S&P upgrades Innova

Standard & Poor's upgraded Innova S de RL including raising its $375 million 12.875% notes due 2007 to B+ from B-. The outlook is positive.

S&P said the upgrade is based on Innova's improving financial profile supported by good operating performance.

The ratings on Innova reflect the company's position as the largest provider of pay-TV services in Mexico, consistent subscriber growth, improving cash flow and credit measures, and business and financial support from its key shareholders: 60% owner Grupo Televisa SA and 30% owner News Corp. Ltd., which consider Innova as an important investment.

Offsetting factors include strong competition from cable operators, some of which are undertaking digital upgrades, financial risk from the company's heavy subscriber acquisition spending, absence of positive free or discretionary cash flow, negative equity and high leverage in the medium term.

S&P said Innova's only source of liquidity is parent support. Until now, shareholders have consistently made contributions totaling about $459 million, including $149 million in equity and $309.9 million in long-term loans, which S&P said it has always viewed as near-term equity.

S&P said it believes the company has decent traction with its business that should allow it to be financially self-sufficient in the short-to-medium term.

Moody's rates Gristede's notes B3

Moody's Investors Service assigned a provisional B3 rating to Gristede's Foods, Inc.'s proposed $150 million issue of senior secured notes. The outlook is stable.

Moody's said proceeds, together with a recent incremental investment of approximately $5 million from the controlling shareholder and a $10 million vendor loan that is forgivable if certain volumes are purchased, will be used to fund the purchase of King's Super Markets, Inc. for $120 million from Marks & Spencer and to refinance the existing bank loan.

The ratings recognize the challenges in restoring the faltering operations at King's, the limited financial flexibility caused by the high fixed charge burden and intense competition in the grocery retailing industry, Moody's said.

However, supporting the ratings are the combined entity's leading market positions among an upscale clientele in its trade areas of Manhattan and suburban Northern New Jersey, Moody's expectation that internally generated cash flow will largely finance the capital investment program (including the catch-up required for King's), and management's lengthy supermarket experience in the Manhattan and New Jersey trade areas. The potential for significant post-merger efficiencies in corporate overhead, purchasing, and sharing of best practices also benefits the company, but complete achievement of the company's business plan is not assumed in Moody's analysis.

The stable rating outlook reflects Moody's expectation that the company will reverse the slide in sales at King's, improve post-merger operating performance from overhead reductions and sharing of best practices and quickly arrange a working capital facility subsequent to deal closing.

Pro-forma adjusted debt to EBITDAR of 6.2 times, EBITDA to interest expense of 1.8 times, and fixed charge coverage of 0.9 times for the 12 months ended March 2003 deteriorated slightly relative to the combined entity's position in March 2002.

S&P confirms XTO

Standard & Poor's confirmed XTO Energy Inc. including its senior unsecured debt at BB and subordinated debt at BB- and maintained a positive outlook.

S&P said the confirmation follows the company's second quarter earnings release, which listed a number of accomplishments that are favorable for credit quality, including a reduction in lease-adjusted total debt to book capitalization to about 50.4% from 53.4% in the first quarter of 2003, a 7% sequential increase in natural gas production of which about half was internally generated, which confirms the continued development potential of XTO's resource base and implementation of additional hydrocarbon price hedges, which now cover about 45% of projected 2004 gas production at an average NYMEX price of $4.69 per thousand cubic feet equivalent (mcfe). These hedges should ensure internal funding of XTO's 2004 capital spending budget.

Although all of the aforementioned factors have improved XTO's credit quality and are enabling the company to move closer to meriting an upgrade, S&P said it is not raising its rating on the company at this time.

XTO has intimated that it will pursue acquisitions in the range of $300 million to $500 million and that the acquisitions will likely be funded to a large degree with new debt, S&P said. If XTO further lowers its debt leverage such that additional acquisitions can be funded without causing debt leverage to spike significantly beyond 50%, S&P said it could raise its debt ratings on XTO. Given strong natural gas fundamentals, an upgrade could occur during the next 12 months.

Moody's upgrades Health Care REIT

Moody's Investors Service upgraded Health Care REIT, Inc. to investment grade including raising its senior unsecured debt to Baa3 from Ba1 and preferred stock to Ba1 from Ba2. The outlook is stable.

