Fitch cuts Ericsson

Fitch Ratings downgraded the senior unsecured rating of Telefonaktiebolaget LM Ericsson to BB-. The outlook remains negative.

Fitch said the downgrade follows Ericsson's first quarter 2003 results announcement, in which the company identified further weakening in the mobile systems market in 2003 and additional restructuring plans.

Specifically the company revised its outlook for the mobile systems market in 2003 to a decline of over 10%, from its previous guidance of up to 10%. The company also identified a series of further restructuring initiatives, including cutting another 7,000 staff, additional restructuring provisions of SEK11 billion (of which SEK8 billion will be in cash) and expected benefits combining SEK5 billion of additional operating expense gains and SEK8 billion through gross margin improvements.

While Fitch recognizes the achievements that are increasingly apparent in the company's operating performance, further weakening in the demand environment in 2003, combined with Ericsson's revenue exposure to negative currency effects and specific business mix, could result in Ericsson's mobile systems' revenues tracking lower than the overall market.

The additional restructuring initiatives, while positive in terms of management's response to the demand environment, include additional cash costs which are not insignificant in the context of the company's currently strong liquidity.

With current cash balances of SEK67 billion (€7.4 billion) and a further $1.6 billion in available bank facilities, liquidity is good, Fitch said. However, cash balances will be materially eroded over the next seven quarters as the company meets the cash restructuring charges noted above and long term debt maturities of SEK19.3 billion.

Fitch lowers Omnova outlook

Fitch Ratings lowered its outlook on Omnova Solutions Inc. to negative from stable including its senior secured debt at BB+.

Fitch said the negative outlook reflects the uncertainty of demand improvement in the near-term and the potential for higher average raw material costs for 2003.

Omnova has been negatively affected by price increases in styrene, butadiene, and polyvinyl chloride; higher average raw material costs may continue to pressure operating margin. In addition, the company awaits an improvement in refurbishment activity, but the pace and strength of improving demand in the near-term remains unclear, Fitch said.

Omnova's ratings are based on the company's strong market positions, its size, liquidity and financial performance.

In addition, Omnova has been able to remain cash flow positive at the trough of the business cycle.

However, the company's cash flows are relatively small and EBITDA has weakened, Fitch said. Moreover, the February 2003 amendment to the existing credit facility has reduced facility commitments to $180 million in May and increased interest rates. For the trailing 12 months ended Feb. 28, 2003, EBITDA-to-interest incurred was 4.0x and total debt (including the A/R program balance) to EBITDA was 5.4x.

S&P says NDCHealth unchanged

Standard & Poor's said NDCHealth Corp.'s ratings remain unchanged including its corporate credit at BB- with a stable outlook.

S&P's comments come after NDCHealth announced that the purchase price for the second payment to acquire the remaining interest in TechRx Inc. will be $110 million and will be paid entirely in cash.

S&P said its ratings on NDCHealth incorporated the expectation of this cash payment.

Moody's rates Speedway Motorsports notes Ba2, loan Ba1, lowers outlook

Moody's Investors Service assigned a Ba1 rating to Speedway Motorsports, Inc. new $300 million senior secured revolving bank credit facility and a Ba2 rating to its new $210 million senior subordinated notes. Moody's also confirmed the existing Ba1 senior implied and Ba2 issuer ratings and lowered the outlook to stable from positive.

While the company has demonstrated improving credit metrics over the past several years and now has relatively strong credit metrics and free cash flow, Moody's believes it is possible that Speedway Motorsports would make another acquisition that would require the need for financial flexibility.

While Speedway Motorsports could absorb such an acquisition and likely still retain its current rating, this event risk is a limiting factor for rating improvement, and thus drives the revision of the outlook to stable, Moody's said.

The ratings reflect Speedway Motorsports' strong market position in the motorsports industry; the significant popularity and demand for Speedway Motorsports' product, particularly for the Nascar-related events; proven resilience of revenues despite economic weakness, helped by significant contractually obligated revenues such as broadcast rights fees; the company's ability to generate solid operating cash flows and free cash flows; moderate leverage levels; good liquidity; and a longstanding strong management group.

