S&P downgrades WorldCom

Standard & Poor's downgraded WorldCom Inc. and kept it on CreditWatch with negative implications. Ratings affected include WorldCom's notes and bank loan, cut to B+ from BB, and its convertible preferred stock, exchangeable preferred stock and quarterly income preferred securities, cut to CCC+ from B.

S&P said it cut WorldCom because of the delay in obtaining a $5 billion bank facility, increased refinancing risk associated with large debt maturities commencing in 2003 and the continued weak environment for long-distance services.

In addition, WorldCom's confirmation it will further cut capital spending by $1 billion in 2003 and reduce its workforce by 20% could negatively impact future growth prospects, S&P said.

"Even if the bank loan is successfully negotiated, we are concerned about WorldCom's asset valuation in relation to its total debt outstanding, as the demand for long-distance voice and data services continues to be impacted by a slow economic recovery, technology substitution, and competition," S&P said.

S&P said it is concerned about the potential delay in obtaining the new bank facility because of its impact on the company's liquidity position over the next year. Composition of the financial covenants in this facility will be essential to improving the company's liquidity position as debt totaling more than $9 billion over the next three years comes due. The bank facility is also a major factor to reestablishing investor confidence and access to the capital markets.

Moody's puts Steel Dynamics on upgrade review

Moody's Investors Service put Steel Dynamics, Inc. on review for possible upgrade. Affected debt includes its $200 million 9.5% senior unsecured notes due 2009 at B2 and its $350 million senior secured credit facility at Ba3 made up of a $70 million five-year term loan A, a $205 million six-year term loan B and a $75 million revolving credit facility.

Moody's said the action follows Steel Dynamics' announcement that it plans to issue up to $175 million of common stock with proceeds to repay a portion of its senior credit facility, prefund construction and expansion costs at its two Indiana mills, thus reducing dependence on debt financing, and for working capital and acquisitions.

While the equity offering, if completed, will have a favorable near-term impact on Steel Dynamics' balance sheet, Moody's said its review will also examine improving but unsettled steel market fundamentals, the ongoing ramp-up of the Columbia City structural products mill, the company's growth objectives and Steel Dynamics' tolerance for risk.

Although steel prices have increased sharply this year, this was anticipated in Moody's initial ratings for Steel Dynamics, which were assigned on March 5, the same day that Section 201 import tariffs were imposed by President Bush, Moody's said.

Steel Dynamics also appears to be making good progress on the start-up of the Columbia City mill.

However, both these factors - steel prices and the mill ramp-up - carry a high degree of risk, Moody's said.

Furthermore, steel market conditions currently support strategic growth initiatives and Steel Dynamics must be prepared to seize opportunities as they arise. This includes internal expansions, such as the $25-30 million coil coating facility at the Butler mill that was announced in May 2002, and possible acquisitions, the rating agency added.

Moody's puts Yell on upgrade review

Moody's Investors Service put Yell Finance BV on review for possible upgrade including its £250 million 10.75% senior notes due 2011, $200 million senior notes due 2011 and $288 13.5% senior discount notes due 2011 at B2 and £1.05 billion senior bank facilities at Ba3.

Moody's said it began review in response to the potential for material improvements in the Yell's levels of debt and capital structure in connection with its planned initial public offering and flotation on the London Stock Exchange.

Yell expects to raise some £717 million in net primary proceeds which the company intends to use primarily to repay debt, Moody's noted. In particular Yell intends to repay $250 million principal amount and related interest outstanding on a bridge facility used for the recent acquisition of McLeodUSA Media Group, prepay £250 million principal amount outstanding under its senior bank facilities and redeem up to 35% or approximately £174 million of its senior notes and senior discount notes. Yell also plans to prepay £100 million of deeply subordinated vendor loan notes issued to an affiliate of BT in connection with the original buy-out of Yell in June 2001 and intends to convert £653 million of deeply subordinated shareholder loans into common equity.

S&P upgrades Ackerley

Standard & Poor's upgraded The Ackerley Group Inc. and removed it from CreditWatch with positive implications. Ratings affected include Ackerley's $200 million 9% senior subordinated notes due 2009, raised to BB+ from CCC+.

