Moody's rates new Levi notes B3, existing notes on upgrade review

Moody's Investors Service assigned a prospective B3 rating to Levi Strauss & Co.'s planned offering of senior unsecured notes, confirmed the company's existing ratings and put the existing senior unsecured notes on review for possible upgrade. Ratings affected include Levi Strauss' bank debt at B1 and existing senior unsecured notes at Caa1. Moody's said the existing notes will be raised to B3 when the upcoming offering of new notes is completed. The outlook is stable.

Moody's said its actions are in response to Levi Strauss' announced refinancing plan and reflect the anticipated improvement in the company's near-term liquidity that will accrue from the anticipated issuance of at least $300 million in new senior unsecured notes and the planned refinancing of the company's existing bank facilities.

Completion of both planned refinancings should provide sufficient capital to retire current maturities of long term debt, including a $350 million issue maturing November 2003, and the company's existing bank facilities, which mature in August 2003, Moody's said. The refinancings should also provide sufficient funding to support the increased working capital needs for the company's product introduction through the mass merchant market (via Wal-Mart), which is scheduled for mid-2003.

S&P rates Levi notes BB-

Standard & Poor's assigned a BB- rating to Levi Strauss & Co.'s planned $300 million senior notes due 2012 and confirmed its existing ratings including its bank loan at BB and senior unsecured debt at BB-. The outlook is stable.

The ratings reflect Levi Strauss' leveraged financial profile and its participation in the highly competitive denim and casual pants industry, S&P said. The ratings also reflect the inherent fashion risk in the apparel industry. Nevertheless, the company's well-recognized brand names in jeans and other apparel, its new customer-focused strategy, and its moderate operating cash flow generation somewhat mitigate these factors.

Competition in the pants segments continues to be intense with VF Corp.'s Lee and Wrangler brands, as well as many other designer brands. Most participants experienced weakness in 2001 and 2002 as a result of dampened consumer spending, S&P noted. New competitors, which have more effectively met consumer preferences during the past few years for both designer and private-label jeans wear, have challenged Levi Strauss' market position. However, Levi Strauss still holds the No. 2 market share in the U.S. for jeans, a position due to its core Levi's brand.

In recent years, the firm has implemented restructuring efforts in which it effectively closed all of its domestic manufacturing facilities, reduced overhead costs, and refocused its marketing organization to be more customer oriented, S&P said.

Still, Levi Strauss' sales have declined significantly in recent years, to $4.3 billion in fiscal 2001 from more than $7.0 billion in fiscal 1996. Although the company has made progress in stemming the decline, the weak U.S. and Japanese markets continue to be problematic, S&P added. New customer-focused strategies, including an emphasis on improved product innovation, better presentation at the retail level, and more effective advertising, are expected to stabilize sales volume.

Levi Strauss' entry into the mass market creates significant execution risk associated with logistics, production, and delivery response to serve the mass channel, S&P said. The effect on the brand franchise, given the value-channel positioning and existing retailers' reaction, will also be a concern as the mass market program is rolled out. Nevertheless, the mass market will provide a much-needed expansion into another distribution channel, which should also help revitalize the company's sales volume.

Credit measures continue to be weak, with lease-adjusted total debt to EBITDA of 4.2 times and adjusted EBITDA interest coverage of about 2.2x for the 12 months ended Aug. 25, 2002, S&P said.

Fitch rates Levi notes B+

Fitch Ratings assigned a B+ rating to Levi Strauss & Co.'s planned $300 million senior unsecured notes due 2012 and confirmed its existing ratings including its senior unsecured debt at B+ and bank debt at BB. The outlook remains negative.

Proceeds from the issuance will be used to repay the $115 million outstanding on the company's bank term loan and revolving credit facility. Remaining proceeds are expected to be used to repay a portion of its 6.8% notes due November 2003, subject to bank waivers,

Fitch said it is viewing the note issuance as a pre-funding.

If waivers are not received, remaining proceeds will be used for working capital and general corporate purposes.

Fitch said the negative outlook reflects the ongoing challenges Levi faces in stimulating top-line sales growth.