Weaknesses are acquisition driven event risk and narrow business diversity and limited geographic diversity.

Speedway Motorsports' credit metrics have been steadily improving over the past several years. Its total debt to EBITDA minus capex is expected to improve to under 3.0 times in 2003 from almost 5.0 times in 2000, Moody's said. Debt to free cash flow is anticipated to improve to comfortably under 5.0 times as well, assuming steady state operations and no acquisition activity.

S&P lowers Roundy's outlook

Standard & Poor's lowered its outlook on Roundy's Inc. to stable from positive and confirmed its ratings including its senior secured bank loan rating at BB- and senior subordinated debt at B.

S&P said the revised outlook reflects Roundy's more aggressive acquisition strategy in expanding its retail food operations.

On May 5, Roundy's announced its intention to purchase 31 Rainbow Food Stores for about $118 million, inclusive of inventory and the assumption of capitalized leases.

The company previously funded fill-in acquisitions through both cash and a $75 million add-on subordinated note facility in December 2002.

While Roundy's has continued to improve operations while increasing its store base through acquisitions, S&P said it views the risks associated with the company's growth strategy - in which acquisitions have been a significant component - as limiting the potential for a ratings upgrade in the near term.

Lease-adjusted EBITDA coverage of interest was 3.5x in 2002, S&P said. Operating margins improved to 5% in 2002 from 4% in 2001, primarily because of a greater percentage of retail business that carries higher margins. The company historically has generated positive free cash flow, and this is expected to continue despite increased capital expenditures to fund store growth. Free cash flow is expected to be used to pay down debt and help fund future fill-in acquisitions.

S&P cuts U.S. Steel, rates notes BB-

Standard & Poor's downgraded United States Steel Corp. including cutting its $535 million 10.75% senior unsecured notes due 2008 and $49 million 10% senior quarterly income debt securities due 2031 to BB- from BB and $250 million mandatory convertible preferred stock to B- from B and assigned a BB- rating to its new $350 million senior notes due 2010. The outlook is negative.

S&P said the actions reflect U.S. Steel's heightened financial risk resulting from increases in its debt levels and substantial legacy liabilities (pension and retiree medical benefits) and continued weakness in the steel industry.

Proceeds from the proposed notes together with borrowings under its bank facilities will be used to acquire substantially all of the assets of National Steel Corp. out of bankruptcy for $1.05 billion, including approximately $200 million of assumed liabilities.

The ratings on United States Steel reflect the company's aggressive financial leverage - including its underfunded postretirement benefit obligations - and challenging market conditions, which overshadow its fair liquidity and its improved market share and cost position.

The company also benefits from a product mix that is more diverse than that of its competitors.

U.S. Steel reached a new agreement with the steelworkers union, which is expected to be ratified on May 20, that enables U.S. Steel to significantly reduce its employee and retiree healthcare expenses through the introduction of variable cost-sharing mechanisms and provides for a workforce reduction of at least 20 percent at both the U. S. Steel and National facilities. In addition, the company expects annual acquisition synergies of at least $200 million within two years of completing the transaction, along with the elimination of legacy costs related to National's postretirement plans, which have not been assumed by U. S. Steel.

Still, S&P said it is concerned about deteriorating conditions in the North American Steel industry caused by the re-emergence of idled steel sheet capacity, softening demand, and the continued high levels of imports that have driven spot selling prices lower. Spot hot rolled sheet prices have fallen to about $270 per ton from $400 per ton in July 2002 and prices for other steel products have been declining as well.

Initially, the National acquisition weakens the company's financial profile, as its total debt (adjusted for operating leases) increases to $2.6 billion from $1.8 billion. Moreover, U.S. Steel's pension went from an overfunded status of $1.2 billion at year-end 2001 to an underfunded status of $400 million at year-end 2002 and its other postretirement benefits (OPEB) underfunded status declined to $2.6 billion from $1.8 billion, due to revisions to its discount rate and higher medical cost inflation. As a result, the company's pension and OPEB expenses are increasing and affecting the company's profitability levels.

