Moody's cuts Petroleum Geo-Service

Moody's Investors Service downgraded Petroleum Geo-Services ASA, affecting $1.8 billion of debt. Ratings lowered include the company's preferred stock and trust preferreds, cut to C from Ca, and Oslo Seismic Services, Inc.'s guaranteed first preferred mortgage notes, cut to Caa2 from Caa1. The senior implied and issuer ratings were cut to Caa3 from Caa1. Petroleum Geo-Services' senior unsecured notes were left at Caa3 as that rating already reflects anticipated recovery values in a liquidation scenario, Moody's said. The outlook remains negative.

Moody's said the downgrade was prompted by the company's decision not to pay a scheduled interest payment on Dec. 30 on its 6 5/8% senior notes due 2008 and its 7 1/8% senior notes due 2028. In addition, the company deferred distribution payments on the preferred securities issued by its wholly owned trust subsidiary PGS Trust I. While PGS has the option to defer interest payments on the notes for up to 30 days without causing a default, Moody's considers any delayed payments as a default, even if made during a grace period.

The downgrade reflects lower anticipated recovery rates on the company's total financial claims in the event that a liquidation of the company's assets were to occur, the rating agency added.

The continuing negative outlook reflects the significant challenges PGS faces in addressing its 2003 debt maturities, Moody's said.

S&P upgrades Kinetic Concepts

Standard & Poor's upgraded Kinetic Concepts Inc. including raising its $120 million tranche A term loan due 2003, $90 million tranche B term loan due 2004, $90 million tranche C term loan due 2005, $95 million senior secured tranche D term loan due 2006, $30 million senior secured tranche E term loan due 2005, $50 million acquisition facility and $50 million revolving credit facility to B+ from B and its $200 million 9.625% senior subordinated notes due 2007 to B- from CCC+. The ratings were removed from CreditWatch with positive implications. The outlook is stable.

S&P said the upgrade follows the announcement that Kinetic Concepts reached a settlement of an antitrust lawsuit against Hillenbrand Industries Inc. and Hillenbrand's Hill-Rom Co. Inc. unit, which was dismissed by a federal court in San Antonio, Texas. Under terms of the settlement, Hillenbrand paid Kinetic Concepts $175 million initially, followed by an additional payment of $75 million one year later.

The settlement promises to improve Kinetic Concepts' liquidity and address near-term debt maturities, S&P said.

The ratings had been placed on CreditWatch after a Texas jury awarded Kinetic Concepts $173.5 million in damages relating to its antitrust suit. The suit charged Hillenbrand with attempting to monopolize the specialty hospital bed market. Under federal law, the damages would automatically be trebled, which would have raised the award to about $520 million, S&P noted.

Even though EBITDA coverage of interest was about 3x and funds from operations to total debt was 16%, Kinetic Concepts' internal cash generation was weak relative to its needs, S&P noted. Indeed, the company faced approximately $31 million of scheduled payments on its credit facility in 2003, and $86 million is due in 2004. The anticipated settlement mitigates concern regarding Kinetic Concepts' ability to meet its near-term obligations and also provides it with increased liquidity.

Moody's lowers Steinway outlook

Moody's Investors Service lowered its outlook on Steinway Musical Instruments, Inc. to stable from positive and confirmed its ratings including its $150 million 8.75% senior notes due 2011 at Ba3.

Moody's said the change reflects the reduced likelihood of an upgrade in the near term, given Steinway's ongoing exposure to soft demand and heightened competition in its key operating segments.

The rating agency expects that Steinway's operating performance over the next 12 to 18 months will continue to be pressured by the effects of a soft economic environment on high-ticket purchases such as pianos, and by oversupply conditions and aggressive price competition in its band instruments segment.

Profitability and cash flows are also likely to be further constrained by near-to-intermediate term expenditures to improve the efficiency of Steinway's production platform, the benefits of which may need to be passed along to its customers, Moody's added.

Through fiscal 2003, Moody's anticipates that these factors will limit Steinway's ability to improve upon its performance for the 12 months to September of around $45 million in EBITDA (or 14% margin), $15 million in retained cash flow (EBITDA less taxes, interest and capital expenditures - equating to 7% of funded debt), and 5x debt-to-EBITDA.

Moody's noted the measures are down considerably from pro forma fiscal 2000 (for UMI acquisition), when Steinway was operating at a $65 million EBITDA level, with 3.5x debt-to-EBITDA and retained cash flow of around 10.6% of debt.

S&P cuts American Commercial Lines

Standard & Poor's downgraded American Commercial Lines LLC including cutting its $116.507 million 12% pay-in-kind senior subordinated notes due 2008 to CC from CCC-, $140 million 11.25% senior notes due 2008 to D from CCC- and $535 million credit facility to CCC+ from B-. Ratings not cut to D remain on CreditWatch with negative implications.

S&P said the downgrade follows American Commercial's failure to make the Dec. 31 interest payment due on its senior notes and an identifiable risk of default on other debt obligations over the near term as the company considers financial restructuring alternatives.

Poor weather conditions and the economic downturn have negatively affected American Commercial's earnings over the past few years, S&P said. American Commercial was recapitalized in 1998, leaving it with an onerous debt burden.

S&P cuts Clisa

Standard & Poor's downgraded Compania Latinoamericana de Infraestructura & Servicios SA (Clisa) including lowering its $100 million 11.625% senior notes due 2004 to D from CC.

S&P said the downgrade flows Clisa's failure to pay the coupon on the notes within a 30-day grace period that expired on Jan 1.

The company had deferred the interest coupon payment on its $100 million 11.625% senior notes, originally due on Dec. 1, taking advantage of the grace period to negotiate a restructuring agreement with its bondholders, S&P said. However, no final agreement was reached and the coupon payment was not made.

S&P rates Hylsa bonds CCC-

Standard & Poor's assigned CCC- ratings to Hylsa SA de CV's new $139 million bonds due 2007 and $161 million bonds due 2010. The outlook is positive.

S&P said the assignment follows completion of Hylsa's debt restructuring and exchange offer for its $300 million senior unsecured bonds due 2007.

The company's financial profile should improve in the near term due to the improvement in the steel-price environment, evidenced by the recovery of flat product prices and the stabilization of long products prices; the improvement of Hylsa's product mix through the company's focus on increasing the sale of high-value added products; and the company's cost reduction initiatives, S&P said.

S&P keeps Evergreen on watch

Standard & Poor's said Evergreen International Aviation Inc. remains on CreditWatch with negative implications including its corporate credit rating at B+.

S&P's comment comes after conditional approval from the Air Transportation Stabilization Board for a federal loan guarantee on part of a proposed credit facility.

While the ATSB's approval of the loan guarantee is a positive development, the amount approved is significantly below the amount requested, which means that Evergreen will have to modify its refinancing proposal, S&P said. Evergreen applied to the ATSB for a federal loan guarantee in early 2002 and requested that the ATSB approve a guarantee on $148.5 million of a $150 million financing. In late December 2002, the ATSB conditionally approved Evergreen's application, but for an amount not to exceed $90 million. In conjunction with its ATSB application, Evergreen has been negotiating refinancing alternatives with its lenders, and these negotiations are still under way.

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