The ratings reflect Levi's solid brands with leading market positions as well as its geographically diverse revenue base and adequate cash flow generation. Of ongoing concern is the difficulty the company has faced in growing sales, coupled with the slower than expected pace of improvement in credit protection measures, Fitch said.

Moody's cuts Oglebay Norton

Moody's Investors Service downgraded Oglebay Norton Co. The outlook remains negative. Ratings lowered include its $265 million senior secured revolving credit facility, cut to B2 from B1, and $100 million 10% guaranteed senior subordinated notes due 2009, to Caa2 from Caa1.

Moody's said the downgrade follows a review of Oglebay Norton's asbestos and silica product liability claims.

Oglebay believes that these product liability claims are covered by multiple layers of insurance from multiple providers and that its need to directly fund any claim payment will be limited and not material.

Information provided to Moody's by the company supports its assessment of its current and knowable liability.

However, Moody's said it believes it is appropriate to lower the company's ratings to reflect the additional uncertainties raised by the large number of unsettled asbestos and silicosis cases and the unpredictable nature of this litigation, combined with the operating challenges currently facing Oglebay.

Moody's cuts Petroleum Geo-Services

Moody's Investors Service downgraded Petroleum Geo-Services ASA, affecting $1.8 billion of debt. Ratings lowered include Petroleum Geo-Services' senior unsecured notes, to Caa3 from B3, its junior subordinated debt related to its guaranteed trust preferred securities, to Ca from Caa2, Oslo Seismic Services, Inc.'s guaranteed first preferred mortgage notes, to Caa1 from B1, and PGS Trust I's trust preferreds, to Ca from Caa2. The outlook is negative.

Moody's said the downgrade is in response to Petroleum Geo-Services' announcement that it estimates it will realize significant charges, including goodwill impairment, in the range of $1.1-$1.2 billion in the fourth quarter of 2002.

While these charges are non-cash, they are higher than expected and imply weaker than anticipated earnings and cash flow generation by the company's Banff production vessel, its seismic data library, and its Atlantis subsidiary, Moody's said.

In addition, the charges will likely result in covenant defaults under the company's bank agreements, for which Petroleum Geo-Services is currently seeking waivers.

The negative outlook reflects the significant challenges Petroleum Geo-Services faces in addressing its 2003 debt maturities, Moody's said.

At the present time, Petroleum Geo-Services is current on all payment obligations under its indebtedness. While Moody's believes the company will likely be able to cover its operating cash needs from internal sources through the end of 2002, the company faces significant liquidity challenges over the next 12 months. Petroleum Geo-Services has approximately $1 billion of debt maturing in 2003, including a $250 million bank facility due in June, a $430 million revolving credit facility due in September, and $250 million of senior unsecured notes due in November.

Fitch cuts Petroleum Geo-Services

Fitch Ratings downgraded Petroleum Geo-Services ASA including cutting its senior unsecured debt to CCC from B and trust preferred securities to CCC- from B-. The outlook remains negative.

Fitch said it lowered Petroleum Geo-Services in response to the company's announcement that based on preliminary information it estimates that it will realize one-time non-cash charges in the third quarter of 2002, plus impairment of goodwill, which in total are likely to be in the estimated range of $1.1-1.2 billion.

These third quarter charges relate primarily to writedowns of the value of Petroleum Geo-Services' investments in its Banff FPSO vessel, its seismic data library and its Atlantis subsidiary. Shareholders' equity would be negatively impacted by the impairment of goodwill estimated at roughly $180-$200 million.

In connection with the one-time charges and impairment described above, Petroleum Geo-Services has commenced discussions with various creditors to obtain waivers of financial covenant defaults that might result from such charges and impairment. While there can be no assurances, management is optimistic that its effected creditors will waive the financial covenants which Petroleum Geo-Services violated with its latest writedown.

Although Petroleum Geo-Services is current on all payment obligations under its indebtedness, Fitch said it is not as optimistic as management that it will get its lines of credit extended under similar terms to its existing facility.

Fitch also has concerns that Petroleum Geo-Services will not complete asset sales necessary to retire maturing debt, namely the $250 million 6.25% senior notes due November 2003.