S&P raises Primedia outlook, rates notes B

Standard & Poor's raised its outlook on Primedia Inc. to stable from negative, assigned a B rating to its new $300 million senior notes due 2013 and confirmed its existing ratings including its bank debt at B, senior secured debt at B and preferred stock at CCC.

S&P said the outlook revision reflects improving debt service measures resulting from recently good EBITDA growth and progress with asset sales. In addition, management has taken appropriate measures to assure immediate-term liquidity.

EBITDA from continuing businesses increased more than 30% in the last 12 months ended March 31, 2003, largely due to cost reductions, a sharp decrease in Internet losses, and modest revenue growth, S&P said. The company has also provided guidance of roughly 8% EBITDA growth for the full 2003, which assumes a modest recovery of the consumer advertising market and stabilization of business-to-business advertising.

PRIMEDIA recently announced an agreement to sell Seventeen magazine for $182 million, which is expected to close in the second quarter of 2003. Since 2001, aggregate proceeds of roughly $530 million (including the pending Seventeen transaction) have been realized from asset sales at relatively high EBITDA multiples and used to reduce debt.

Debt had been elevated due to negative discretionary cash flow in 2000 and 2001 and the 2001 EMAP specialty magazine acquisition.

EBITDA coverage of interest expense and total preferred dividends improved but remains thin at 1.3x in the last 12 months ended March 31, 2003, compared to slightly less than 1.0x in 2001, S&P said. Debt and preferred to EBITDA declined to a still very steep 9.2x at March 31, 2003, from about 16x in 2001. The company is targeting a debt and preferred stock leverage reduction to roughly 8.6x at year-end 2003 based on the sale of Seventeen and management's EBITDA guidance.

S&P raises Speedway Motorsports outlook, rates notes B+, loan BB

Standard & Poor's raised its outlook on Speedway Motorsports Inc. to positive from stable, assigned a B+ rating to its offering of $210 million senior subordinated notes due 2013 and a BB rating to its $300 million credit facility and confirmed its existing ratings including its subordinated debt at B+.

S&P said the outlook revision reflects improving debt service measures and prospects for growing discretionary cash flow through 2006. The proposed transactions will also lower interest expense and extend bank and public debt maturities.

The ratings on Speedway Motorsports reflect its good market position in the motor sports industry, relatively stable operating performance and a moderate capital structure, S&P said.

The company is one of the two largest companies hosting races sanctioned by NASCAR. High construction costs and a limited number of racing dates have created important barriers to entry. However, the company has little revenue diversity. In 2002, 79% of revenues, and an even greater percentage of EBITDA, came from 17 annual NASCAR events held at the company's six tracks.

EBITDA growth has averaged 6% during the past two years, despite the weak economy, as increasing television broadcasting rights fees have offset relatively flat attendance and ticket prices, S&P said. The company's long-term broadcasting contracts, which began in 2001, include 17% average annual increases through 2006. About one-third of EBITDA in 2002 was derived from TV broadcasting contracts versus roughly 14% in 2000.

Pro forma EBITDA coverage of interest expense improved to 7.6x in the last 12 months ended March 31, 2003, from 4.7x in 1999, S&P said. Pro forma debt to EBITDA declined to 2.2x at March 31, 2003, versus 3.6x in 1999. Discretionary cash flow became positive in 2001-2002 period because flat attendance restricted seat expansion opportunities.

Moody's lowers Sealy outlook

Moody's Investors Service lowered its outlook on Sealy Mattress Co. to negative from stable and confirmed its ratings including its $74 million senior secured AXEL term loan B due December 2004, $88 million senior secured AXEL term loan C due December 2005 and $112 million senior secured AXEL term loan D due December 2006 at B1 and $250 million 9.875% senior subordinated notes due December 2007 and $128 million 10.875% senior subordinated discount notes due December 2007 at B3.

Moody's said the outlook change incorporates the unexpected challenges that Sealy is encountering in its working capital management, which may be further tested as the company undergoes a major product launch, transitions its distribution away from affiliated retailers, and faces a soft economic environment.

