Moody's cuts El Paso

Moody's Investors Service downgraded El Paso Corp. including cutting its senior unsecured debt to Caa1 from Ba2, affecting $25 billion of debt. The outlook is negative.

Moody's said the downgrade reflects 1) significantly reduced near-term expectations for operating cash flows; 2) debt that remains high relative to the company's cash flows; 3) the strain on liquidity from the increase in debt repayments required this year; 4) the uncertainty as to whether asset sales will provide sufficient and timely proceeds to help cover its larger-than-expected cash deficit; and 5) execution risks related to El Paso's efforts to scale back its merchant energy activities, including exiting energy trading, consolidating the power business of its Electron affiliate, and divesting its petroleum and LNG businesses.

The negative outlook reflects the challenges that El Paso faces in improving its operating cash flows while reducing its capital expenditures to near maintenance levels and meeting large debt repayments this year, Moody's said. It remains to be seen whether the company's cash flows will adequately support its much curtailed capex and common dividends.

The outlook also reflects the uncertainties related to the ruling expected this quarter by the Federal Energy Regulatory Commission regarding the alleged exercise of market power and violations of marketing affiliate rules and other FERC regulations.

While the ultimate impact of these proceedings will not likely be known for some time, these proceedings could potentially precipitate other litigation and proceedings that could have a more immediate negative impact on El Paso's financial position, liquidity, or business operations, Moody's said.

At the end of January, El Paso had about $600 million of cash. The company has a $3 billion 364-day bank facility expiring in May 2003 and a $1 billion term loan expiring in August 2003. The 364-day facility has a one-year term-out option, which, if exercised, could potentially provide liquidity through May 2004.

About $1.5 billion of capacity remains on the 364-day facility, and the $1 billion term loan became fully drawn today. Drawing on the $1.5 billion left on the 364-day facility will be critical to the company's meeting its near-term obligations, including $1 billion of Electron notes coming due in March and minority interest amortizations.

Moody's puts El Paso Energy on review

Moody's Investors Service put El Paso Energy Partners, LP on review for possible downgrade including its secured bank loan at Ba1 and senior subordinated debt at B1.

Moody's said the review follows the downgrades to El Paso Energy's general partner El Paso Corp.

Moody's said its review will focus on: 1) the potential impact on El Paso Energy as a result of El Paso's lower credit profile; 2) El Paso Energy's plans to ringfence its credit from that of El Paso; 3) its near-term financing plans and expectations for leverage; and 4) the financial outlook for the company following last year's substantial growth.

El Paso owns approximately 42% of El Paso Energy, and as general partner operates and makes management decisions for El Paso Energy.

Although El Paso and El Paso Energy are separate and distinct by legal and accounting standards, there is a close interrelationship between the two entities.

Moody's noted that there are significant operational relationships that link the two entities. Because El Paso has sold much of its gas midstream assets to El Paso Energy, El Paso Energy's operations are integrated with many of El Paso's upstream (gas production) and downstream (gas transportation) businesses.

Affiliate revenues are meaningful, though they have declined. El Paso Energy also relies on El Paso to provide it with management and personnel.

S&P puts B/E Aerospace on watch

Standard & Poor's put B/E Aerospace Inc. on CreditWatch with negative implications including its $100 million 9.875% senior subordinated notes due 2006, $200 million 9.5% senior subordinated notes due 2008, $250 million 8% senior subordinated notes due 2008 and $250 million 8.875% senior subordinated notes due 2011 at B and $150 million five-year revolving credit facility due 2006 at BB+.

S&P said the watch placement is in response to B/E's announcement that it will record a charge to earnings of about $30 million, coupled with continued weakness in the airline industry, B/E Aerospace's primary market.

The charge will be a write-off of a receivable created in connection with the sale of the firm's in-flight entertainment business to the Thales Group in 1999; that receivable represented the final payment expected from Thales, S&P noted.