The negative outlook reflects the potential for a prolonged weak seismic pricing environment, Fitch added. While Petroleum Geo-Services has a good seismic backlog, the industry continues to experience soft demand for marine seismic data and weak margins due to excess capacity of marine vessels and streamers.

S&P cuts Edison Mission

Standard & Poor's downgraded Edison Mission Energy Co. Ratings lowered include Edison Mission Energy's $400 million 10% senior unsecured notes due 2008, $600 million 7.73% notes due 2009 and $600 million 9.875% notes due 2011, cut to BB- from BBB-, Mission Energy Holding Co.'s $385 million 7.5% senior secured term loan due 2006 and $800 million 13.5% senior secured notes due 2008, cut to B- from BB-, Midwest Generation LLC's $333.5 million 8.3% passthrough certificates lease obligations series A due 2009 and $813.5 million 8.56% passthrough certificates lease obligations series B due 2016, cto BB- from BBB-, Midwest Funding LLC's $774 million senior secured bank loan due 2004, to BB- from BBB-, Edison Mission Midwest Holdings Co.'s $150 million revolving credit facility due 2004, $808 million revolving credit facility due 2004 and $911 million revolving credit facility due 2003, to BB- from BBB-, and Edison Mission Capital's $150 million cumulative monthly income preferred securities series A to B from BB. The ratings were removed from CreditWatch with negative implications and assigned a negative outlook.

S&P said the downgrade follows a series of events and market developments that have materially weakened Edison Mission Energy's credit profile.

In October, financing covenants triggered a cash trap of distributions from Edison Mission Energy's largest subsidiary, Edison Mission Midwest Holding, which materially affects Edison Mission Energy's credit profile.

Power markets in the U.S. and the U.K. are broadly depressed and compressing operating margins at merchant facilities, S&P noted. The cash trap, in particular, is restricting Edison Mission Energy's ability to continue reducing parent level debt, as S&P had expected earlier this year.

While total debt has come down over the past 18 months, total leverage has increased as a result of the $1.1 billion write-off attributed to the 2001 sale of Fiddlers Ferry and Ferry Bridge in the U.K., S&P added.

Edison Mission Energy's ratings reflect that its largest subsidiary must refinance about $1.7 billion of short-term bank debt. The rating also reflects concentrated cash flows from four investments that force Edison Mission Energy to rely on them for about 50% of cash flow through 2006.

S&P cuts Resource America

Standard & Poor's downgraded Resource America Inc. including lowering its $115 million 12% senior notes due 2004 to B- from B. The outlook is stable.

S&P said the action follows a review of the company's capital structure and the likelihood that high levels of secured bank debt would not be reduced materially in the near-term.

S&P noted that its rating criteria requires a one-notch difference between the senior unsecured debt rating and the corporate credit rating when outstanding secured obligations exceed more than 15% of total assets, which now is the case for Resource America.

If Resource America materially reduces reliance on secured debt on a sustained basis, Resource's senior unsecured debt issue rating could be raised, S&P said.

S&P cuts APCOA/Standard Parking, on watch

Standard & Poor's downgraded APCOA/Standard Parking, Inc. and put it on CreditWatch with negative implications. Ratings lowered include APCOA/Standard Parking's $140 million 9.25% senior subordinated notes due 2008, cut to CCC from CCC+, $59.285 million 14% notes due 2006, cut to CCC+ from B-, and $40 million senior secured revolving credit facility due 2004, cut to B from B+.

S&P said the action reflects its heightened concern about APCOA's limited liquidity position. As of Sept. 30, 2002, APCOA had about $6.2 million of cash and about $6 million available on its $25 million revolving credit facility.

S&P said it is concerned with APCOA's ability to meet its upcoming financial obligations, which include a $5 million term loan principal payment due Dec. 31, 2002, and the potential for additional collateralization requirements under its performance bond program.

While the company has taken steps to improve its operating performance, financial performance and credit protection measures have remained weak, with total debt to EBITDA of about 5.2 times and EBITDA coverage of interest of about 1.87x, S&P said. However, these measures are weaker when taking into consideration $100 million of preferred stock and related non-cash pay dividends.

APCOA's weak performance is largely a result of the lingering effects of the terrorist attacks on Sept. 11, 2001, as well as the weak economy, S&P said.

