Moody's puts Mirant on review

Moody's Investors Service put Mirant Corp. on review for downgrade including its senior unsecured debt at B1 Mirant Americas Generation, Inc.'s senior unsecured debt at Ba3, Mirant Mid-Atlantic, LLC's senior secured debt at Ba3 and Mirant Trust I's trust preferred stock at B3.

Moody's said the review reflects continuing uncertainty related to the ultimate resolution of the company's significant debt obligations coming due in 2003 and 2004, including $1.1 billion of bank debt due in July 2003, ongoing concern about Mirant's ability to generate sufficient levels of operating cash flow relative to its high debt burden given the continuing challenging market conditions for the North American merchant power business and energy marketing and trading business, uncertainty as to potential liabilities arising from ongoing government investigations and lawsuits related to California's power markets and uncertainty surrounding the outcome of the ongoing independent auditors review of the company's financial statements for 2000 and 2001 and delays in providing full-year 2002 results.

Moody's said its review will look at Mirant's near-term and long-term plans to manage liquidity, the impact of Mirant's restructuring plan in conjunction with current market conditions on the company's expected level of operating cash flow in 2003 and beyond as well as capital funding requirements, Mirant's near-term and long-term plans to reduce leverage and establish a capital structure that is more consistent with the restructured business model and the corresponding levels of operating cash flow, progress in addressing poor returns on capital and collateral requirements related to the marketing and trading business given Mirant's intent to continue participating in this business, the impact of potential changes in terms and conditions of its underlying bank credit facilities, if successfully refinanced, the impact company actions may potentially have on structural or effective subordination issues previously identified by Moody's and the potential for, and impact of, material negative adjustments to carrying values of certain assets, including goodwill.

S&P cuts B/E Aerospace, still on watch

Standard & Poor's downgraded BE Aerospace Inc. and kept it on CreditWatch with negative implications. Ratings lowered include B/E's $150 million five-year revolving credit facility due 2006, cut to BB from BB+, and $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, cut to B- from B.

S&P said the downgrade reflects B/E's continued weak financial results, which, coupled with high debt levels, translate into subpar credit protection measures.

Furthermore, the operating environment of the firm's primary market - the airline industry - is very challenging, especially in the U.S, and it is likely to deteriorate further if there is a war with Iraq, S&P said.

The consequences of the Sept. 11, 2001 terrorist attacks and a soft global economy have continued to depress commercial aviation, S&P noted. A severe decline in air travel that followed the attacks significantly exacerbated an already difficult operating environment facing B/E Aerospace's airline customers.

In view of poor financial performance, air carriers are conserving cash, deferring refurbishment of cabin interiors, and scaling back deliveries of new airplanes, S&P noted. Orders for business jets have also slowed significantly, due to lower corporate profits and a sluggish economy.

In response, BE Aerospace has implemented a cost-reduction program (which is nearing completion) to adjust capacity by closing five (out of 16) production facilities and cutting its workforce by approximately 1,400 employees (30% of the workforce).

A lower cost structure should lead to break-even operations in calendar 2003 and modest positive free cash flow, barring a material deterioration in airline industry conditions; substantially better performance is anticipated once the market recovers, S&P added. Credit protection measures will be very weak in the near term, with debt to capital in the low-90% area, net debt/EBITDA around 7x, and EBITDA interest coverage about 1.5x, but gradual strengthening is expected over the intermediate term.

S&P upgrades Weight Watchers

Standard & Poor's upgraded Weight Watchers International Inc. assigned a stable outlook and removed it from CreditWatch with positive implications. Ratings raised include Weight Watchers' $100 million senior secured term D loan due 2008, $172 million term B loan due 2007, $64 million term A loan due 2005 and $45 million revolving credit facility due 2005, raised to BB from BB-, and $250 million subordinated notes due 2009, raised to B+ from B.

S&P said the upgrade reflects Weight Watchers' improving financial profile and better-than-expected operating performance, driven by increased classroom attendance and product sales across most of its geographic segments.