The charge, which will further weaken BE Aerospace's highly leveraged balance sheet, coincides with poor operating results, due to a very challenging environment of its airline customers, especially in the U.S., S&P said That environment is likely to deteriorate further if there is a war with Iraq.

S&P to remove Sierra Pacific from watch on completion of convertible

Standard & Poor's said it will confirm Sierra Pacific Resources' ratings and remove it and its subsidiaries Nevada Power Co. and Sierra Pacific Power Co. from CreditWatch with negative implications on completion of its announced $250 million convertible offering. The outlook will be negative. Ratings affected include Sierra Pacific Resources' senior unsecured debt at B-, Nevada Power's senior secured debt at BB, senior unsecured debt at B- and preferred stock at CCC+ and Sierra Pacific Power's senior secured debt at BB, senior unsecured debt at B- and preferred stock at CCC+.

S&P noted that Sierra Pacific will issue the convertible debt to refinance an upcoming debt maturity on April 20.

This staves off a potential liquidity crisis given Sierra Pacific's inability to otherwise meet its debt-service obligations, S&P said.

The Public Utility Commission of Nevada is scheduled to rule on Nevada Power's deferred cost recovery case, filed in November 2002, later this year. A favorable ruling is essential to set the stage for Sierra Pacific's financial recovery over the next few years, S&P added.

As a pure holding company, Sierra Pacific derives substantially all of its cash flow from dividends paid by its utility subsidiaries. However, Nevada Power, which accounts for the bulk of Sierra Pacific's earnings and cash flows, is currently restricted from paying dividends to the parent because of financial covenants that were triggered by its March 2002 post-tax write-off of $310 million at Nevada Power following the disallowance by the PUCN of $434 million in deferred power costs that Nevada Power had incurred during the western power crisis in 2001, S&P said.

In addition to enabling Sierra Pacific to meet its $192 million floating-rate note maturity, the $250 million issue will also fund a debt-service reserve that will be sufficient to meet two and a half years worth of interest payments on the bonds. The reserve, along with dividends from Sierra Pacific Power, will allow Sierra Pacific to meet all its cash requirements until the above covenants no longer restrict payment of dividends by Nevada Power, S&P said.

S&P raises Amazon outlook

Standard & Poor's raised its outlook on Amazon.com to stable from negative and confirmed its ratings including its senior unsecured debt at B and subordinated debt at CCC+.

S&P said the outlook revision is based on Amazon's increased rate of sales growth and improved operating performance during a difficult economic period.

Amazon's rate of sales growth increased to 26% in 2002 from 13% in 2001 due to its free shipping program, increased product offerings, and continued growth of on-line sales. Moreover, the company's operating margin increased to 9.9% in 2002 from 4.5% in 2001 as a result of sales leverage and the company's focus on cost improvement.

The ratings on Amazon.com reflect the risks of rapid growth in an evolving marketplace, weak levels of profitability, and a heavy debt burden, S&P added. The ratings also incorporate the potential for margin pressure from intense retail competition and the fragile U.S. economy. These risks are tempered by Amazon.com's solid market position in on-line books, music, and videos retailing.

Amazon.com has been successful at creating a strong brand, which is critical to the long-term success of any retailer selling goods through the internet, S&P noted. Its active customer list has grown to 31 million in 2002 and the company has been reporting positive profits since the fourth quarter of 2001 on a pro forma basis. S&P said it believes the company needs to continue to increase its customer base in a very difficult retail environment in order to continue to significantly increase operating income.

Amazon's debt burden is significant with total debt to EBITDA at 8.8x, S&P said. Although lease-adjusted EBITDA coverage of interest improved to 1.6x in 2002 from 0.4x in 2001; any operating difficulties could quickly diminish credit protection measures given its high leverage. Amazon.com had $2.3 billion of funded debt outstanding as of Dec. 31, 2002.