S&P said the action follows the company's acquisition by Clear Channel Communications Inc., rated BBB- with a negative outlook.

S&P rates Graham Packaging notes CCC+, loan B

Standard & Poor's assigned a CCC+ rating to Graham Packaging Co.'s planned $100 million senior subordinated notes due 2008 and a B rating to its $550 million term loan due 2009 and $150 million revolving credit facility due 2007. The ratings are on CreditWatch with positive implications as are Graham's existing ratings.

S&P said it would resolve the CreditWatch on successful completion of the IPO. The existing B corporate credit rating will be raised to B+ on completion of the IPO because net proceeds of around $200 million will be used to reduce debt, S&P said.

The proposed debt refinancing will significantly extend Graham's debt maturities and improve liquidity, the rating agency added.

Pro forma for the proposed transactions, total debt (adjusted for capitalized operating leases) to EBITDA is expected to improve to about 5 times compared with more than 6x for the 12-month period ended March 31, 2002, S&P said. Following four years of negative free cash flows, Graham is expected to generate modest free cash flows (after working capital and capital spending) from 2003 onwards, which should support an improving trend in credit measures.

S&P cuts NextMedia outlook

Standard & Poor's lowered its outlook on NextMedia Operating Inc. to negative from stable. The company's corporate credit rating is B+.

S&P said it revised NextMedia's outlook because of its weak credit measures, negative discretionary cash flow, decreasing liquidity and a soft outdoor advertising environment.

While NextMedia's radio business is showing positive operating trends, the outdoor advertising operations are still suffering from weak industry conditions and a recovery appears to be lagging, S&P added.

Key credit measures are below S&P's expectations for a B+ corporate credit rating and could remain so without sustained advertising improvement or management effort at shoring up the balance sheet, the rating agency added.

S&P rates Dave & Buster's notes B, loan B+

Standard & Poor's assigned a B rating to Dave & Buster's Inc.'s planned $165 million senior secured notes due 2009 and a B+ rating to its planned $30 million senior secured bank loan due 2007. The outlook is stable.

Proceeds from the senior notes will be used to fund the LBO of the company and refinance existing debt.

S&P said the bank loan is rated one notch higher than the corporate credit rating and will have a first priority lien on all assets of the borrower. Considering the stability of the business, it is anticipated that the company would retain value as a business enterprise in the event of a bankruptcy and S&P said that under a simulated default collateral value would provide full recovery of principal despite potentially significant loss exposure.

The ratings reflect the risks associated with the company's small size in the highly competitive out-of-home entertainment business, its vulnerability to changes in consumer spending, and a highly leveraged capital structure, S&P said.

Partially offsetting the negatives are Dave & Buster's unique concept of combining numerous entertainment and restaurant options and an established operating history, S&P said.

Pro forma for the LBO and senior note transaction, the company is highly leveraged with lease-adjusted total debt to EBITDA for the 12 months ended May 5, 2002, of about 5 times, S&P said. Credit protection measures are weak, with pro forma EBITDA coverage of interest at about 2x. S&P added that it expects EBITDA coverage of interest to improve only marginally over the next three years.

S&P upgrades Albecca

Standard & Poor's upgraded Albecca Inc. including raising its $150 million 10.75% senior subordinated notes due 2008 to BBB- from B-. The outlook is stable.

S&P said the action follows the acquisition of Albecca by Berkshire Hathaway Inc., rated AAA with a stable outlook.

The rating agency said that although Berkshire Hathaway will provide no explicit guaranty of Albecca's debt and Albecca is not a core business it believes that Berkshire Hathaway will support its investment in the firm.

S&P raises Kia

Standard & Poor's upgraded Kia Motors Corp. including raising its $200 million 9.375% notes due 2006 to BB from BB-. The outlook is stable.

S&P said it raised Kia in conjunction with its upgrade of Hyundai Motor Co. to BB+ from BB.

The action reflects the continued strong operating and financial performance of the Hyundai Motor Group and Kia's strong linkage to the group, S&P said.

However Kia suffers from a narrower product range, weaker financial profile and the complexity of the Hyundai Motor Group's structure, S&P added.

S&P raises Hyundai

Standard & Poor's upgraded Hyundai Motor Co. including raising its $125 million notes due 2007 to BB+ from BB. The outlook is stable.

