Moody's adjusts Adelphia's ratings

Moody's Investors Service adjusted its rating on Adelphia Communications Corp. and its subsidiaries, lowering some and confirming others. The actions conclude Moody's review.

"Rating differentials generally reflect our expected relative recovery values for individual instruments under an imminent bankruptcy filing as anticipated," Moody's said. The rating outlook remains negative.

Affected Adelphia Communications ratings include: senior unsecured notes and debentures lowered to Caa2 from Caa1, convertible subordinated notes lowered to Ca from Caa2, convertible and exchangeable preferred stock lowered to C from Ca, senior unsecured issuer rating lowered to Caa3 from Caa1 and senior implied rating lowered to Caa2 from B2.

As for the company's subsidiaries: FrontierVision Holdings senior unsecured discount notes were confirmed at Caa1. FrontierVision Operating Partners senior subordinated notes were confirmed at Caa1 and senior secured bank debt was lowered to B2 from B1. Olympus Communications senior unsecured notes were confirmed at Caa1. Olympus Cable Holdings senior secured bank debt was lowered to B2 from B1. Century Communications senior unsecured notes and discount notes were lowered to Ca from Caa1. Century Cable Holdings senior secured bank debt was lowered to Caa1 from B1. Century-TCI senior secured bank debt was lowered to B3 from B1. Parnassos senior secured bank debt was lowered to B3 from B1. And, UCA et al senior secured bank debt was lowered to Caa1 from B1.

The rating actions reflect "our estimated relative expected loss severity for the company's many different instruments from the top to the bottom of its capital structure. Under the now much more certain bankruptcy scenario as currently anticipated, and on a potentially imminent basis, expected credit losses in general will likely be greater than previously anticipated," Moody's said.

According to Moody's, creditors of Olympus Cable Holdings and FrontierVision Operating Partners are in the best relative recovery position. Creditors of Olympus and FrontierVision's holding companies are also fairly well protected, Moody's said. Century Cable Holdings and UCA bank debt have a perceived risk of absorbing some losses. Parnassos bank debt is expected to fare better than Century and UCA, however, it is still seen as carrying some risk, Moody's said.

Senior unsecured noteholders of Adelphia are better positioned than senior unsecured creditors of Century. "We believe that Adelphia noteholders can reasonably be expected to realize still good recovery value approximating as much as 75%-80% or more, while Century bondholders could suffer loss severity of as much as 50% or more," Moody's said. "Convertible subordinated noteholders and preferred stock holders are not expected to fair nearly as well and may in fact recover very little, if anything, relative to the face value of their claims. The common equity of the company will almost certainly be wiped out in its entirety."

The negative outlook reflects the absence of audited financial statements and disclosure of true financial conditions.

S&P cuts Tri-Union

Standard & Poor's downgraded Tri-Union Development Corp. including lowering its $130 million 12.5% senior secured notes notes due 2006 to D from B-.

S&P said the action follows Tri-Union's announcement it did not make its June 1 payment of $8.1 million interest on its senior secured notes due 2006.

Tri-Union did, however, make a $20 million debt amortization payment also due June 1, S&P noted.

The company has stated that it intends to make the interest payment within the 30-day grace period.

If Tri-Union makes the interest payment within the grace period, S&P said it will re-evaluate the ratings and outlook.

Moody's cuts Petrobras outlook

Moody's Investors Service lowered its outlook on Petroleo Brasileiro (Petrobras) to stable from positive. The foreign currency bonds are rated Ba1.

Moody's said the change reflects a similar change in the outlook on Brazil's B1 foreign-currency country ceiling for bonds and notes.

Moody's cuts Marlim outlook

Moody's Investors Service lowered its outlook on Companhia Petrolifera Marlim to stable from positive. The foreign currency medium-term notes are rated B1.

Moody's said the change reflects a similar change in the outlook on Brazil's B1 foreign-currency country ceiling for bonds and notes.

S&P rates Marietta notes B-

Standard & Poor's assigned a B- rating to Marietta Corp.'s planned offering of $75 million senior secured notes due 2009. The outlook is stable.

The note offering will be used to refinance existing debt and to partially fund the acquisition of a largely U.S.-based restaurant chain, S&P said.

S&P said the ratings reflect Marietta's high debt leverage and weak credit ratios pro forma for the note offering, seasonal nature of sales, dependence on the performance of the lodging sector and participation in the highly competitive personal care industry.