S&P confirms Quebecor, off watch

Standard & Poor's confirmed Quebecor Media Inc.'s ratings and removed it from CreditWatch with negative implications. Ratings confirmed include Quebecor Media's $850 million 11.125% senior notes due 2011 at B, Sun Media Corp.'s $205 million 7.625% senior unsecured notes due 2013 at B-, and $230 million senior secured term B loan due 2009 and $75 million senior secured revolving credit facility due 2008 at BB-, CF Cable TV Inc.'s $83 million 9.125% senior secured first priority notes due 2007 at B+ and Videotron Ltee.'s C$150 million senior secured revolving credit facility due 2005, C$400 million senior secured term B loan due 2009 and C$737 million senior secured term A loan due 2008 at BB. The outlook is stable.

S&P said the confirmation follows completion of Sun Media's refinancing, carried out largely as expected.

The confirmation reflects improved financial flexibility at Sun Media and Quebecor Media due to the easing of covenant restrictions on free cash flows and a light amortization schedule following the refinancing, S&P said.

The ratings on Quebecor Media are based on the consolidated group of companies, including Sun Media and Videotron, and reflect the strong market position of its diversified portfolio of media and cable television assets, particularly in the Province of Quebec, steady free cash flow generation at its newspaper operations despite cyclical industry fundamentals, and an improving free cash flow trend at its cable television operations, S&P said.

These factors are offset by competitive industry conditions, both in the newspaper and broadcast distribution industries, and Quebecor Media's aggressive financial policies, including constrained financial flexibility at Videotron in the near term, S&P added.

S&P said the stable outlook reflects its expectation that Quebecor Media will maintain the strong market position of its key assets and will gradually improve financial flexibility at Videotron from free cash flows.

Moody's cuts Air2US

Moody's Investors Service downgraded series A through D of Air 2 US's aircraft enhanced equipment notes including cutting its $638 million series A enhanced equipment notes due 2020 to Ba3 from Baa2, $226.4 million series B enhanced equipment notes due 2020 to Caa2 from B1, $127.1 million series C enhanced equipment notes due 2020 to Caa3 from B3 and $76.1 million series D enhanced equipment notes due 2020 to Ca from Caa2. Series A through C remain on review for possible further downgrade.

Moody's said the downgrade follows its downgrade to AMR Corp. and its American Airlines, Inc. subsidiary to B3 from B1 on Feb. 10.

The second lessee in the transaction, United Air Lines, filed for bankruptcy under Chapter 11 on Dec. 9.

The ability of Air 2 US to service each series of notes depends on the frequency of default of the two lessees in the transaction, American and United, and the ability of Airbus to release the aircraft following an event of default, Moody's said. An increase in the frequency of default of either sub-lessee or a renegotiation of the lease terms could cause significant reductions in cash flow to the noteholders especially at times when the aircraft leasing market is depressed.

S&P says Dana unchanged

Standard & Poor's said Dana Corp.'s ratings remain unchanged including its corporate credit rating at BB with a stable outlook on news the company has amended its bank credit facility and agreed to sell its aftermarket engine management business.

The credit facility has been reduced to $400 million from $500 million and certain financial covenant requirements have been relaxed. The facility also contains a springing lien, requiring the company to provide collateral should it borrow more than $50 million under the facility for an extended time, which modestly reduces the company's financial flexibility.

Dana currently has no borrowings outstanding under the facility and any future borrowings are expected to be limited. Even if the springing lien is triggered, the BB rating on the company's senior unsecured debt would not be affected, S&P said.

The $90 million in cash proceeds expected from the sale of Dana's engine management business is expected to be used for debt reduction and to strengthen the company's liquidity. Dana continues to pursue various asset sales and an ambitious restructuring program to increase earnings and cash flow generation, S&P noted.

S&P lowers AEP Industries outlook

Standard & Poor's lowered its outlook on AEP Industries Inc. to negative from stable and confirmed its ratings including its senior secured bank loan at BB and subordinated debt at B.

