S&P cuts National Equipment, on watch

Standard & Poor's downgraded National Equipment Services, Inc. including cutting its $275 million of 10% senior subordinated notes due 2004 to CC from CCC and $480 million revolving credit facility due 2003 and $70 million term A loan due 2003 to CCC from B-.

S&P said the action is because of increasing concerns regarding the company's liquidity, including its ability to meet its upcoming $14 million in interest payments on its subordinated notes in May 2003 and to refinance or extend upcoming maturities of its $550 million credit facility that is due in July 2003.

The company filed a form 8K with the SEC on March 21 announcing that it had amended its credit agreement with lenders for the ninth time and requested an extension of its forbearance agreement until May 14.

Deteriorating construction market conditions have affected operating performance, S&P said. Any meaningful recovery in the key nonresidential construction markets in 2003 is uncertain. Profitability has weakened as a result of a 16% decline in nonresidential construction spending in 2002 and because of industry overcapacity.

Fitch cuts Toys 'R' Us to junk

Fitch Ratings downgraded Toys 'R' Us to junk, affecting $2.5 billion of debt, including cutting its senior notes to BB+ from BBB-. The outlook is stable.

S&P said the downgrade reflects Toys 'R' Us' soft operating results and the expectation that its operations will continue to be negatively impacted by the weak retail environment and growing competitive pressure from Wal-Mart and Target.

Offsetting these factors are Toys 'R' Us' adequate cash flow and solid liquidity.

The stable outlook reflects Toys 'R' Us' more conservative financial posture, and the expectation that there will be no further deterioration in the company's credit measures, Fitch said.

Toys 'R' Us' comparable store sales (in its U.S. toy stores) declined 1% in the holiday season and in full-year 2002. Competition from the discounters caused Toys 'R' Us to cut prices on advertised product in 2002, putting some pressure on its gross margin.

To counter these trends, Toys 'R' Us has taken a number of positive steps, including the remodeling of its stores, Fitch noted. Toys 'R' Us also continues to add exclusive merchandise and take steps to improve customer service levels.

Soft operations have exerted pressure on Toys 'R' Us' bondholder protection measures, Fitch added. Financial leverage remains high, with adjusted debt/EBITDAR of 4.4 times at Feb. 1, 2003 compared with 4.1x at Feb. 2, 2002. EBITDAR/interest plus rents of 2.7x in 2002 compares with 2.5x in 2001. These measures are more consistent with the current rating level, and are expected to show only gradual improvement over the next couple of years.

S&P rates Fresh Del Monte loan BB

Standard & Poor's assigned a BB rating to Fresh Del Monte Produce Inc.'s new $400 million senior secured credit facility due 2007 and confirmed its existing ratings including its senior secured debt at BB. The outlook is stable.

The rating on the bank facility is the same as the corporate credit rating, S&P said. The bank facility is secured by a perfected first priority security interest in the stock of the material subsidiaries of Fresh Del Monte Produce Inc., and substantially all of the material non-real estate assets, including receivables, inventory, and trademark license agreements of Fresh Del Monte Produce Inc. and its U.S. subsidiaries, U.K. subsidiaries, and Del Monte Fresh Produce International Inc.

S&P said that in a simulated default scenario it is unclear whether the distressed enterprise value would be sufficient to fully cover the entire loan balance when fully drawn.

Fresh Del Monte's ratings reflect its participation in a highly variable commodity-oriented fresh fruit and vegetable industry that is affected by uncontrollable factors such as global supply, political risk, weather and disease, S&P said. However, mitigating these concerns are the firm's leading positions in the production, marketing, and distribution of fresh produce.

Product concentration is a rating concern, as bananas and pineapples are the company's major sales and earnings contributors, S&P noted. However, Fresh Del Monte is looking for ways to diversify within the produce industry, for example, by expanding into branded fresh-cut fruit and vegetables. Furthermore, the firm has recently made several modest-size acquisitions in the fresh-cut produce segment.

Performance strengthened during fiscal 2002 as a result of higher pricing for fruit and bananas and the expansion of the fresh-cut business, S&P said. Operating EBITDA to interest coverage for fiscal year ended Dec. 27, 2002, improved to 14.6x versus 7.1x for the previous year. Debt leverage improved for the rating, with operating lease-adjusted total debt to EBITDA at 0.5x versus 1.5x the previous year.

Moody's puts Elizabeth Arden on upgrade review

Moody's Investors Service put Elizabeth Arden, Inc. on review for possible upgrade including its $160 million 11.75% senior secured notes due 2011 at B2 and $155 million 10.375% senior unsecured notes due 2007 at Caa1.

Moody's said the review follows Elizabeth Arden's release of its year-end fiscal 2003 operating results, which exceeded Moody's expectations for inventory management, cash flow generation and debt reduction in a difficult operating environment. The action also reflects Elizabeth Arden's improved liquidity profile as a result of its recently amended credit facility.

During fiscal 2003, Elizabeth Arden's business rebounded strongly from a difficult integration in the prior year, Moody's noted. Sales increased about 13% while EBITDA rose to about $91 million from an adjusted $68 million last year, largely reflecting growth with mass retailers, the success of its open-sell program, and cost reductions by consolidating distributions facilities and closing its unprofitable operations in approximately 300 prestige department stores.