Fitch rates D.R. Horton notes BB+

Fitch Ratings assigned a BB+ rating to D.R. Horton, Inc.'s new $215 million 7.5% senior notes due 2007. The outlook is stable.

The issue ranks pari passu with all other senior unsecured debt, including D.R. Horton's $805 million unsecured bank credit facility. Proceeds will be used to repay indebtedness outstanding under its revolving credit facility.

The new issue has more favorable rates and attractive maturity relative to the debt it would replace, Fitch said.

Fitch added that it remains comfortable with D.R. Horton's stated debt to capital target of 49% or less by the end of 2003.

Ratings for D. R. Horton are based on the company's above-average growth during the recent economic expansion, execution of its business model, steady capital structure and geographic and product line diversity, Fitch said.

The company has been an active consolidator in the homebuilding industry which has kept debt levels a bit higher than its peers, Fitch noted. But management has also exhibited an ability to quickly and successfully integrate its many acquisitions. During fiscal 2002 the company completed its largest acquisition in absolute size (Schuler Homes) and is unlikely to make additional acquisitions over the coming 12 months.

Risk factors include the inherent (although somewhat tempered) cyclicality of the homebuilding industry, Fitch said. The ratings also manifest the company's aggressive, yet controlled growth strategy, moderate bias towards owned as opposed to optioned land and its relatively heavy speculative building activity (which has lessened of late).

Fitch rates AmeriGas notes BB+

Fitch Ratings assigned a BB+ rating to AmeriGas Partners, LP's $88 million senior notes due May 2011, issued jointly and severally with its special purpose financing subsidiary AP Eagle Finance Corp. The outlook is stable.

AmeriGas' rating reflects the subordination of its debt obligations to $569.5 million secured debt of the operating limited partnership including the OLPs $559.4 million privately placed BBB rated first mortgage notes, Fitch said.

In addition, Fitch's assessment incorporates the underlying strength of AmeriGas' retail propane distribution network.

AmeriGas is viewed as one of the premier retail propane distributors evidenced by its efficient operations, favorable acquisition track record, and proven ability to sustain gross profit margins under various operating conditions, Fitch added.

As a result of the 2001 acquisition of Columbia Propane, AmeriGas now ranks as the nation's largest retail propane distributor with retail sales volumes of more than 900 million gallons annually and a geographically diverse base of more than 1.2 million customers in 46 states, Fitch said.

Primary industry concerns are the negative impact of warm heating-season weather on profits and volumes sold and the potential adverse impact of supply price volatility where rapid increases in the wholesale price of propane may not be immediately passed through to customers, Fitch said.

Moody's rates Equitable-PCI Bank notes Ba1

Moody's Investors Service assigned a Ba1 rating to Equitable-PCI Bank's planned $100-130 million subordinated notes due 2012. The outlook is stable.

Moody's said the rating reflects EPCI's status as the Philippines' third largest indigenous bank, with an expansive branch network and a well-established mid-market franchise.

Moody's said it believes the bank would receive strong regulatory support if needed, given its systemic importance. Indeed, EPCI received prompt support through a liquidity loan from Bangko Sentral ng Pilipinas in January 2001, which was fully repaid as of December 2001.

Also incorporated in the rating are challenges EPCI faces in rebuilding its franchise in a difficult environment, and the risks associated with the issue's structural subordination to senior bank obligations, Moody's said.

Given the bank's stabilizing but still weak financial condition, developments that could change the government's attitude toward support would pressure the rating, in Moody's opinion.

S&P cuts TXU Europe Funding

Standard & Poor's downgraded TXU Europe Funding Ltd.'s €500 million 7% secured notes to D from CC.

S&P said the action follows the downgrade of the senior unsecured debt rating on TXU Eastern Funding Co.

The rating on TXU Eastern Funding's debt was lowered to D after the company filed for administration.

Fitch cuts Acceptance Insurance

Fitch Ratings downgraded Acceptance Insurance Cos. Inc. company rating to C from CC but confirmed AICI Capital Trust's $94.875 million trust preferred stock due 2027 at C.

The action follows the announcement that the Nebraska Department of Insurance had issued an Order of Supervision to Acceptance's crop insurance subsidiary, American Growers Insurance Co.