Also reflected in the ratings is the company's announced plan to acquire nine Weight Watchers franchises. Terms of the transaction were not publicly disclosed; however, S&P expects the company to finance part of this transaction by increasing its senior secured credit facilities.

Weight Watchers' ratings reflect its narrow business focus and high debt levels, S&P added. Somewhat offsetting these factors is the company's leading market position, geographic diversity, predictable cash flows, and favorable demographic trends.

For the fiscal year ended Dec. 31, 2002, WWI managed to grow top-line revenues by 30% through organic growth in attendance (13%), acquisitions (5%), increased product sales per attendee (5%), and other revenue sources (7%), S&P said.

The company maintained strong EBITDA margins in the mid- to high-30% range, largely due to its highly variable cost structure. Most leases for meeting locations are short term in nature, and compensation for the group leaders is on a revenue-based commission system.

Lease-adjusted EBITDA coverage of interest was about 6.6x and lease-adjusted total debt to EBITDA was about 1.6x in fiscal 2002, S&P added.

Moody's cuts Sithe/Independence to junk

Moody's Investors Service downgraded Sithe/Independence Funding Corp. to junk, affecting $559 million of debt including its senior secured bonds, cut to Ba1 from Baa2. The outlook is stable.

The downgrade concludes a review.

Moody's said the action reflects concerns related to the reliance on cash flow from credit weakened counterparty Dynegy Holdings, Inc. (senior secured at Caa2) and its various subsidiaries during a time when natural gas prices are high and the outlook for merchant power markets remain weak, making counterparty replacement unlikely under the same contract terms.

Dynegy failed to provide certain substitute guarantees that it was obligated to provide for certain subsidiaries under four separate guaranty agreements (the tolling agreement, financial swap, gas supply agreement and the energy management agreement) subsequent to a triggering event caused by Dynegy's rating downgrade, Moody's noted.

The failure to provide these substitute guarantees resulted in an event of default under each of the tolling agreement, the financial swap, the gas supply agreement and the energy management agreement.

However, Dynegy continues to perform under the various agreements.

Nonetheless, a potential bankruptcy filing by Dynegy could result in the termination of the contracts and significantly pressure Sithe's financial profile as Dynegy provides 35% of projected cash flow, Moody's said.

S&P revises Special Devices outlook

Standard & Poor's revised its outlook on Special Devices Inc. to developing from negative. Ratings affected include the company's subordinated debt at CC.

S&P said the revision is in response to Special Devices improved operating performance and stabilized liquidity.

Special Devices is a highly leveraged manufacturer of pyrotechnic devices used in automotive airbag and seatbelt systems, S&P noted. The company has suffered from weak profitability and strained liquidity in recent years because of the challenges of the automotive supply industry, including intense pricing pressure and cyclical demand and costs related to various legal and environmental liabilities.

Financial results, however, improved during fiscal 2002 from the prior year. Despite a slight decline in sales, EBITDA increased 60%, to $18 million, S&P noted. The improvement was due to stronger automotive production and various cost-cutting actions.

Despite stronger operating performance, financial risk remains very high due to the company's onerous debt burden and modest size, S&P said. In addition, the operating environment during 2003 is expected to deteriorate because of lower vehicle production, continued price declines, and higher raw material, labor, and insurance costs.

Total debt (adjusted for off-balance sheet operating leases) to EBITDA is about 5x, and EBITDA interest coverage is less than 2x, S&P said. Although the credit statistics are relatively strong for the rating, the small size of the company could result in a rapid deterioration of financial measures if market conditions weaken.

S&P cuts TermoEmcali

Standard & Poor's downgraded TermoEmcali Funding Corp.'s $165 million 10.125% senior secured notes due 2014 to CC from CCC. The outlook remains negative.

S&P said the action follows the default on March 6 by Empresas Municipales de Cali's on the $4.25 million payment due to TermoEmcali I SCA ESP.