Despite significant top-line increases and the launch of two new fragrances in a very challenging retail environment, inventory was virtually flat year over year, Moody's noted. These initiatives resulted in improved cash flow generation and a $14 million decrease in funded debt. EBITDA less capex interest coverage increased to 2.0x from 1.4x, EBITDA leverage decreased from 5.0x to 3.5x, and retained cash flow (EBITDA less capex, interest and taxes) to debt improved from 6% to over 10%.

Moody's cuts Elwood to junk

Moody's Investors Service downgraded Elwood Energy, LLC to junk, cutting its senior secured debt to Ba2 from Baa3. The outlook is stable.

Moody's said the downgrade reflects the credit deterioration of one of Elwood's key contract counterparties, Aquila, Inc. (B1 senior unsecured debt; on review for downgrade).

The rating action incorporates the long-term reliance that Elwood has on capacity payments from Aquila. Elwood holds power purchase agreements for capacity and energy that expire in 2012 and 2017. Under the terms of these agreements, Aquila is required to make capacity payments on four of the nine units (45%) through 2016 and 2017, while Exelon Generation (Baa1 senior unsecured) is required to make capacity payments to Elwood on the remaining five units (55%) through 2012. In terms of capacity currently under contract, the project is fully reliant on payments from Aquila beginning in 2013, Moody's noted.

Moody's upgrades Denbury Resources, rates notes B2

Moody's Investors Service upgraded Denbury Resources, Inc. including raising its $200million 9% senior subordinated notes due 2008 to B2 from B3 and assigned a B2 rating to Denbury's $225 million 7.5% senior subordinated notes due 2013. The outlook is stable.

Moody's said the upgrade reflects Denbury's cumulative progress since 1999 through acquisitions, exploitation, and development in building a larger more diversified proven developed (PD) reserve base; acquisition and tertiary development of longer-lived reserves to potentially balance its large concentration in very short-lived Gulf Coast and Gulf of Mexico (GOM) reserves; adequate liquidity; active hedging that adequately mitigated acquisition price risk and locked in funding for its 2003 capital budget; and a potential for 2003 to be the first year of significant organic production gain.

The ratings are tempered by significant debt funded acquisition risk; only minor PD reserve growth in 2002 in spite of heavy capital outlays; below average PD and proved developed producing (PDP) reserve lives; a high percentage of proved undeveloped (PUD) and proved developed non-producing (PDNP) reserves with attendant risk and capital needed to take to production; and substantial leverage, Moody's added.

The outlook for ratings would suffer if Denbury pursues significant debt-funded acquisitions, particularly if they are of short-lived reserves such as GOM or Gulf Coast reserves. The outlook now reflects a refocus on longer-lived reserves, sound inventory of development projects, firm expected 2003 cash flow and 50% of production also hedged for 2004, and an even balance of oil and gas production.

Moody's rates Pifco bonds Ba2

Moody's Investors Service assigned a Ba2 to the global step-up notes issued by Petrobras International Finance Co. The outlook is stable.

Moody's said the rating reflects the benefit of credit support provided by parent Petroleo Brasileiro SA under the terms of a standby purchase agreement. This agreement obligates Petrobras to purchase from the noteholders their rights to receive payments due on the notes from Pifco in the event of nonpayment by Pifco.

Moody's puts Tembec on review

Moody's Investors Service put Tembec, Inc. on review for downgrade including its senior unsecured notes and debentures at Ba1 and assigned a Ba1 rating on review for downgrade to Tembec Industries Inc.'s new $100 million notes due 2009.

Moody's said the review is in expectation of continued weaknesses in Tembec's financial metrics as its core lumber, pulp, and paper businesses experience below trendline pricing.

Tembec's financial metrics weakened in 2002 reflecting low commodity prices and elevated debt levels from acquisitions completed in 2001.

Despite modest improvements in certain commodities, Moody's anticipates limited overall improvement in Tembec's financial results in 2003.

Moody's puts Central European Media on upgrade review

Moody's Investors Service put Central European Media Enterprises Ltd. on review for possible upgrade including its $100 million 9.375% senior notes due 2004 and DM140 million 8.125% senior notes due 2004 at Ca.

Moody's said the review reflects the meaningful improvements in the Central European Media's financial performance and liquidity position over the past year and the potential for a significant further improvement in the company's financial position depending on the ultimate outcome of the company's current legal proceedings with the Czech Republic.

The review follows the release of company's year-end results and the recent announcement that the International Arbitration Tribunal has issued a final award in favor of Central European Media in the company's proceedings against the Czech Republic. The company was awarded approximately $270 million plus costs and interest which brought the total to approximately $353 million at the time of the decision.

Moody's notes however that the final conclusion of the proceedings is dependent on the outcome of the collateral challenge filed by the Czech Republic in the Swedish courts (ultimate decision expected in May of 2003).

