Moody's ups Four Seasons outlook to stable

Moody's confirmed the Ba1 subordinated debt ratings of Four Seasons Hotels Inc., including the 0% convertible due 2029, but changed the outlook to stable from negative.

The outlook change is based on a rebound from the initial negative impact of the events of Sept. 11 in line with overall industry trends, debt reduction and Moody's expectation that the company is unlikely to face any material impairment with respect to its on or off-balance balance sheet hotel-related receivables or investments.

Four Seasons prudently reduced absolute debt levels in late 2001 by about CD$100 million with cash on hand in light of the uncertainty caused by the events of Sept 11.

As a result, debt protection measures at year-end 2001 had improved versus 2000.

The company continues to maintain strong cash balances relative to debt outstanding.

In first quarter 2002, the company experienced RevPar declines of about 13% driven primarily by declines in occupancy as opposed to room rate, which puts it in a favorable position to benefit more quickly from the eventual rebound in travel.

Moody's noted that the company has not had to fund any of its contingent liabilities, or take any charges against its long-term receivables or investments in various hotel projects.

Moody's expects that Four Seasons will be able fund capital spending and investments from internally generated cash flow.

Moody's noted that the lodging industry continues to face challenges associated with continued weak demand particularly from corporate travelers and is not expected to fully recover until 2003.

Nevertheless, Four Seasons is appropriately placed within its rating category, given slow but improving industry trends and its prudent financial management.

S&P notes SPX acquisition

Standard & Poor's said that SPX Corp.'s (BB+/stable) announcement of obtaining the exclusive right to acquire the Balcke Cooling Products Group from Babcock Borsig AG, will have no effect on its credit rating or outlook.

Balcke has annual revenues of around $245 million but no purchase price was disclosed.

Balcke will become part of SPX's Marley Cooling Technologies business, and should increase SPX's presence in the cooling system market, partly through the addition of dry cooling technology.

Fitch cuts CMS ratings

Fitch Ratings downgraded CMS Energy's unsecured debt to BB- from BB+ and convertible trust preferreds to B- from BB-, and also its Consumers Energy Co. and CMS Panhandle Eastern Pipe Line Co. units.

The ratings remain on negative watch due to concerns surrounding CMS' weak liquidity position, high debt levels and limited financial flexibility.

Downgrades reflect the negative impact on unsecured creditors of the company's newly restructured bank credit facility agreements announced Monday.

CMS has replaced its expired $450 million credit line with a smaller $295.8 million facility that is secured by a second lien on the equity of CMS Enterprises, which is the parent of CMS Generation, CMS Oil & Gas, CMS Gas Transmission, CMS Field Services, CMS International Ventures, CMS Capital and PEPL.

The current book value of CMS Enterprises' equity, net of current liabilities, long-term debt and deferred credits, is about $800 million.

The new $295.8 million facility, which is fully drawn, will expire on March 31, 2003. CMS' existing $300 million credit facility, which is also fully drawn, has become similarly secured and the maturity has been shortened by six months to Dec. 15, 2003.

CMS also announced a new $150 million credit facility has been established for CMS Enterprises. This facility, which will mature on Dec. 13, 2002, is secured by a first lien on the stock of CMS Enterprises.

CMS intends to fully draw on this facility to meet working capital needs.

The new facilities, which total $750 million, are secured credits with mandatory prepayment conditions based on the proceeds from asset sales and capital market issuances.

CMS has announced plans to sell CMS Oil and Gas, which has a book value of $350 million, an interest in Centennial Pipeline and CMS Viron, a unit of CMS Marketing Services and Trading.

Proceeds from these asset sales were initially targeted to reduce debt at CMS, which is highly leveraged with a consolidated debt ratio of 66%.

Also, the new facilities contain financial covenants, including a consolidated debt to consolidated EBITDA test of not more than 5.75-to-1, and a cash dividend income to interest expense test of not less than 1.25-to-1 for the immediately preceding for quarters.

As a result of dividend restrictions imposed in the credit agreements, CMS intends to cut its common stock dividend by around 50%.

S&P rates Momenta issue at BBB-

Standard & Poor's assigned a BBB- rating to the proposed exchangeable notes due 2007 of Momenta (Cayman), which are unconditionally and irrevocably guaranteed by SK Corp. (BBB-/stable).

SK Corp., a leading Korean oil refining and marketing company, will sell a portion of its shares in SK Telecom Co. Ltd.to Momenta, a special-purpose vehicle. In turn, Momenta will issue notes that are exchangeable for American depository shares in SK Telecom.

The exchangeable bond issue will increase contingent liabilities at SK Corp. in the immediate term, but it will not have a significant impact on the credit quality, as proceeds are expected to be used to pay down existing debt and will result in a lengthening of its debt maturity profile, said Daisuke Fukutomi, director of S&P's corporate ratings group in Tokyo.

The rating on SK Corp. reflects a leading position in the oligopolistic Korean petroleum refining and marketing sector, as well as good operating efficiency, backed by economies of scale and vertical integration.

The strengths are offset by an increasingly less favorable regulatory and competitive environment, excess refining capacity in Korea, still high debt usage and modest profitability.

The rating also takes into account the financial flexibility derived from SK Corp.'s 26.8% shareholding in SK Telecom and management's ongoing commitment to reducing debt and improving debt protection measures.

Fitch rates Dean Foods bank loan BB+, convertibles B-

Fitch Ratings begun coverage of the new Dean Foods Co., assigning a BB+ rating to its secured credit and a B- to its trust convertible preferred securities. The senior unsecured notes outstanding before the Suiza Foods Corp. acquisition were downgraded to BB- from BBB+. The outlook is stable.

Suiza completed its acquisition of the old Dean Foods Co. on Dec. 21, 2001, and immediately after the completion of the merger changed its name to Dean Foods Co.

The total acquisition cost of Dean was $2.7 billion or 8.3 times EBITDA, Fitch noted. Approximately $1.9 billion was financed with borrowings from Suiza's secured credit facility.

The new Dean expects to achieve cost savings of $80 million per year beginning in 2002 increasing to $120 million by the end of 2004. Assuming the acquisition occurred at the beginning of 2001, EBITDA-to-interest incurred including dividends on the preferred securities was approximately 3.6x and total debt including preferred securities-to-EBITDA was 4.1x.

Fitch said its ratings consider the new Dean Foods' leading market share in the fluid milk industry (of approximately 30%), its proprietary national refrigerated distribution system, increased geographic diversification, which also provides it with national scale and capabilities.

In addition, the new Dean Foods' management team has a solid track record of effectively integrating acquisitions and achieving cost savings, Fitch said. The company has also been successful with new product innovations.

These positives are weighted against high leverage due to acquisitions, decreasing per capita consumption of fluid milk in the United States, the new company's key profit contributor, and integration risk associated with the acquisition of the old Dean Foods, Fitch said.

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