S&P said the revision reflects AEP's weaker-than-expected financial performance, caused by higher raw material costs and intensified competition in North America, which led to a further deterioration in the company's sub-par financial profile and eroded its liquidity position.

The company has increased selling prices, but has been unable to fully pass-through higher plastic resin costs to customers, reflecting intensified competitive pressures, weak economic conditions, and overcapacity in certain product segments, such as stretch films, S&P said. This has led to lower operating margins (particularly in the fourth quarter of fiscal year ended Oct. 31, 2002), negative free cash flow from operations, and reduced availability under the company's revolving credit facility.

AEP has remained cash flow positive for the past four years, however, weak operating profitability has precluded free cash generation in fiscal 2002, S&P said. Although capital spending is expected to remain limited to about 70% of depreciation in the future, the company is unlikely to generate material free cash for debt reduction in 2003.

Key credit measures of funds from operations to total debt (adjusted for capitalized operating leases) of about 10% and EBITDA to interest coverage of about 2x remain sub-par, and well below appropriate levels of 15% and 2.5xto 3.0x range respectively, S&P said. Assuming geopolitical concerns gradually recede from the near-term horizon, an improved economic outlook and greater stability in resin prices are expected to support a gradual improvement to the company's financial profile.

Moody's rates Doane Pet notes B2

Moody's Investors Service assigned a B2 rating to Doane Pet Care Co.'s planned $200 million senior unsecured notes and confirmed its $75 million senior secured revolver maturing 2006, $275 million term loan facility maturing 2005-2006 and €69 million term loan facility maturing 2005 at B2, its $150 million 9¾% senior subordinated notes due 2007 at Caa1 and $30 million 14.25% redeemable preferred stock maturing 2007 at Caa2. The outlook is stable.

If the senior unsecured note issuance is completed and proceeds applied as planned, Moody's said it will upgrade Doane's senior secured credit facilities to B1 from B2.

Doane's ratings are limited by the company's very high financial leverage, Moody's said. Free cash flow generation after interest expense and capital spending is modest relative to the company's significant debt burden.

Leverage reduction, therefore, is expected to be slow. The ratings are supported by the company's dominant market position in private label dry pet food, which provides a durable, recession resistant, underlying business platform.

The prospective upgrade of Doane's senior secured credit facilities upon issuance of the senior unsecured notes reflects the resulting enhancement of their position in the company's capital structure, Moody's added. Proceeds from the senior unsecured notes are planned to pay down about $160 million of the senior secured credit facilities, which would leave the credit facilities with an increased cushion of junior capital.

Fiscal 2002 EBITDA is estimated at about $108 million, up from about $90 million in 2001. Adjusted debt/fiscal 2002 EBITDA is about 6.1x (5.3x excluding the redeemable preferred). Estimated fiscal 2002 free cash flow (EBITDA less pro forma interest expense, cash taxes and capex) of about $20 million (representing less than 5% of adjusted debt) indicates slow leverage reduction unless Doane continues to increase free cash flow, Moody's said.

Fitch confirms TDP

Fitch Ratings confirmed Telefonica del Peru SAA including its foreign-currency rating at BB-. The outlook is negative for the foreign-currency rating. Fitch noted the foreign-currency rating and outlook are limited by Peru's sovereign rating.

Fitch said TDP's corporate ratings reflect its solid business position as the leading telecommunications provider in Peru. The fixed local exchange segment represents 47% of revenues and provides the company with a relatively stable source of cash flow.

The ratings also recognize increased competition in the Peruvian telecom market, particularly in the long distance business. Lower long distance rates resulting from greater competition are mitigated by TDP's ability to use the global network of its parent, Telefonica SA, to introduce competitive long distance offerings, thereby mitigating market share erosion.

Furthermore, TDP's extensive fixed-line network should allow it to withstand competitive pressures over the long term as it has largely incurred the significant capital expenditures necessary to provide long distance and local exchange service vis-ŕ-vis its competitors.

