S&P raises Dimon outlook, rates notes BB

Standard & Poor's assigned a BB rating to Dimon Inc.'s new $125 million senior notes due 2013, raised its outlook to positive from stable and confirmed its existing ratings including its corporate credit at BB.

S&P said the outlook revision reflects improved operating performance and the related improvement in profitability and cash flow measures. In addition, Dimon continues to reduce debt.

However, further upgrade potential will depend on the company exceeding, on average S&P's expectations for the company's credit protection measures in the intermediate term.

The ratings reflect the challenging business environment in which Dimon operates, including global competition, political unrest in certain leaf-tobacco producing countries, better balance in worldwide leaf tobacco supply and demand, declining U.S. cigarette consumption, a changing U.S. leaf-tobacco market and a leveraged financial profile, S&P said. In addition, there is customer concentration risk. These concerns are somewhat mitigated by the company's position as the world's second-largest independent leaf tobacco merchant, its sourcing diversification, strong customer relationships with the leading cigarette manufacturers, and its ability to manage through the changing market conditions.

S&P said it expects that, on average, adjusted EBITDA coverage of interest will be between 4.0x and 4.5x, adjusted total debt to EBITDA will be 3.5x or less, and adjusted operating margin will be in the 8% to 9% range. Capital expenditures are expected to be between $20 million and $30 million per year during the next several years.

Revenue declines in the past several years reflect the change in buying patterns for leaf tobacco in the U.S. as cigarette manufacturers now directly contract with the farmers rather than purchase through the tobacco dealers under the auction system, S&P said. Cash flow from operations is adequate for capital expenditures, modest near-term debt maturities, and small acquisition opportunities.

Moody's upgrades EuroTel Bratislava

Moody's Investors Service upgraded EuroTel Bratislava as including raising its €160 million 11.25% senior notes due 2007 to Ba2 from B1. The outlook is stable.

Moody's said the upgrade reflects the substantial financial and operational progress which the company has demonstrated since Moody's last rating action in April of 2001, positive developments with respect to the sovereign profile of the Slovak Republic (foreign currency rating currently at A3 -- Ba1 at the time of Moody's April 2001 upgrade), and Moody's perception of a reduced risk of any new entrants entering the market over at least the intermediate term.

In particular, the ratings reflect the company's strong revenue, EBITDA, and subscriber growth over the past two years, Moody's said. For the quarter ending March 31, 2003, the company reported revenue and EBITDA of SK2.475 billion (2002: SK2.088 billion) and SK1.074 billion (2002: SK592 million), respectively. Gross debt/annualized EBITDA at the end of the period amounted to approximately 1.5x (2002: 2.7x) while subscribers at March 31, 2003 amounted to approximately 1.3 million (1.1 million at March 31, 2002).

The ratings continue to reflect strong competition from EuroTel's only rival (Orange Slovensko as) which has maintained a leading market share (about 57% in March 2003) in the Slovak market, high on-going capital expenditure requirements (albeit, largely customer driven) which will likely constrain the company's ability to generate sustained free-cash flow over the immediate term, and the on-going challenge to increase subscriber numbers, maintain ARPU, and contain churn in a competitive marketplace that has been characterised with slowing overall penetration rates, Moody's said. Moody's notes that while revenues and EBITDA have increased substantially over the past two years, the company returned to a free cash flow negative position (before financing activities) in 2002 (positive in 2001) as a result of high capex requirements and a final UMTS license payment installment.

Moody's cuts Alumina Enterprises

Moody's Investors Service downgraded Alumina Enterprises Ltd. $125 million 10.48% notes to Ba2 from Baa3.

Moody's said that while the notes have been performing within its expectations the rating relies on a guarantee from the Government of Jamaica with respect to certain obligations of Clarendon Alumina Production Ltd. and Bauxite and Alumina Trading Co. of Jamaica Ltd..

Therefore, the rating action is directly a result of Moody's downgrade of the Government of Jamaica's local currency rating to Ba2 on May 27.

S&P cuts Leucadia

Standard & Poor's downgraded Leucadia National Corp. including cutting its $100 million 8.25% senior subordinated notes due 2005 and $135 million 7.875% senior subordinated notes due 2006 to BB+ from BBB-, $100 million senior unsecured bonds due 2008 and $100 million 7.75% notes due 2013 to BBB- from BBB and Leucadia Capital Trust I's $150 million 8.65% Trust Passthrough Securities (TruPS) to BB from BB+. The outlook is stable.

S&P said the downgrade reflects increased concerns about Leucadia's higher-risk appetite for transactions in telecommunications-type investments.

Leucadia's investment in WilTel Communications Group Inc. of $305.7 million represented 19.9% of equity at March 31, 2003. This represents the company's largest portfolio investment and an equity investment in a much higher-risk asset class, S&P said. Leucadia has also announced its intention to purchase all of the outstanding shares of WiTel that it does not already own in a stock swap with an indicated value of $362.4 million as of the May 15 offer date.

The financial performance of this investment is uncertain, and the industry continues to face challenges such as overcapacity and pricing pressures, S&P said.

The ratings also reflect concerns about the company's volatile reported earnings performance and cash flows, S&P added. Leucadia constantly evaluates the potential acquisition of new businesses and whether existing businesses should be retained or disposed of in order to maximize return on investments and shareholder value. Leucadia typically buys assets and companies that are troubled or out of favor, buying them at a discounted value.

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