Moody's puts Sampoerna on upgrade review

Moody's Investors Service put the B3 foreign currency rating on the $66 million senior unsecured notes issued by Sampoerna International Finance Co. BV and guaranteed by PT Hanjaya Mandala Sampoerna.

The action follows Moody's decision to place Indonesia's B3 foreign currency country ceiling on review for possible upgrade.

Moody's puts Liberty Media on review

Moody's Investors Service put Liberty Media Corp.'s Baa3 senior unsecured rating on review for downgrade, affecting $8 billion of long-term debt.

Moody's said the review is because of the potential for Liberty to materially increase its debt balances resulting from its plan to acquire the 57.5% of QVC that is does not already own from Comcast Corp. for approximately $8 billion in notes and equity, the possibility of an investment in Vivendi Universal Entertainment that may increase debt levels further and Moody's expectation that Liberty will continue to actively evaluate other investing opportunities that may limit the prospect of debt reduction from these heightened levels.

While Liberty will consolidate QVC and gain access to 100% of QVC's cash flow, which Moody's regards as a positive structural change because Liberty will be able to use that cash flow for debt reduction instead of relying almost exclusively on asset values and hedging strategies for debt protection, Moody's estimates that it will incur in excess of $5 billion of debt to make the acquisition, which is a relatively high six times multiple of QVC's EBITDA.

Liberty's investment activity may strain certain asset coverage and liquidity metrics that have been the underpinning of its investment grade rating over the intermediate term.

Moody's upgrades Allmerica

Moody's Investors Service upgraded Allmerica Financial Corp. including raising its senior unsecured debt to Ba3 from B1, AFC Capital Trust I's preferred stock to B2 from B3 and Premium Asset Trust series 2002-3 and Premium Asset Trust series 1999-1 to Ba1 from Ba2. The outlook is stable.

Moody's said the upgrade of Allmerica and its life insurance companies are based on improved levels of life company statutory capital and on the expectation that Allmerica will have adequate access to cash, through dividends from Hanover, to fund the holding company's cash needs.

Since Sept. 30, 2002, Allmerica's life companies have increased statutory surplus through a variety of methods, including the sale of its universal life block of business, the execution of a new guaranteed minimum death benefits (GMDB) mortality reinsurance arrangement, the renegotiation of a previous reinsurance GMDB contract that was guaranteed by Allmerica with an associated capital injection from the holding company, and the retirement of long-term funding agreements at less than statutory book value, Moody's said.

In addition, the rating agency noted that the ownership structure of Allmerica's life insurance companies was changed, helping to stabilize Allmerica Financial Life Insurance and Annuity Co.'s reported capital and risk adjusted capital ratios and to reduce regulatory risk.

S&P rates MSX notes B

Standard & Poor's assigned a B rating to MSX International Inc.'s proposed offering of $100 million senior secured notes due 2007 and confirmed its existing ratings including its subordinated debt at B-.

MSX's ratings reflect the company's aggressive financial profile and exposure to cyclical and competitive markets, mitigated by its highly variable cost structure, S&P said.

MSX derives about two-thirds of its revenues from the automotive industry. Despite MSX's focus on the design and product development stage of automotive production, it is, nonetheless, subject to the cyclical and competitive pressures of the industry, S&P noted. MSX's plans to penetrate nonautomotive industries, including the telecommunications and financial services, have been stymied by weak demand in those markets. Revenues for 2001 fell 10% year-over-year, because of weak demand and pricing pressures in both the automotive and nonautomotive markets and unfavorable sales mix.

Widespread market weakness in 2002 led to a 13% year-over-year revenue decline and was attributed to postponement of auto product development efforts and to price pressures on customers, which implemented severe spending control measures. Longer term, automotive original equipment manufacturers are expected to continue outsourcing technical business services and staffing functions such as those supplied by MSX.

MSX has a relatively high variable cost structure that has enabled it to respond quickly to recent end-market weakness, S&P noted. MSX generated modest free cash flow, despite weak earnings performance, in 2002 and maintained gross margins (before depreciation and amortization) of about 15% for each of the past three years by restructuring the organization to fit the evolving sales declines.

Increased spending in sales, marketing, and product development during this time, however, depressed EBITDA margins, as MSX responded to individual market opportunities and strove to position the company for an eventual upturn in demand. S&P said it expects MSX to achieve total debt to EBITDA of about 5x and EBITDA interest coverage of about 2x over the business cycle.

Moody's cuts MSX, rates notes B2

Moody's Investors Service downgraded MSX International including cutting its $130 million senior subordinated notes due 2008 to Caa1 from B3 and assigned a B2 rating to its proposed $100 million senior secured notes. The outlook is negative.

Moody's said the ratings reflect difficult business conditions at MSX's primary customers and the resulting decrease in revenues and cash flow generation. The ratings also consider MSX's aggressive expense reduction and efforts to diversify beyond its traditional automotive manufacturer customer base.

MXS relies on automotive manufacturers for over 78% of its revenues. The weak economy and competition have hurt the American auto manufacturers whom have responded with expense reduction strategies that have contributed to MSX's revenue declines, Moody's said. MSX's net revenues contracted to $807 million for 2002 from $1 billion in the year 2000.

The current outlook for the industry remains unclear but Moody's anticipates that MSX's business climate will remain challenging and that revenue growth will be subject to an increased product development activity by American automotive manufacturers.

The company has aggressively reduced its headcount to offset weak revenues as evidenced by a 29% reduction in staffing levels to 7,158 since May 31, 2003. Through expense reductions, MSX was able to report an improvement in its EBITDA margin (adjusted for one time severance charges and sold businesses) to 6.7% for 2002 from 6.5% in 2001. Nevertheless, adjusted EBITDA declined in 2002 by 11% over the previous year's level to $53.7 million, Moody's said.

The negative ratings outlook reflects expectations that MSX's business climate will remain challenging.

For the year ended 2002, total debt to EBITDA was high at 4.4x and total debt, plus $36 million of redeemable preferred stock, to EBITDA was 5.0x, Moody's said. EBITDA coverage of interest for the year was 2.07x. EBITDA has been adjusted upwards by $18 million in one time items. Furthermore, EBITDAR to interest plus rent (based on 8x rent expense) was only 1.5x in 2002 and is unlikely to improve significantly for 2003.

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