S&P said the upgrade is in response to the improved market position and cost competitiveness of the Hyundai Motor Group. This improvement has enabled Hyundai Motor to strengthen its financial profile, a trend that is expected to continue, S&P added.

Enhanced product offerings have enabled Hyundai Motor to further strengthen its position in its home market of Korea, S&P noted. In 2001, the company's combined market share, including that of Kia Motors Corp., in which it holds a roughly 35% stake, grew to 75% compared with 64% in 1998.

Although Hyundai Motor's market share could come under pressure following the planned entry of General Motors Corp. and the gradual growth of imports in Korea, the company is likely to maintain its dominant position over the next few years, S&P said. Hyundai Motor has also successfully expanded its market share in the U.S., backed by its competitive prices, enhanced product lineup, and improved brand image.

Moody's puts Smurfit Capital on review for downgrade to junk

Moody's Investors Service put Smurfit Capital Funding plc's senior unsecured notes guaranteed by Jefferson Smurfit Group plc on review for possible downgrade affecting $540 million of debt.

Moody's said the action follows the announcement of a recommended pre-conditional cash offer for Jefferson Smurfit Group plc by Deutsche Bank on behalf of Madison Dearborn Partners, LLC.

The notes, currently rated Baa2, will be downgraded several notches if the transaction is completed "clearly into speculative grade," Moody's said.

The transaction will have a leveraged start-up capital structure with net debt/EBITDA in the region of 4.5x according to Madison Dearborn Partners compared to Jefferson Smurfit group's year-end leverage of around 2x.

The current notes have no change of control provision but there is a limitation on liens clause, Moody's said.

Fitch rates Durango notes B+, raises outlook

Fitch Ratings assigned a B+ rating to Corporacion Durango's planned $175 million senior unsecured notes due in 2009, confirmed its existing senior unsecured notes at B+ and changed the outlook to positive from stable.

Fitch said it anticipates a "marked improvement" in Durango's credit protection measures during the next 12 to 18 months.

The company is expected to sell approximately $50 million of assets in the next few months and an additional $50 million of assets within the next year with proceeds expected to be used for debt reduction, Fitch said.

In addition, Durango's operating profits would improve substantially if the Mexican peso weakens versus the dollar, as a considerable portion of the company's costs is denominated in pesos while most of its revenues are in dollars or are indexed to the dollar, Fitch said.

The international competitiveness of Durango's largest customers, Mexican exporters, also improves with a weak peso. Furthermore, a weak peso makes the Mexican market less attractive to international companies that wish to export products to Mexico, Fitch added.

During the past three years, the Mexican peso has been among the strongest currencies in the world, averaging 9.56 pesos per dollar in 1999, 9.48 in 2000 and 9.34 in 2001, Fitch noted. During this time period, inflation in Mexico was 12.3%, 8.9% and 4.4%, respectively, while inflation in the U.S. was 2.7%, 3.4% and 1.6%, respectively. Since the end of March 2001, the peso has weakened from 9.0 pesos per dollar to approximately 9.6. This bodes well for the company's performance in the second half of 2002.

Also, in March one of the company's U.S. subsidiaries entered into a five-year supply agreement with Sweetheart Cup Company Inc., Fitch said. This agreement has contributed to an increase in the company's capacity utilization to 84% during June from 77% in January 2002.

Moody's rates Weirton Steel notes Caa3

Moody's Investors Service assigned a Caa3 rating to the new 10% senior secured notes due 2008 of Weirton Steel Corp. The outlook is negative.

The notes and new series C preferred stock have been offered to holders of the company's 11.375% senior notes due 2004 and 10.75% senior notes due 2005, subject to an exchange offer and consent solicitation that was completed on June 13.

Weirton was heavily impacted in recent years by a sharp downturn in steel markets and the slowing economy, Moody's noted. It incurred losses from operations of approximately $450 million over the last three years and in December 2001 defaulted on its debt when it did not pay the semi-annual interest payment on its 10.75% senior notes.

The exchange offer is one part of the company's strategic plan to reduce operating costs, improve liquidity and working capital position, restructure long-term debt, and increase its focus on tin mill products and other higher value-added sheet products.