The default in turn follows Resolution 562 issued on March 5 by the Colombian Public Services Agency, the Colombian federal agent managing the administrative takeover of Emcali. Resolution 562 establishes that Emcali's liquidation effects include that of suspending the payment of all obligations accrued up to the issue date of the Resolution 562, i.e. stopping the payments due through March 5 that Emcali owed to creditors such as Termoemcali.

S&P said it expects continuing deterioration in TermoEmcali's ability to repay its debt. The negative outlook anticipates that TermoEmcali's rating could be further downgraded if Emcali misses the next payment due on April 6.

Fitch confirms Westar, Kansas Gas, off watch

Fitch Ratings confirmed Westar Energy and its wholly owned electric utility operating subsidiary Kansas Gas & Electric and removed the ratings from Rating Watch Negative, where they were placed on Feb. 12. Westar's ratings are: senior secured debt at BB+, senior unsecured debt at BB- and preferred stock at B+. Western Resources Capital Trust I and II's trust preferreds are at B+. Kansas Gas' secured debt is at BB+. The outlook is negative.

Fitch said the confirmation reflects recent positive credit events, including the sale of a portion of Westar's investment in Oneok for $300 million pretax and a dividend reduction that will save about $31 million annually, as well as a favorable assessment of Westar's financial plan designed to reduce debt. The plan appears to incorporate all of the debt reduction actions required by the Kansas Corporation Commission's November and December 2002 orders.

However, the plan's goals are ambitious and subject to significant execution risk, which accounts for the negative outlook, Fitch said.

Westar's current ratings reflect the company's weak cash flows relative to debt, a highly leveraged balance sheet and coverage ratios that will remain weak for the rating category even with asset sales at least through 2003, Fitch said. The leverage is primarily a function of Westar's significant investment in the monitored alarm business, which increased debt without materially enhancing cash flow.

Moody's rates Universal City B2

Moody's Investors Service assigned a B2 rating to Universal City Development Partners, Ltd.'s planned $500 million senior unsecured notes. The outlook is stable.

Moody's said the ratings reflect its concerns over: Universal City's reliance on a single destination resort location that depends on out-of-state and overseas visitors, of which over 50% require air travel; Universal City's high financial leverage of approximately 6.5x gross debt to unadjusted EBITDA, and potential liquidity and bank covenant constraints in the event of a flat or weak operating environment, that become more significant as required amortization and leverage test step-downs become more significant in 2005 and accelerate further in 2006.

Moody's does not expect Universal City to receive material financial support from Vivendi Universal, aside from already agreed upon deferral of cash payments for Vivendi Universal's management fees.

The rating is supported by: Universal City's leading market position as a high-quality destination theme park that particularly appeals to families with older children, high barriers to entry that include: market awareness, significant up-front investment, and its unique set of movie themed creative rights, and its generally strong long term operating growth prior to 2001.

Moody's also notes Universal City's lower operating performance volatility in 2001 and 2002 than its peers, Walt Disney and Six Flags.

Moody's puts Corus on review

Moody's Investors Service put Corus Group plc's €400 million senior notes due 2006 and £200 million senior notes due 2008 at Ba2 on review for possible downgrade.

Moody' said the review was prompted by the additional challenges resulting from the rejection of the sale of the aluminum assets by the supervisory board of Corus' Dutch subsidiary, which owns the respective assets to be sold, as well as continued weakness in the group's performance in the U.K. as reflected in the announcement of additional restructuring measures necessary to turn around the group's U.K. steel assets.

The rating action does not incorporate any information to be released at the group's upcoming financial result 2002 presentation, Moody's noted.

Although the cancellation or postponement of the sale is not expected to have an imminent effect on the group's liquidity position, management will have to secure bank support for the time beyond the expiry of the group's main bank loan facility in January 2004, Moody's said. While the headroom under the existing net tangible worth covenant has decreased over the last year due to net losses, availability under the credit line continues to provide sufficient flexibility.

S&P revises watch on US Airways 2000-3C

Standard & Poor's revised its CreditWatch on US Airways' 2000-3C passthrough certificates to developing from negative. the certificates are rated B.

