Moody's downgrades Hexcel sr sub notes to Caa1 from B2

Moody's Investors Service downgraded Hexcel Corp., affecting $758 million of debt securities. Among the ratings cut are the company's $340 million of 9¾ % senior subordinated notes due 2009 to Caa1 from B2; its $47 million of 7% convertible subordinated notes due August 2003 to Caa2 from B3; its $26 million of 7% convertible subordinated debentures due August 2011 to Caa2 from B3; and its $345 million of senior secured bank facilities to B2 from Ba3. The outlook remains negative.

Moody's said the downgrade is the result of "severely deteriorating business fundamentals of the airline industry and the attendant cancellation and deferment of new aircraft orders." Hexcel recently announced it anticipates 2002 commercial aerospace revenue will decline around 20%, Moody's noted.

The rating agency added: "The projected decline in business level will further stress the company's already weak operating results and highly levered balance sheet. Total debt, net of cash, at the end of the second quarter was $704 million against book equity of $286 million, with goodwill and other intangibles at $387 million. The company indicated that for the third quarter EBITDA, before business consolidation expense, will be in the range of $25 to $28 million. This would result in pro forma EBITDA to interest expense coverage of about 1.5x to 1.6x versus the 2.0x level in 2000. The company further indicated that it has made some moderate reduction in net debt as working capital was brought down."

Moody's said it is concerned that the company's liquidity position is "tight and financial flexibility strained."

Moody's changes United Stationers outlook to negative

Moody's Investors Service changed the outlook on its ratings for United Stationers Inc. to negative from stable. Among the ratings affected are the Ba1 assessment on the company's $150 million senior secured term loan and $250 million revolving credit facilities maturing in 2004 aand the Ba3 rating on United Stationers' $100 million senior subordinated notes.

Moody's said the outlook change reflects "a sudden change to the economic environment after Sept. 11."

The rating agency said that United Stationers lost some sales as a direct result of office closures and event cancellations following the attacks and that it believes announced layoffs indicate there will be a lower level of business activity going forward.

"Moody's expects this will accelerate what had already been a pattern of declining growth rates for USSC, and could cause sales levels to fall year over year," the rating agency added.

United Stationers announcement of a $52 million restructuring charge in the third quarter of 2001 to revalue certain assets and reduce the expense base of The Order People business line, as well as implement certain wider-ranging restructuring plans, was already included in the ratings. Furthermore, Moody's said it believes they will be a positive for cash flow over the longer term.

S&P revises Elizabeth Arden outlook to stable from positive

Citing "challenging conditions" in the retail sector, and a "soft" holiday selling season, S&P revised its outlook for Elizabeth Arden Inc. to stable from positive.

The cosmetics company's B+ long-term corporate credit and senior secured debt ratings were affirmed, S&P stated, adding that the B senior unsecured debt rating was also affirmed. Approximately $355 million in debt was outstanding on July 28, 2001, according to S&P.

"Fiscal 2002 EBITDA interest coverage will be above 2 times, with debt to EBITDA in the 3x area. Fiscal 2003 credit protection measures are expected to improve given the opportunity for synergistic benefits from the acquisition, along with the company's focus on debt reduction," S&P anticipates.

Moody's confirms ratings, positive outlook of Duane Reade

The Sept. 11 terrorist attacks on New York City will have a "minimal" long-term financial impact on Duane Reade Inc., even though the company has more than 100 drug stores in Manhattan, Moody's Investors Service said. Because of the loss of two stores, including one of its highest grossing locations in the World Trade Center, and lower traffic, Duane Read will lose about $15 million of revenue and $5 million of cash flow in 2001, the rating agency said.

Moody's confirmed its ratings and positive outlook on Duane Reade's Ba3 rated $240 million bank loan and B2 rated $ 80 million 9.25% senior subordinated notes due 2008.

The rating agency commented that its assessment recognizes "the company's leading market share in the New York City metropolitan area that is currently showing good population increases, the relatively modern store base, and general expectations that pharmaceutical sales will grow at a double digit pace over the intermediate term. Moody's opinions that the company has developed and effective model to continue the rapid expansion pace and that the company has significant hidden asset value in the form of below market leases also benefit the ratings."

S&P keeps Hudson Respiratory Care on negative watch

Standard & Poor's said it is keeping its ratings on Hudson Respiratory Care Inc. on CreditWatch with negative implications, where they were placed Sept. 20, 2000.

The CreditWatch affects the company's corporate credit rating (B), subordinated debt (CCC+) and bank loan (B).

"The ratings were listed on CreditWatch because of Standard & Poor's concern with Hudson's constrained financial flexibility following its acquisition of the Sheridan line of endotracheal tubes from Tyco International Ltd. Moreover, Hudson was experiencing weak operating performance due to difficulties implementing and integrating an Enterprise Resource Planning computer system," S&P stated.

The Temecula, California-based manufacturer of "niche disposable respiratory-care and anesthesia products" filed its 10-K for the year ended Dec. 31, 2000, 10Qs for the quarters ending March 31, 2001 and June 30, 2001, and made its October 2001 subordinated bond interest payment, according to S&P. However, the release noted, "Hudson's financial position remains constrained."

S&P cuts Midway 1998-1 Class D to D

Standard & Poor's downgraded Midway Airlines Corp.'s 1998-1 Class D passthrough certificates to D from CCC-. Other classes in the 1998-1 deal and ratings of the 2000-1 passthroughs were not changed and remain on CreditWatch with developing implications.

S&P said the downgrade follows the Oct. 5 rejection by bankrupt Midway Airlines of the leases that were securitized in the 1998-1 passthrough certificates. The 1998-1 Class D certificates are the most junior class and do not have the benefit of the dedicated liquidity facility. Accordingly, S&P said, when Midway

rejected the leases on eight Bombardier CRJ-200 regional jets, the 1998-1 Class D certificates defaulted.

It added that ratings on 1998-1 classes A to C and 2000-1 could be raised or lowered, depending on changes in prospects for full repayment. That, in turn, will depend on aircraft values and, possibly, on actions by the holders of equity in the leveraged leases whose aircraft notes were securitized in these two transactions.

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