Moody's said Sealy is attempting to resolve issues related to its accounts receivable centralization at a time when it is transitioning its business away from affiliated retailers, and as it rolls out a new "one-sided" product line in a difficult consumer spending context for high-ticket items.

For the first quarter of 203, Sealy reported fairly modest sales and EBITDA declines of 1% and 6%, respectively, considering the economic environment and the company's business transition issues, Moody's said.

However, cash flow from operations declined around $16 million, largely due to a $37 million increase in accounts receivable, as it experienced collection problems with the roll out of a centralized system.

Although Moody's had anticipated weakness in Sealy's operating profits throughout 2003 (particularly given the required up front promotion and advertising costs related to pushing through a new product launch), the ratings and outlook had incorporated an expectation for improved accounts receivable management. The failure to gain control over this issue in the coming quarters could result in additional bad debt reserves, reduced cash flow generation, and renewed earnings quality concerns.

S&P confirms PolyOne

Standard & Poor's confirmed PolyOne Corp. and removed it from CreditWatch with negative implications including its $200 million 8.875% notes due 2012 and $250 million senior notes due 2010 at BB-, Geon Co.'s $300 million senior unsecured notes due 2010, $50 million 7.5% debentures due 2015 and $75 million 6.875% debentures due 2005 at BB-, and M.A. Hanna Co.'s $150 million 9.375% notes due 2003 at BB-. The outlook is negative.

S&P said the confirmation follows PolyOne's announcement that it completed its refinancing with the issuance of $300 million of senior unsecured notes, a new $50 million revolving bank credit facility and a new three-year, $225 million accounts receivables sale facility. The successful completion of these efforts removes the refinancing risk that had pressured the financial profile.

The ratings on PolyOne continue to reflect the company's fair business profile as a leader in performance polymers and services.

The capital structure of PolyOne is somewhat stretched for the rating category, and credit protection measures are weak, S&P said. The ratio of total debt (adjusted for the sale of receivables and the capitalization of operating leases) to EBITDA is almost 8x and the ratio of funds from operations to adjusted debt is less than 10%. These key credit ratios are expected to show improvement in the next year or two, aided by a gradual recovery in business conditions and operational performance.

S&P said the outlook is negative because ratings could be lowered if an expected improvement in the economy fails to materialize or other strategic actions impair the firm's ability to restore credit protection measures to targeted levels in the intermediate term.

Moody's rates Werner loan Ba3

Moody's Investors Service assigned a Ba3 rating to the proposed new $230 million senior secured bank credit facility of Werner Holding Co., Inc., which will be used to help finance the proposed recapitalization of the company, and confirmed the Ba3 on the existing senior secured bank credit facility and B2 rating on the existing $135 million of 10% senior subordinated notes due 2007. The outlook is stable.

Moody's said the ratings reflect the substantial pro forma debt leverage taken on to complete the recapitalization, the negative net worth, the substantial customer concentration, exposure to raw materials price fluctuations, and the cyclicality of the building products markets in which Werner competes.

At the same time, the ratings acknowledge Werner's strong and growing market share in a moderately growing industry, its strong brand name recognition, its long-standing relationships with an impressive customer base, a history of healthy and improving margins and returns, and the ability to generate the free cash flow necessary to delever the balance sheet once again.

The stable ratings outlook reflects Moody's expectations that Werner will devote its excess cash flow to debt reduction and deleveraging the balance sheet in a timely manner, Moody's said. Should the company experience unexpected weakness in its cash generating capability or devote its excess cash to uses other than debt reduction, the outlook and/or ratings may come under pressure.

Moody's rates Primedia liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Primedia Inc.

Moody's said the SGL-2 rating reflects its expectation that Primedia's liquidity position will adequately support the company's business plan over the next 12 months.

At the end of March 2003, Primedia recorded liquidity of $180 million, comprising $20 million of cash equivalents and $160 in undrawn availability under its $944 million bank credit facility. Moody's said it expects that the proposed sale of Seventeen magazine for $182 million will result in a further improvement in liquidity during the second quarter of 2003.

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