The company's credit fundamentals are solid for the rating category, Fitch said. The improvement in credit metrics was driven mainly by lower financial expenses, as TDP made additional debt reductions during 2002. During the first nine months of 2002, TDP completed a debt reduction of 1.04 billion Peruvian Soles, equivalent to approximately $296 million or 27% of outstanding debt, which has helped support credit quality.

Ownership by TEF provides a level of implicit operational and financial support. Credit-protection measures are expected to remain stable over the near-term as cost reductions take hold, Fitch said.

Moody's cuts Crown Cork's planned 3rd lien notes to B2

Moody's Investors Service downgraded the proposed third-lien notes to be issued by Crown Cork & Seal Co., Inc. and confirmed the remaining ratings pro forma for the proposed debt restructuring. The ratings are now B2 instead of B1 for the proposed $725 million third lien senior notes due 2013, Ba3 for the proposed $1.05 billion first lien bank facility maturing 2006 and B1 for the proposed equivalent of $1.4 billion second lien senior notes due 2010. Existing ratings of B3 are confirmed on Crown Cork's $200 million 8% senior unsecured notes due 2023, $300 million 7.38% senior unsecured notes due 2026, $200 million 7.5% senior unsecured notes due 2096, approximately $294 million 7% Finance PLC senior unsecured notes due 2006 and approximately $277 million Finance PLC and Crown senior unsecured notes (stubs) due 2004-2005. The outlook remains stable.

Moody's said the change is in response to the company's intended upsizing of the proposed secured refinancing.

The downgrade of the proposed third lien notes reflects the absence of tangible asset coverage in a distress scenario as well as the additional contractual subordination to approximately $150 million of incremental second lien debt, Moody's said.

S&P puts TNK on positive watch

Standard & Poor's put TNK International Ltd. on CreditWatch with positive implications including its $700 million 11% loan participation notes due 2007 at B+.

Fitch confirms LNR

Fitch confirmed LNR Property Corp.'s subordinated debt at BB- and assigned a senior unsecured rating of BB+.

Fitch said the ratings reflect LNR's strong operating performance and asset quality, including zero delinquency or loss in its b-note portfolio, a 95% average recovery rate on specially serviced assets and 97% occupancy in developed properties.

Fitch added that it believes that these factors are reflective of management's adherence to sound risk management practices.

The ratings also reflect the continued evolution of Fitch's rating methodology towards several complex components of LNR's business. Specifically, over time Fitch has increased capital requirements for assets such as developing properties, first loss commercial mortgage-backed securities securities, and equity in and commitments to partnership investments. Despite increased requirements for capital, operating performance, and diversity of funding, LNR continues to meet expectations for its rating category, Fitch noted.

LNR has improved its balance sheet management, Fitch said. As a result of strong internal capital formation and reduced asset acquisition, consolidated leverage (which consolidates all partnerships and other off balance sheet commitments) has declined to 2.07 times (x) at Aug. 30, 2002 from 2.46x at year-end Nov. 30, 2000. LNR also recently entered the structured finance market via the completion of a collateralized debt obligation of commercial mortgage backed securities (CDO of CMBS).

Rating concerns center on LNR's large investment in off-balance sheet joint ventures and partnerships, Fitch said. Concerns also focus on the portfolio of repositioning properties that represent about 15% of total assets. While LNR has consistently delivered sound results from this segment, Fitch still considers these activities to bare a significant degree of risk. As such, the ratings reflect the composition of LNR's portfolio relative to other companies focused on real estate investment across the capital structure.

