S&P notes Hexcel mandatory

Standard & Poor's noted Hexcel Corp. (B/Negative/--) agreed to sell $125 million of mandatory convertibles in two series to three investors.

S&P said that this does not affect its ratings on Hexcel, but could lead to a revision of the outlook to stable from negative after it closes, along with the associated refinancing of its $321 million secured credit facility.

Proceeds will be used to pay down bank borrowings and provide for the repayment of $47 million in subordinated notes due in August 2003. The transaction will require stockholder approval and the refinancing of the credit facility. Completion is expected in the first half of 2003.

The convertible and debt repayment would improve Hexcel's capital structure and remove near-term liquidity concerns, but revenues and earnings will remain under pressure due to the weak commercial aerospace market.

S&P cuts AES Gener

Standard & Poor's lowered the ratings of AES Gener SA to B+ from BB, reflecting a weak liquidity position that could be insufficient to face debt maturities due in the second half of 2003.

S&P expects AES Gener to substantially improve liquidity through asset sales or other funding alternatives before the end of 2002 so that the company would be able to face interest and debt payments of about $140 million in 2003.

However, delays in achieving those solutions have increased the risks posed by the upcoming maturities and have caused the current downgrade.

The ratings remain on negative watch due to potential continuing delays in strengthening the company's liquidity.

S&P raises SinoPac

Standard & Poor's upgraded SinoPac Holdings including raising its $200 million zero-coupon senior convertible bonds due 2007 to BB+ from BB. The outlook is revised to stable from negative.

S&P said the upgrade reflects an overall strengthening of the group's profile, in particular the profile of its two leading subsidiaries: the core entity, Bank Sinopac, and the strategically important Sinopac Securities (formerly National Securities).

S&P said the outlook revision reflects Bank Sinopac's satisfactory performance in a currently difficult market and expectations that the wider group will perform steadily.

Fitch cuts Focal

Fitch Ratings downgraded Focal Communications' senior unsecured debt rating to D from C and the senior secured rating to D from C.

Fitch said the action follows Focal's announcement that it has filed a voluntary Chapter 11 bankruptcy petition in order to facilitate a financial restructuring.

At the end of the third quarter of 2002, Focal had approximately $65 million in cash on its balance sheet and $93 million outstanding on the credit facility, Fitch noted. In addition to the senior secured convertible notes, the company also had approximately $240 million in senior unsecured notes outstanding and $18 million outstanding under its secured equipment term loan.

S&P rates Sinclair notes B, loan BB-

Standard & Poor's assigned a B rating to Sinclair Broadcast Group Inc.'s new $150 million senior subordinated notes and a BB- rating to its $150 million incremental senior secured term loan facility due 2009 and confirmed its existing ratings including its senior secured bank loan at BB, subordinated debt at B and preferred stock at B- and Sinclair Capital's preferred stock at B-. The outlook is negative.

S&P said Sinclair's ratings reflect its large television audience reach, cash flow diversity, and strong margin and discretionary cash flow potential. Offsetting factors include the company's high financial risk from aggressive, debt-financed TV station acquisitions, and mature long-term growth prospects for the TV station business. About one-third of Sinclair's total revenue is derived from generally lower-ranked stations affiliated with the still-developing WB and UPN TV networks.

Sinclair is enjoying good year-over-year revenue and EBITDA growth from stronger overall advertising, bolstered by political spending, S&P noted. In the 2002 third quarter, net broadcast revenue and EBITDA before corporate expenses increased 10% and 24%, respectively. Local revenue, excluding political advertising, increased 10% compared with the year-ago quarter. All of Sinclair's stations experienced revenue growth in the quarter, with double-digit gains at the company's NBC and CBS affiliates. Positive momentum is expected to continue in the 2002 fourth quarter.

Still, the economic outlook remains soft and the advertising climate beyond the immediate term is uncertain, S&P said. Without the benefit of political spending in 2003, TV operators will be more dependent on general advertising. In addition, Sinclair's mostly lower-ranked stations could be harder hit by any advertising weakness in the competitive environment.

Stronger revenue boosted Sinclair's EBITDA margins, but they remain below the roughly 40% level achieved in 2000, S&P said. Pro forma EBITDA to interest plus debt-like preferred dividends is around times 1.5x for the 12 months ended Sept. 30, 2002. Pro forma EBITDA to interest is around 2.0x, compared with a 1.6x bank covenant. This covenant tightens to 1.7x in 2003, decreasing the cushion for softer revenue performance. Pro forma total debt plus debt-like preferred stock divided by EBITDA is in the mid-7x area at Sept. 30, 2002. Pro forma total debt to EBITDA is around 5.8x for the same period, compared with the 7x covenant through 2003. Debt maturities are minimal for the next five years.

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