The ratings reflect the significant challenges that Weirton faces in implementing its strategic plan at a time of continued uncertainty in the domestic steel industry, Moody's said.

While prices of most steel products have moved sharply higher since the imposition of Section 201 import tariffs in March and steel consumption has also advanced, these improvements could be reversed by a number of factors, including the re-start of idled domestic steel-making capacity, increases in steel imports due to rising domestic prices, the scheduled reduction in Section 201 tariffs, or the granting of exemptions to Section 201 tariffs, or the stalling or reversal of the domestic economic recovery, Moody's said.

Moreover, tin mill products, which accounted for 49% of Weirton's revenues and 36% of tons shipped in 2001, are sold under long-term contracts at prices that are very stable and did not decline over the downturn, so improvements to this part of Weirton's business will likely be modest, the rating agency added.

Furthermore, while Weirton will eliminate approximately $115 million of debt as a result of the exchange offer, its financial position is still very risky; it has $660 million in underfunded pension and OPEB obligations, negative $510 million in stockholders' equity, and, pro forma for the exchange, approximately $310 million of debt and capital lease obligations, Moody's said.

Moody's rates Kronos notes B2

Moody's Investors Service assigned a B2 rating to Kronos International, Inc.'s planned €270 million senior secured notes due 2009 and confirmed the existing ratings of NL Industries, Inc. including its $169 million senior secured notes due 2003 at B1. NL's ratings will be withdrawn when the Kronos offering is finalized. The outlook is stable.

The ratings of Kronos International and NL Industries reflect product concentration in titanium dioxide (TiO2) pigments that is a cyclical commodity product affected by economic conditions, currently depressed prices of TiO2, and the uncertain timing of recovery of end user demand, Moody's said.

The ratings of Kronos International further consider moderately high leverage, geographic concentration of its sales and plants in Europe, the notes' lack of recourse to NL Industries, the company's reliance as a holding company on dividends from its European subsidiaries that do not provide guarantees to service its debt, the ability of the company under the indenture governing the proposed notes to make significant distributions or dividends, and our expectation that material dividends will be made, the rating agency added.

Positives include the companies' good market positions in TiO2, and the favorable long-term global industry fundamentals of TiO2, including a limited number of producers, and substantial barriers to entry with no new plants expected in the intermediate term, Moody's said.

S&P rates Encore notes B

Standard & Poor's assigned a B rating to Encore Acquisition Co.'s proposed $150 million senior subordinated notes due 2012. The outlook is stable.

S&P said Encore's ratings reflect its small to midsize reserve base, limited geographic diversification and an aggressive growth strategy.

These weaknesses are tempered by the company's high percentage of company-operated properties (90%) that require modest future development expenses and its high percentage of proved developed reserves (85%), which have a long reserve life of about 15 years and provide the company with meaningful operational and financial flexibility, S&P said.

Encore's current operating costs are relatively low compared to its peers with direct lifting costs of $3.93/boe and General & Administrative average costs of $0.79/boe, S&P said. In addition, Encore's three-year average all sources finding and development (F&D) costs of about $3.50/boe compares favorable to its peers and the industry average of about $6.62/boe.

Moody's rates Graham Packaging notes Caa1, loan B2, raises outlook

Moody's Investors Service assigned a Caa1 rating to Graham Packaging Co., LP's proposed $100 million senior subordinated notes due January 2008 and a B2 to its proposed $700 million secured credit facility. Moody's also confirmed Graham's existing $150 million 8.75% senior subordinated notes due January 2008 and $75 million floating-rate senior subordinated notes due January 2008 at Caa1.

The rating agency also raised the outlook to positive from stable.

Moody's said Graham's ratings reflect its high financial leverage, albeit improved pro-forma for the proposed transactions.

Graham also has weak free cash flow relative to total debt and modest coverage of interest expense on a pro-forma basis, Moody's said. These on-going credit issues overshadow the gains Graham has made improving profitability through margin enhancement and bolstered EBITA returns on the greater of total assets or total liabilities.

Moody's said the proposed transactions are important but not critical to improve Graham's liquidity profile.

The raised outlook acknowledges "some strengthening" in the company's credit profile as the previously implemented cost cutting, process improvements, and overall business re-alignments gain traction, Moody's said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.