Moody's rates Jefferson Smurfit add on B2

Moody's Investors Service assigned a B2 rating to the proposed €195 million equivalent in senior notes by MDP Acquisitions plc, the indirect parent company of Jefferson Smurfit Group and confirmed its existing ratings including €350 million 10.125% senior notes due 2012 and $545 million 9.625% senior notes due 2012 at B2, €2.525 billion senior secured credit facilities at Ba3, $250 million 6.75% guaranteed debt securities of Smurfit Capital Funding plc due 2005 and $292 million 7.50% guaranteed debt securities of Smurfit Capital Funding plc due 2025 at Ba3 and €100 million 15.5% subordinated notes due 2013 and $150 million 15.5% subordinated notes due 2013 at B3. The outlook is stable.

Moody's noted the proposed €195 million equivalent in new senior notes will fund the cash portion of the recently announced asset swap between Jefferson Smurfit and Smurfit Stone Container Corp.

While the proposed new notes entail a further increase in debt leverage for Jefferson Smurfit, Moody's said it confirmed the existing ratings because of: (i) the modest relative increase in total debt from current levels as a result of the transaction, (ii) the strategic and market share benefits afforded by the consolidation of Smurfit Stone's European assets within Jefferson Smurfit, (iii) the expected cash flow-neutral impact of the asset swap and the new notes issuance on Jefferson Smurfit, and (iv) the company's performance in line with expectations since the LBO in September 2002.

Moody's also noted that Jefferson Smurfit has obtained an amendment to the net debt/EBITDA covenants under its senior secured credit facilities to allow for adequate headroom under these covenants following the proposed new notes issue.

Following completion of the transaction, Jefferson Smurfit will strengthen its market position in Germany and Spain, and gain an initial presence in the Belgian market. While capital expenditure levels are expected to be higher at Smurfit Stone's European operations than at Smurfit MBI (as a result of a larger number of facilities), Moody's said it expects that this increase will be offset by the higher absolute EBITDA contribution from Smurfit Stone's European assets.

Jefferson Smurfit's cash flows will also benefit from the disappearance of approximately €17.0 million in annual dividends paid to Smurfit Stone in relation to its 50.0% stake in Smurfit MBI; however, this benefit will be offset by the increased cash cost of debt incurred by Jefferson Smurfit in conjunction with the new issuance. The net working capital impact of the transaction is expected to be minimal.

S&P cuts Ancap

Standard & Poor's downgraded Administración Nacional de Combustibles Alcohol y Portland (Ancap) including cutting its foreign-currency corporate credit rating to CCC from B-. The outlook remains negative.

S&P said the action is in line with its recent downgrade of Uruguay's sovereign rating.

The downgrade and negative outlook on the Republic of Uruguay reflect increasing prospects for a comprehensive debt restructuring in the near term, S&P noted. While a debt-restructuring scheme has not been formally announced, the government seems likely to attempt to engineer a voluntary debt exchange designed to extend maturities at minimum additional cost.

Ancap's credit quality is tightly linked to that of the Republic of Uruguay, its 100% owner. Therefore, Uruguay's financial system crisis and unfavorable growth prospects will also affect Ancap, S&P said. The negative outlook indicates both the linkage of Ancap's credit quality to the sovereign's financial health and the fact that further deterioration at the sovereign level might continue to hinder Ancap's access to credit in a deteriorated economic environment.

Moody's puts Waste Management on upgrade review

Moody's Investors Service put Waste Management, Inc. on review for a possible upgrade. Ratings affected include its bank debt and senior notes at Ba1 and Waste Management Holdings, Inc.'s senior notes at Ba1 and convertibles at Ba2.

The review is prompted by the strength and stability of the company's cash generation despite an economic downturn, the improvement in liquidity related to a recent relaxation of a financial covenant under its bank agreement, and the prudent management of its large share repurchase program to date, Moody's said.

S&P rates AmeriGas notes BB-

Standard & Poor's assigned a BB- rating to AmeriGas Partners, LP's $60 million 10% senior notes due 2006.

S&P rates Citgo notes B+

Standard & Poor's assigned a B+ rating to Citgo Petroleum Corp.'s planned $550 million senior notes due 2011. The rating is on CreditWatch with developing implications.

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