reduction efforts, S&P continued.

The partially debt-financed Mackenzie pulp mill acquisition in 2001 increased Pope & Talbot's debt leverage, and debt outstanding at March 31, 2002, totaled $230 million, S&P said. However, the rating agency said it expects the company to limit share repurchase and acquisition activity until credit measures return to levels appropriate for the ratings. In addition, reduced capital spending requirements, improved working capital management, and a recovery in pulp markets should allow the company to generate modest free cash flow for debt reduction.

S&P rates Carmeuse Lime notes BB-

Standard & Poor's assigned a BB- rating to Carmeuse Lime BV's €75 million floating-rate bonds due 2007 and €175 million 10.75% bonds due 2012.

Moody's puts Eletropaulo on review

Moody's Investors Service put Eletropaulo Metropolitana Eletricidade de Sao Paulo SA's B1 foreign currency issuer rating on review for possible downgrade and lowered its local currency issuer rating to B1 from Ba2, keeping it on review for possible further downgrade.

Moody's said the action reflects its concern about Eletropaulo's financial flexibility and its significant need to execute near-term financing during a period of significantly diminished market access in Brazil.

The company's proceeds from a BNDES loan are expected prior to the maturity of debt in August and September of this year, but those proceeds are insufficient to cover all of the company's maturing debt, Moody's said. The prospects are uncertain for additional financing or the extension of maturing debt.

S&P withdraws Ethyl rating

Standard & Poor's said it withdrew its rating on Ethyl Corp. at the company's request. Ethyl had a B+ corporate credit rating.

S&P cuts BGF to D

Standard & Poor's downgraded BGF Industries Inc. to D including cutting its $50 million revolving credit facility, previously at CCC+, and $100 million 10.25% senior subordinated notes due 2009, previously at CCC-.

S&P said the action follows BGF's announcement it will not make the July 15 interest payment on its $100 million of 10.25% senior subordinated notes due 2009.

The company is blocked from making the payment due to a breach of certain financial covenants under its bank credit facility (about $30 million is currently outstanding), S&P said.

If the covenant breach is cured and the company makes the interest payment on the notes within the 30-day grace period, ratings could be raised, S&P added.

However, BGF has engaged a financial advisor to explore strategic alternatives including a capital restructuring. If noteholders agree to a reduction in principal, S&P said it would view this as tantamount to a default.

S&P cuts Advanced Glassfiber

Standard & Poor's downgraded Advanced Glassfiber Yarns LLC's ratings including cuttings its $150 million 9.875% senior subordinated notes due 2009 to D from CC and its $65 million revolving credit facility, $115 million term A loan due 2004 and $125 million term B loan due 2005 senior secured debt to CC from CCC. The senior secured debt remains on CreditWatch with negative implications.

S&P said the actions follow Advanced Glassfiber's announcement it will not make the July 15 interest payment on its $150 million of 9.875% senior subordinated notes due 2009.

The company intends to enter into consensual restructuring discussions with the noteholders during the 30-day grace period; S&P said it believes full repayment of principal is unlikely.

S&P cuts American Cellular, on negative watch

Standard & Poor's downgraded American Cellular Corp. and changed its CreditWatch to negative from developing. Ratings lowered include American Cellular's $450 million 9.5% senior subordinated notes due 2009 and $250 million 9.5% senior subordinated notes due 2009, cut to C from CCC-, and $300 million revolver due 2007, $700 million term loan A due 2007, $350 million term loan B due 2008 and $400 million term loan C due 2009, cut to CCC- from CCC+.

S&P said its action follows the announcement by 50%-owner Dobson Communications Corp. that American Cellular will not be in compliance with the total debt leverage ratio covenant in its bank credit facility for the second quarter of 2002.

S&P said it changed the CreditWatch to negative because discussions with bank lenders are taking longer than it previously. Moreover, the possibility exists that the banks could accelerate repayment of the entire outstanding $916 million.

S&P rates Greif Bros. notes B+, loan BB

Standard & Poor's assigned a B+ rating to Greif Bros. Corp.'s planned $300 million senior subordinated notes due 2012 and a BB rating to its new $500 million senior secured bank credit facility. S&P also confirmed the company's existing ratings including its bank facility at BB and subordinated debt at B+ The outlook is positive.

S&P said Greif Bros.' ratings reflect the company's solid market positions within the industrial container and corrugated products markets, combined with a moderately aggressive financial risk profile.

Greif is the leading industrial container manufacturer in North America, S&P noted. Additionally, as a result of the 2001 acquisition of Van Leer, the company is a leading manufacturer of industrial containers in Europe.

Greif benefits from good distribution capabilities throughout the world and has improving operating efficiencies, S&P commented. Capital intensity is modest and capital outlays should decline due to recent plant upgrades during the past several years.

The company's balance sheet is somewhat aggressively leveraged, S&P said. As of April 30, 2002, total debt to EBITDA was 3.1 times and EBITDA interest coverage was about 3.6x. In the future, total debt to EBITDA should range between 2.0x and 2.5x, and EBITDA interest coverage should range between 4.5x and 5.0x. Improvement in credit protection measures should result from increasing operating efficiencies and stronger pricing.

Following the closing of the new bank facility, Greif is expected to have more than $150 million in bank credit facility availability and a modest amount of cash on hand, S&P said. Additionally, liquidity benefits from a significant amount of timberlands, which could be sold if needed.

S&P puts Anchor Lamina on watch

Standard & Poor's put Anchor Lamina America Inc. on CreditWatch with negative implications.

Ratings affected include Anchor Lamina's $100 million 9.875% subordinated notes due 2008 at CCC.

Fitch rates Dean Foods bank loan BB+, convertibles B-

Fitch Ratings begun coverage of the new Dean Foods Co., assigning a BB+ rating to its secured credit and a B- to its trust convertible preferred securities. The senior unsecured notes outstanding before the Suiza Foods Corp. acquisition were downgraded to BB- from BBB+. The outlook is stable.

Suiza completed its acquisition of the old Dean Foods Co. on Dec. 21, 2001, and immediately after the completion of the merger changed its name to Dean Foods Co.

The total acquisition cost of Dean was $2.7 billion or 8.3 times EBITDA, Fitch noted. Approximately $1.9 billion was financed with borrowings from Suiza's secured credit facility.

The new Dean expects to achieve cost savings of $80 million per year beginning in 2002 increasing to $120 million by the end of 2004. Assuming the acquisition occurred at the beginning of 2001, EBITDA-to-interest incurred including dividends on the preferred securities was approximately 3.6x and total debt including preferred securities-to-EBITDA was 4.1x.

Fitch said its ratings consider the new Dean Foods' leading market share in the fluid milk industry (of approximately 30%), its proprietary national refrigerated distribution system, increased geographic diversification, which also provides it with national scale and capabilities.

In addition, the new Dean Foods' management team has a solid track record of effectively integrating acquisitions and achieving cost savings, Fitch said. The company has also been successful with new product innovations.

These positives are weighted against high leverage due to acquisitions, decreasing per capita consumption of fluid milk in the United States, the new company's key profit contributor, and integration risk associated with the acquisition of the old Dean Foods, Fitch said.

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