S&P rates Siberian Oil notes B+

Standard & Poor's assigned a B+ rating to OAO Siberian Oil Co.'s planned $500 million notes due 2009. The outlook is developing.

S&P said the ratings reflect the company's vertically integrated structure, above-average asset quality, strong profitability and cash flow protection, and relatively modest debt with an unusually long-term maturity profile.

These strengths are offset by the concentration of its assets in Russia, its exposure to volatile international oil prices, as well as high capital requirements and a concentrated shareholding structure, S&P said.

The developing outlook reflects the combination of mid-term potential for an upgrade, as well as the risk that is entailed in Sibneft's expressed intention to participate in the privatization tender on the 74.95% stake in Slavneft scheduled by the Russian government for Dec. 18, S&P said.

If Sibneft were to win the tender, and depending on the purchase price, financing, and future strategy with respect to the assets acquired, its business profile could be strengthened, while its financial profile would become significantly weaker, thus weakening the current rating which would result in a downgrade, S&P said.

The ratings on Sibneft could be raised in the mid term if its dividend policy remains prudent, the total debt burden does not go significantly above $2 billion, and the company meets its objectives of increasing production and refining capacity while limiting any cost increase resulting from domestic inflation and the Russian ruble's real-term appreciation, S&P said.

Moody's raises Kramont outlook

Moody's Investors Service raised its outlook on Kramont Realty Trust's $70 million B3 rated preferred stock to positive from stable.

Moody's said Kramont has addressed Moody's concerns following the June 2000 merger of Kranzco and CV Reit by successfully integrating the two companies, delevering its balance sheet, and refinancing debt.

The outlook also reflects Kramont's broader, experienced management team, and its enhanced operating capabilities, Moody's added.

Moody's said Kramont completed an equity placement of its stock with a private investor earlier in 2002, and recently announced a forward loan commitment for $190 million to take out its REMIC, which will mature in June 2003.

However, geographic concentrations remain in the Northeast and Mid-Atlantic regions, which subjects the REIT to regional economic constraints, the rating agency said.

Other credit concerns include Kramont's substantial use of secured debt, which reduces the REIT's financial flexibility, and its declining occupancy, some of which is caused by Kramont's retenanting, repositioning and redevelopment programs for numerous centers, Moody's said.

Fitch confirms Mississippi Chemical, off watch

Fitch Ratings confirmed Mississippi Chemical Corp.'s senior secured credit facility at CCC+ and senior unsecured notes at CCC- and removed the ratings from Rating Watch Negative. The outlook is negative.

Fitch said it took Mississippi Chemical off watch after the company extended its existing bank facility to November 2003.

The negative outlook indicates Mississippi Chemical's weak financial condition, its dependence upon the bank facility for near-term liquidity, and the uncertainty related to sustained favorable business conditions, Fitch said.

Moody's cuts Reliant Resources

Moody's Investors Service downgraded Reliant Resources, Inc. and kept it on review for further downgrade. Ratings lowered include Reliant Resources' bank loan to B3 from Ba3 and Reliant Energy Mid-Atlantic's senior secured debt to Ba3 from Baa3. Moody's confirmed Orion Power Holdings' senior unsecured debt at Ba3 and left it on review for downgrade.

Moody's said it lowered Reliant Resources because it considers the company's financial flexibility is limited in the face $5 billion of bank debt maturing in 2003 including a $2.9 billion bridge loan maturing in February, $420 million of Reliant Energy Power Generation Benelux debt maturing in July, $600 million of Reliant Energy Capital Europe debt maturing in March and $800 million of the $1.6 billion corporate revolver maturing in August.

The company plans to launch a global refinancing of these facilities in the near term, Moody's noted.

The near-term outlook for Reliant Resources' wholesale business remains poor, driven by depressed wholesale prices both in the U.S. and in Europe, constrained capacity markets, and poor credit conditions in the energy trading sector, all of which will pressure margins and challenge the company's ability to generate stable cash flow from operations, Moody's said.

In the near term, Reliant Resources' retail business buffers poor performance in the wholesale business, but the company's free cash flow is limited in relation to its high debt burden, Moody's added.

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