Moody's rates GenCorp convertible B1

Moody's Investors Service assigned GenCorp Inc.'s proposed $100 million convertible subordinated notes due 2007 a rating of B1 and confirmed its other ratings. The outlook remains negative.

The ratings are supported by improved capitalization following the sale of EIS, decreasing debt to capitalization to about 41% from 66% over the past year or so. Substantial book equity and enterprise value also support the rating, as well as a substantial aerospace and defense backlog of $387 million funded and $596 million unfunded, with favorable budget appropriations environment.

Moreover the ratings take into account expected improved results in automotive and chemicals operations.

The ratings recognize, however, that cash flow has been - and near-term is expected to remain - negative and GenCorp's inadequate return on assets, plus Moody's noted a significant level of post retirement benefits and environmental liabilities.

The rating outlook remains negative given the uncertainty of achievement of projected savings from restructurings in automotive and chemicals, and concerns about possible unexpected adverse results in environmental litigation plus increases in the amount or timing of environmental remediation and compliance costs.

GenCorp reported revenue of $1,486 million in FY2001 and EBIT of $220 million and EBITDAP of $225 million, or EBITDA before pension income and FAS106 expenses, which included EIS for about 11 months.

Adjusted EBIT and adjusted EBITDAP were $98 million and $103 million, respectively, adjusting for pre-tax restructuring charges of $40 million and unusual items of positive $162 million.

Thus, with yearend debt of $214 million, debt-to-adjusted EBITDAP was 2.1 times, and adjusted EBITDAP-to-interest was 3.1 times. The debt to capitalization ratio improved to 41% at FYE 2001 from 51% the previous year due to the increase in book equity to $310 million, from $186 million, made largely possible by the EIS gain and a $23 million gain on the sale of 1,100 acres not included in the SuperFund designation site.

Fitch rates GenCorp convertible at B+

Fitch Ratings assigned a B+ rating to GenCorp's new subordinated convertible notes and affirmed its BB rating on GenCorp Inc.'s senior debt. The outlook was changed to positive from stable.

The action reflects GenCorp's favorable position in the defense market, particularly in missile defense; the decrease in debt levels since the Draftex acquisition; progress in monetizing substantial real estate holdings; and indications of successful restructurings at GDX and AFC. Concerns center on the ongoing integration of the Draftex acquisition; a competitive automotive market; environmental liabilities; and potential acquisitions.

As of Feb. 28, GenCorp's financial flexibility included cash of $54 million and availability of $22 million under its credit facility, offset by $26 million in current maturities and short-term debt.

Total debt reached high levels earlier in fiscal year 2001 of $481 million at Aug. 31, 2001, but since then has been cut by half. Debt at Feb. 28, was $246 million and total debt to capital was 44%.

For fiscal year 2001 leverage, as defined by debt-to-EBITDA, was 2.1 times, and interest coverage was 3.1 times. Paying down the debt in late 2001 will lead to materially lower interest expense in 2002, as well as a marked improvement in credit statistics even if operations remain stable.

This convertible should lower GenCorp's interest payments as well as supporting potential acquisition activity as the company uses proceeds to pay down bank debt.

Moody's withdraws UnitedGlobalCom ratings

Moody's withdrew the ratings of UnitedGlobalCom and its subsidiaries, including the C-rated 7% convertible preferred Series C and D, following completion of the tender offer by a unit of Liberty Media for the 10.75% senior secured discount notes of UGC.

Moody's noted little reason to maintain the other ratings given the low anticipated recovery levels for remaining debt classes under restructuring scenarios.

S&P upgrades Foot Locker

Standard & Poor's upgraded the Foot Locker Inc. 5.5% convertible notes due 2008 to BB- from B+ and raised the corporate credit rating to BB+ from BB.

S&P said it raised Foot Locker's ratings in response to its improved credit profile, its strengthened operating performance and more favorable industry conditions.

S&P added that it anticipates Foot Locker's financial profile will remain moderate.