S&P said the revision follows US Airways' disclosure that it made $64.2 million of past-due payments on its 2000-1 and 2000-3 pass-through certificates.

The payment supports expectations that US Airways will seek to retain the Airbus planes that form collateral for the transaction, S&P said.

Moody's cuts Enersis to junk

Moody's Investors Service downgraded Enersis to junk, cutting the senior unsecured debt of Enersis SA, Endesa Chile and Pehuenche to Ba3 from Baa3. The action concludes a review for possible downgrade. The outlook is stable.

Moody's said the downgrade reflects Enersis' low cash flow relative to debt load, weak financial performance relative to the rating category, volatile operating environments in Argentina and Brazil which have not been fully compensated by other operations, likely limitations on additional support from the principal owner, foreign exchange risk that is not completely compensated in regulated rates, and substantial near term refinancing needs in a challenging market environment.

Enersis' returns are weak and its debt levels are high, despite efforts to improve operations and reduce leverage, Moody's added. In addition the company continues to be exposed to cross default provisions in its bond documents with regard to its operations in Argentina and Brazil, adding to its financial fragility.

S&P rates Peabody loan BB+, notes BB-

Standard & Poor's assigned a BB+ rating to Peabody Energy Corp.'s planned $1.2 billion senior secured bank loan facility and a BB- rating to its planned $500 million senior unsecured notes due 2013. Existing ratings were confirmed including Peabody's senior secured debt at BB+ and senior unsecured debt at BB-.

The bank facility and the notes will be guaranteed by Peabody's restricted subsidiaries including its 81.7%-owned Black Beauty Coal Co. These restricted subsidiaries represent more than 90% of the company's $5 billion in assets at Dec. 31, 2002. The guarantee of the senior unsecured notes from Black Beauty will essentially be a "springing" guarantee effective upon the earlier of Peabody acquiring the remaining 18.3% of the company, which it is considering, or exactly one year from the date of closing for the note offering.

The bank facility is secured by a first-priority lien on certain tangible and intangible assets of the restricted subsidiaries. The collateral package with respect to Black Beauty is also "springing", as the security will be pledged only if the senior secured rating of Peabody falls to or below BB- at S&P or Ba3 at Moody's. Because specific assets secure the facility, S&P said it used its discrete asset methodology to evaluate the collateral under a liquidation scenario. Although the collateral will incur substantial devaluation in a default scenario, S&P expects there is a strong likelihood secured creditors will realize full recovery of principal in event of default or bankruptcy, assuming a fully drawn bank facility.

The ratings reflect Peabody's leading market position, its substantial diversified reserve base, and contractual sales, S&P added. The ratings also reflect its aggressive financial leverage.

Since the implementation of the Clean Air Act's Phase II provision on Jan. 1, 2000, which requires utilities to further reduce sulfur emissions, coal utilities have been increasing consumption of low-sulfur compliance coal to generate electricity. Through a series of acquisitions, Peabody shifted its production and reserve profile to emphasize low-sulfur coal, especially in the Southern Powder River Basin in Wyoming, S&P noted. Indeed, approximately 80% of Peabody's sales volume and 44% of its reserves are low sulfur. Given its significant position in the low-sulfur producing Southern Powder River Basin, Peabody is positioned to take advantage of the expected continued, albeit gradual, growth in Powder River Basin coal production.

In an effort to diversify its energy strategy and to utilize its extensive reserves and holdings, Peabody is in the early stages of developing two 1,500 megawatt "mine mouth" power projects, which will be extremely economical given the elimination of coal transportation costs, S&P said. However, there are significant development costs for these projects, which could take four to five years to construct. Also, credit concerns and difficulties in the power generation industry have delayed Peabody's efforts to find suitable power generating partners.

Fitch rates La Quinta notes BB-

Fitch Ratings assigned a BB- rating to La Quinta's planned $250 million senior unsecured notes due 2011. The outlook is negative.

The ratings reflect La Quinta's sizable and geographically diverse asset base of owned hotel properties, healthy liquidity, improved balance sheet, experienced management team, and track record in a challenging environment, Fitch said. Risks include the very weak lodging environment, the resulting pressures on credit statistics and marginal free cash generation, required access to external capital over the intermediate term and significant competition in its sector that includes companies with far greater resources.