Moody's said the action reflects Health Care REIT's ability to successfully expand the size and scope of its health care property portfolio, while maintaining a sound financial profile and good operating performance. A strong portfolio management system and improved property portfolio fundamentals are contributing factors.

Moody's said it has been encouraged by the success the REIT has had in identifying and executing investment opportunities. This success has not only supported portfolio diversity and earnings growth, but also demonstrates Health Care REIT's sound portfolio underwriting and monitoring capacity.

Furthermore, this growth has not been at the expense of good financial flexibility. Health Care REIT funds its asset acquisitions on a leverage-neutral basis by accessing both debt and equity financing, and actively recycles capital through dispositions of non-core assets.

Over the past several years, the REIT's leverage profile has remained moderate and stable, while its fixed charge coverages have improved.

The stabilization of investments in the assisted living property subsector, which had suffered from overbuilding and slow lease-up, has been a major plus.

Health Care REIT's financial profile is also supported by its largely unencumbered asset base, and sound liquidity provided by its $255 million unsecured lines of credit with $157 million outstanding as of mid-2003. The REIT has no material near-term debt maturities.

Moody's rates Acetex notes B2

Moody's Investors Service assigned a B2 rating to Acetex Corp.'s new $75 million add-on 10.875% guaranteed senior unsecured notes due 2009 and confirmed its existing $190 million notes at B2. The outlook is stable.

Moody's said the ratings take into account Acetex's high pro-forma leverage, adjusted for the merger and new financing, with debt to trailing 12 months EBITDA of 4.8 times, weak coverage of interest expense, limited synergies and cost reduction opportunities between the two businesses and AT Plastics' weak operating performance stemming from elevated natural gas costs and the weak North American economy.

The ratings also consider the company's significant, albeit reduced, product concentration in two cyclical commodity chemical products (acetic acid and vinyl acetate monomer [VAM]), the potential for a weakening European economy and significant competition from larger and better capitalized competitors.

The ratings are supported by recent improvements in Acetex's operating performance, favorable supply/demand fundamentals for European acetyls and the integrated nature of the company's operations.

The ratings also recognize the company's improved geographic, product, and customer diversification following the merger with AT Plastics, limited integration risk and AT Plastics' competitive niche position within specialty ethylene-based polymer products and films.

The stable outlook incorporates Moody's expectation that the operating performance of the AT Plastics business will gradually improve, that pro forma credit metrics will remain stable or slightly improve in the near-term and that acetyls pricing and volumes will remain firm for the near-term.

Following the proposed financing, Pro forma debt increases to $303 million from $190 million as of June 30, 2003. Based on combined last 12 months EBITDA of $63 million, the company would have reported debt to EBITDA of 4.8 times. EBITDA to interest was 2.1 times. Pro forma debt to capitalization stood at 82% as of June 30, 2003.

S&P lowers Euramax outlook, rates notes B

Standard & Poor's lowered its outlook on Euramax International Inc. to negative from stable, confirmed its existing ratings including its subordinated debt at B and assigned a B rating to its proposed $200 million senior subordinated notes due 2011.

S&P said the outlook revision reflects the potential for very constrained liquidity and limited debt capacity if Euramax initiates both a debt-financed dividend and acquisition at nearly the same time.

Over the past several years, Euramax has focused on internal growth, but the company has indicated that future niche acquisitions are possible and would be funded either by excess availability under its revolving credit facility or potentially additional bank debt in the form of a new $45 million term loan, S&P said. In addition, the company has indicated that it may pay a dividend of up to $70 million to its equity sponsors in the very near term. As a result, financial leverage would increase from current levels and the company's financial flexibility and excess debt capacity would be limited.

The ratings on Euramax International Inc. reflect the company's somewhat aggressive financial profile and its leading positions in niche markets, S&P said. Euramax has solid market positions, especially in certain geographic regions, in the do-it-yourself market for rain-carrying systems and products and is the only national supplier. In addition, Euramax is the leading global supplier of aluminum sidewalls to the towable recreational vehicle and manufactured housing markets.

S&P said it expects that total debt to EBITDA will average 3.5x and that EBITDA interest coverage will be in the 3x-4x area, with the company expected to maintain sufficient liquidity for the current rating category.

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