Industry fundamentals in the athletic footwear industry continued to recover in 2001 with favorable demand trends driven by renewed interest in athletic footwear, product innovation from manufacturers and square footage reduction in the industry, S&P said. "Still, athletic footwear trends depend on new technology and new fashion to drive sales, and consumer tastes can change quickly."

The rating agency noted Foot Locker's significant progress in improving operating performance over the past two years. Same-store sales increased 5% in 2001, following an 11% increase in 2000.

In addition, the company rationalized its store base and improved productivity through tighter inventory controls and cost-cutting measures, resulting in operating margins increasing to about 16% in 2001 from 12% in 1999, S&P added.

Moody's puts PETsMART on review for upgrade

Moody's placed the B1 senior implied rating of PETsMART on review for possible upgrade and withdrew the B3 rating of PETsMART's 6.875% converitble subordinated notes due 2004 following the tender and conversion of the notes into common stock.

The review will focus on PETsMART's capital structure and business strategies, as well as the sustainability of improvements in operating performance and working capital trends.

Moody's confirms Cendant convertible

Moody's Cendant Corp.'s long and short term debt ratings, including the Baa3 convertible senior subordinated notes due February 2021 and May 2021, following the announcement that it had reached a merger agreement to purchase Trendwest Resorts for $875 million plus the assumption of about $87 million of debt.

The confirmation reflects the increased scale the acquisition gives Cendant, as well as the expectation that it will be financed with common equity resulting in stable debt protection measures. The outlook is negative reflecting near term refinancing risk associated with the $1 billion of convertibles that could be put back to the company in May 2002, and the improving but still uncertain operating environment for the travel business. .

Moody's cuts Sierra Pacific senior to Ba2

Moody's downgraded the senior unsecured ratings of Sierra Pacific Resources to Ba2 from Baa3. Moody's also downgraded the credit ratings of Sierra Pacific's utility subsidiaries Nevada Power Co. and Sierra Pacific Power Co. All the ratings, which previously carried a negative outlook, remain under review for possible further downgrade.

The downgrade reflects the unexpectedly harsh decision in Nevada Power's deferred energy rate case. On March 29, Nevada regulators disallowed the recovery of some $437 million of the $922 million in deferred energy costs that had accumulated over the past year, asserting the costs were not prudent.

Meanwhile, Moody's will also continue to assess the ability of Sierra Pacific and its subsidiaries to improve credit measures as management sorts through the various challenges created by the decision. Additionally, Moody's will evaluate the near-term liquidity requirements, particularly over the next 6-12 months.

S&P revises Clear Channel outlook to negative

Standard & Poor's revised its outlook on radio station operator Clear Channel Communications Inc. to negative from stable based on the possibility that the company's credit measures could weaken further.

Fitch rates HCC Insurance convertible at A-

Fitch Ratings assigned HCC Insurance Holdings Inc. an A- long-term issuer and A- senior debt rating, which applies to the HCC 2% convertible notes due 2021. The outlook is stable.

The ratings are based on HCC's market position in a number of specialty insurance segments, as well as a strong capital position, conservative investment profile, adequate loss reserves and favorable historical underwriting performance.

Moody's downgrades Covanta

Moody's Investors Service downgraded Covanta Energy Corp.'s senior secured debt rating to Caa3 from Caa2. The company's subordinated debt rating of Ca was confirmed.

The downgrade is in response to Covanta's filing for Chapter 11 with the U.S. Bankruptcy Court and obtaining a commitment for $463 million of debtor-in-possession financing from its bank group, Moody's said.

"The Chapter 11 filing came after the company was unable to complete a satisfactory restructuring and attract outside capital since it announced in December that it was pursuing strategic alternatives," the rating agency said. "The company has determined that reorganization under Chapter 11 is the only alternative available to permit it to accomplish its long-term goal of disposing of its remaining non-core entertainment and aviation businesses and focusing on its core waste-to-energy, independent power and water businesses."

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