The negative outlook reflects the weak lodging fundamentals that have disproportionately affected La Quinta's results due to the company's significant exposure to underperforming markets and downward pricing pressure and lower occupancy at limited service hotels as full-service hotels scale back pricing.

Fitch believes the difficult operating environment will continue until geopolitical and economic circumstances improve. To date in 2003 there have been no material signs of recovery, and industry forecasts of flat REVPAR will require a healthy second-half recovery that may not materialize.

Total debt at the end of December was $665 million, down $335 million from the end of fiscal 2001 and down $1.9 billion since the end of fiscal 1999 as the company completed its healthcare divestiture program.

At the end of fiscal 2002 net leverage and coverage were meaningfully improved form 1999 levels, despite the deep slump in the lodging industry, at 3.9 times and 2.6x, respectively, Fitch said. With completion of a healthcare divestiture in the fourth quarter of 2002, any debt repayment in 2003 will primarily be driven by free cash flow, which will be limited. However, the continued sale of selected non-core hotel assets (current net book value $25 million), could also be a source of cash.

Moody's rates La Quinta notes Ba3

Moody's Investors Service assigned a Ba3 rating to the proposed $250 million senior unsecured note issue of La Quinta Properties, Inc., a REIT subsidiary of La Quinta Corp. The outlook is stable.

Moody's said the proposed notes should allow La Quinta to address its near-term debt maturities, which include $170 million near-term senior note maturities as well as borrowings under its revolving line of credit.

La Quinta's Ba3 senior unsecured debt ratings continue to reflect the firm's successful transformation into a pure play lodging company, its substantial deleveraging achieved through the sale of its health care property portfolio and a good liquidity profile.

Underperformance of the company's hotel portfolio relative to the limited service segment due to geographic concentration in the South and the Southwest, as well as the continuing adverse impact of the difficult lodging environment on La Quinta's operating performance, remain key concerns for Moody's.

Moody's rates Peabody loan Ba1, notes Ba3

Moody's Investors Service assigned a Ba1 rating to Peabody Energy Corp.'s $1.2 billion senior secured credit facility and a Ba3 rating to its proposed $500 million of guaranteed senior unsecured notes due 2013. Moody's also confirmed Peabody's existing ratings including its $480 million senior secured revolving credit facility at Ba1, $317 million of 8.875% senior notes due 2008 at Ba3 and $392 million of 9.625% senior subordinated notes due 2008 at B1. The outlook is stable.

Peabody's ratings are supported by its diversified low-cost operations, vast reserves of high quality coal, strong management, and large portfolio of long-term coal supply agreements with a large number of electric generation customers, Moody's said.

However, the rating also reflects revenue and cost pressures that may, if not reversed, restrain Peabody's operating cash flow and limit its ability to materially reduce outstanding debt.

The stable outlook reflects the stable nature of Peabody's business and cash flow, which can be attributed to its extensive and geographically diverse coal operations, vast reserves, long-term sales contracts, and coal's importance as a fuel for electricity generation, Moody's added.

These factors help insulate Peabody from the impact of changes to mining, environmental and electric utility regulations and provide flexibility for adapting to changes in regional coal demand.

Peabody also has good financial flexibility, with ample liquidity and opportunities to monetize assets, if needed, Moody's said.

Moody's confirms CE Casecnan

Moody's Investors Service confirmed CE Casecnan Water and Energy Company, Inc.'s senior secured debt at Ba2 and maintained a negative outlook.

Moody's said it understands that CE Casecnan has made positive progress in clarifying the alleged high electricity cost and water offtake volume issues with the government.

Accordingly, Moody's said it believes that the contract re-negotiation risk is reduced to a certain extent.

However, Moody's warned that there is always a possibility that the government would approach CE Casecnan in the future, given the uncertainty of the power industry reform and the lack of transparency in the contract renegotiation process.

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