Fitch confirms Lyondell, Equistar

Fitch Ratings confirmed Lyondell Chemical Co. and Equistar Chemicals LP including Lyondell's senior secured credit facility at BB-, senior secured notes at BB- and senior subordinated notes at B and Equistar's senior secured credit facility at BB- and senior unsecured notes at B. The outlook remains negative for both.

Fitch said the ratings reflect its concerns that a substantial margin recovery at Lyondell and Equistar could be delayed for up to a year due to uncertainty in the overall economy and persisting trough like conditions in the chemical industry.

Both companies are heavily leveraged and expect high debt levels to remain until cash generation from operations improves.

For both Lyondell and Equistar, access to liquidity via senior secured credit facilities and capital markets will continue to be an important credit issue in light of potentially large capital expenditure requirements and cyclically weak cash flow from operations, Fitch added.

Lyondell and Equistar's excellent chemical market positions and historically strong access to liquidity via debt and equity capital markets continue to support the ratings, Fitch said. Lyondell and Equistar currently have strong liquidity positions via cash balances at yearend and available credit lines under revolvers. Lyondell has successfully refinanced bank debt primarily to extend maturities and to reduce exposure to variable interest rates associated with its remaining term loan. Lyondell has no significant maturities of long-term debt until 2005. In 2003, Equistar plans to refinance their $300 million maturity due February 2004.

Fitch confirms Noveon

Fitch Ratings confirmed Noveon, Inc. including its senior secured debt at BB- and senior subordinated debt at B. The outlook is stable.

Fitch said Noveon's ratings reflect its leverage, market position, and earnings generation ability. In particular, Noveon remains leveraged with $847.5 million total debt outstanding on Dec. 31, 2002 plus another $145.2 million at Noveon's parent company, Noveon International, Inc.

The company is working toward debt reduction; in 2002, Noveon reduced its balance sheet debt by $53 million and provided its parent company with $45 million to reduce the balance of the BFG seller note. In conjunction with a prepayment discount, the balance of the seller note was reduced by $56 million.

Although Noveon is leveraged, the company has strong earnings capability, as demonstrated in 2002 when an improvement in raw material and energy costs over the previous year led to EBITDA of nearly $212 million on revenue of approximately $1.1 billion. The higher margins at Noveon are derived in part from its niche product portfolio and its market positions, Fitch said.

The stable outlook reflects the likelihood that credit statistics will remain suitable for the ratings despite the potential that financial performance may weaken if average 2003 raw material and energy prices are higher than in the prior year.

Moody's raises United Biscuits

Moody's Investors Service upgraded United Biscuits Finance plc and Regentrealm Ltd. including raising its United Biscuits' senior subordinated notes to B1 from B2 and assigned a Ba2 rating to Regentrealm's new £475 million syndicated bank facilities. The outlook is stable.

Moody's said the ratings reflect United Biscuits' improving but high financial leverage, strong competitive positions in highly concentrated markets, stable and gradually strengthening cash flows and comfort gained by the company's track record and experienced management team.

The rating also reflect United Biscuits' high financial leverage, maturity of its core biscuits and snacks operations in the U.K. and to some extent in Northern Europe as well as significant dependence upon a small number of powerful customers, including the large UK food retailers.

United Biscuits has been able to significantly rationalize costs in line with Moody's expectations and capital expenditures have been increasingly focused on cash-flow enhancing projects, Moody's noted.

The ratings also factor United Biscuits' pension plan liabilities from its pension plan exposure to the depressed equity markets and the likelihood that the company may have to increase pension contributions going forward should the equities market remain weak.

Moody's cuts Chateau Communities to junk

Moody's Investors Service downgraded Chateau Communities, Inc. to junk, affecting $540 million of debt. Ratings lowered include CP LP's senior unsecured notes, cut to Ba1 from Baa3. The outlook is uncertain.

Moody's said the downgrade reflects Chateau's weak operating performance, continued strained manufactured housing community industry fundamentals and uncertainty in addressing its debt maturities in 2004 and 2005.

Chateau has seen weak operating performance for several quarters, reflecting a difficult tenant collection environment and market for financing manufactured housing units. In addition, its financing strategy related to the acquisition of CWS Communities in late 2001, another company involved in manufactured housing communities, was not executed according to plan, thereby crimping financial flexibility, Moody's said.

The REIT's fixed charge coverage ratio has fallen significantly, with it now standing at a modest 2.04X, including amortization of principal and capitalized interest, Moody's said.

S&P cuts PolyOne, on watch

Standard & Poor's downgraded PolyOne Corp. including cutting its senior unsecured debt to BB- from BB+ and put it on CreditWatch with negative implications.

S&P said the action reflects increasing pressure on PolyOne's liquidity and financial profile resulting from the its announcement that it is attempting to replace its receivables sales facility, which is subject to a ratings trigger that has been waived through June 30, 2003, with a facility that is not subject to a ratings trigger.

The announcement increased the risk associated with the company's efforts to address its upcoming debt maturities, S&P said. The rating action also reflected still challenging industry fundamentals that have weakened the financial profile and are likely to limit the improvement anticipated in the previous rating.

The CreditWatch placement indicates that ratings will be lowered further if tangible steps toward a successful refinancing effort are not completed soon, S&P said.

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