Moody's cuts National Equipment

Moody's Investors Service downgraded National Equipment Services, Inc. and maintained a negative outlook on the company. Ratings lowered include National Equipment's $402 million senior secured revolving credit facility due July 2003 and $82 million senior secured term loan due July 2003 to B3 from B2 and its $275 million of 10% senior subordinated notes due November 2004 to Caa3 from Caa1.

Moody's said it lowered National Equipment because of a continuing deterioration in the company's performance, protracted weak demand in the construction and industrial end-markets, and concerns over the company's ability to refinance its maturing debt obligations.

National Equipment's operating performance has been deteriorating as the industry fundamentals continue to worsen, Moody's noted. Sharp declines in non-residential construction spending and the still lackluster manufacturing sector have led to prolonged weak demand for rental equipment. The equipment rental industry's over-expansion prior to the downturn has resulted in substantial over-capacity in the industry, thus exacerbating weakening demand and resulting in falling rental rates and margins.

In the second quarter of 2002, for example, National Equipment's rental rates for scissors lifts fell

15% from a year ago, while rental rates for boom lifts were down 6% and rough terrain vehicles down 5%, Moody's noted. As a result, the company's dollar utilization rate also fell sharply, from 53% in the second quarter of 2001 to 46.5% in the second quarter of 2002.

Given the continuing slump in non-residential construction and the low level of manufacturing activities, Moody's said it expects utilization and rental rates to trend even lower in the next few quarters.

S&P cuts Magellan Health

Standard & Poor's downgraded Magellan Health Services, Inc. and kept the company on CreditWatch with negative implications.

Ratings lowered include Magellan's $150 million revolving credit facility due 2004, $183.3 million senior secured tranche A term loan due 2004, $183.3 million senior secured tranche B term loan due 2005, $183.3 million senior secured tranche C term loan due 2006 and $250 million 9.375% notes due 2007, all cut to B- from B, and its $625 million 9% senior subordinated notes due 2008, cut to CCC from CCC+.

S&P puts American Plumbing on watch

Standard & Poor's put American Plumbing & Mechanical Inc. on CreditWatch with negative implications including its $125 million 11.625% senior subordinated notes due 2008 at B- and its $95 million revolving credit facility due 2002 at BB-.

S&P said the action is in response to American Plumbing's announcement that it will generate about $31 million in EBITDA in 2002, down from previous guidance of $46 million.

The reduced EBITDA is due to weaker-than-expected profitability within the company's commercial construction operations and intensified competition in many of its key end markets, S&P noted.

As a result of the reduced cash generation and elevated debt levels, American Plumbing was forced to obtain another amendment to its bank credit facility, including reducing the total facility size to $90 million from $95 million, further straining liquidity in the near term, with just $18 million in availability at June 30, 2002, S&P added.

S&P puts Sweetheart on watch

Standard & Poor's put Sweetheart Holdings Inc. on CreditWatch with negative implications. Ratings affected include Sweetheart Holdings' $110 million 10.5% subordinated notes due 2003 at B-, Sweetheart Cup Co. Inc.'s subordinated debt at B- and The Fonda Group Inc.'s $120 million 9.5% senior subordinated notes due 2007, also at B-.

S&P said the action follows a period of "very weak" financial results, refinancing pressures, and the company's announcement that it is evaluating various strategic alternatives, including the possible restructuring of its debt and capital structure.

Although its business tends to be fairly stable, commercial demand for the Sweetheart's products has been soft for the past few quarters due to the weak economy and lower travel and leisure spending, S&P noted. This has continued to adversely affect sales and earnings during the usually seasonally strong summer months.

The company has nearly completed a major capacity rationalization and headcount reduction initiative that management expects will ultimately provide more than $20 million in annual savings, S&P said. In addition, increased operating efficiency and some cost reduction should result from the merger of Sweetheart with its sister company, The Fonda Group Inc. earlier this year. Modest real estate sale proceeds are helping to augment weak operating cash flow.

Nevertheless, debt leverage is very aggressive, S&P said. Consolidated debt to EBITDA (including parent holding company obligations and off-balance sheet debt at the operating company) is about 8 times, with EBITDA covering total interest expense about 1x in the most recent quarter, and funds from operations to debt below 5%.

Fitch cuts Eletropaulo

Fitch Ratings downgraded Eletropaulo Metropolitana Eletricidade de Sao Paulo SA's local and foreign currency ratings to C from B- and kept them on Rating Watch Negative.

Fitch said the downgrade reflects Eletropaulo's likely default on its upcoming debt maturities due to a further delay in receiving BNDES cash, a continued slide in the Brazilian real, lack of refinancing alternatives in Brazil and overall poor credit market conditions facing Brazilian issuers despite the recent loan to Brazil from the IMF.

The company faces a $120 million local commercial paper maturity on Aug. 22 and a $225 million syndicated bank loan maturity on Aug. 26, the rating agency noted.

Refinancing options available to the company are limited to rolling over existing local and international bank transactions and commercial paper, Fitch said.

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