In addition, Marietta's proposed acquisition could affect its performance given the diversion of management's focus and the unrelated nature of the restaurant business, S&P said.

Partially offsetting the negatives are Marietta's good market position in the U.S. guest amenities business, which accounted for 67% of fiscal 2001 revenues, S&P said. Marietta estimates that its market share in U.S. guest amenities is about 25%.

With fiscal 2001 revenues of about $130 million, Marietta is a small player in the multi-billion dollar personal care industry, S&P noted. However, the strength of its domestic market position in guest amenities should enable the company to continue to effectively compete in the U.S. with other players, some of which have larger financial resources.

S&P said it expects fiscal 2002 credit protection measures (pro forma for the note offering) will be in line with the rating with EBITDA interest coverage of about 2 times and debt to EBITDA between 4x-5x.

S&P expects credit ratios will strengthen over time, given management's focus on sales growth and improving the company's cost structure.

Moody's puts Bell Canada on upgrade review

Moody's Investors Service put Bell Canada International Inc.'s C$160 million 11% senior unsecured notes due 2004 rated Ca on review for possible upgrade.

Moody's said the recently announced sale of Bell Canada International's interest in Telecom Americas Ltd. to America Movil for US$366 million in cash and short-term notes and the release of US$250 million of guarantees relating to Telecom Americas issued by BCI combined with remaining assets may provide sufficient funding to fully repay BCI's bank loans, notes and guarantees. However Moody's noted the ability to repay the debt is dependent on the outcome of several pending lawsuits against BCI.

S&P cuts KPNQwest

Standard & Poor's downgraded KPNQwest NV.

Debt lowered includes KPNQwest's $450 million 8.125% notes due 2009, €340 million 7.125% notes due 2009, €500 million 8.875% notes due 2008 and €211 million 10% convertible bonds due 2012, all cut to D from C.

Moody's upgrades Granite

Moody's Investors Service upgraded Granite Broadcasting Corp. The outlook is stable. Ratings affected include Granite's $102 million 10.375% senior subordinated notes due 2005, $35 million 9.375% senior subordinated notes due 2005 and $63 million 8.875% senior subordinated notes due 2008 to Caa3 from Ca and its $247 million 12.750% PIK preferred stock due 2009 to Ca from C.

Moody's said the change is in response to the "substantial change in the company's investment burden" following the sale of KNTV to NBC for $265 million, including the pro rata refund, working capital adjustments and other considerations.

Granite has relieved itself of the costs associated with managing the KNTV start-up station and the related $360 million long-term contract with NBC, Moody's noted. In addition, proceeds from the sale have been used to repay Granite's existing credit facility.

"As a result, Granite has improved its credit profile, despite its enduring financial challenges," Moody's said.

Incorporate in the ratings is the potential collateral coverage of Granite's remaining debt by the company's presence in certain attractive, larger markets, including San Francisco, Detroit, Buffalo and Fresno; its network affiliations; and geographic diversification.

However the ratings also take into account the poor financial performance of Granite's remaining television stations which collectively do not provide enough operating cash flow to service the company's debt and preferred stock dividends, Moody's said.

Since 1999, Granite's broadcast cash flow has declined precipitously, without including expenses associated with the KNTV start up. Performance trends at the company's stations have been disappointing, in part due to the station's concentration in WB and ABC stations, Moody's said. Both networks have experienced diminishing popularity nationwide.

Moody's added that it considers the probability of default to be unlikely in the near term given the company's current cash balance of $71 million, although up to $30 million of it will be used to support Granite's preferred stock tender offer.

S&P revises Windsor Woodmont outlook

Standard & Poor's said it revised the outlook on Windsor Woodmont Black Hawk Resort Corp. to negative from developing and confirmed its CCC+ corporate credit and senior secured ratings.

S&P said the action is in response to weaker-than-expected operating results for the first quarter of 2002. In that period the company's property, The Black Hawk Casino by Hyatt in Black Hawk, Colo., generated $1.4 million in EBITDA, significantly below expectations.

The company has about $12 million in cash on the balance sheet, of which $2.3 million is restricted and less than $5 million is needed for operations, S&P said. The company's next interest payment in September, which amounts to $6.5 million, depends on the cash flow generated from the facility and if needed, excess cash balances.

Initial operating performance has been below expectations due to start-up operating inefficiencies, competitive market conditions, and significant property-level management turnover, S&P said.

In addition, the property has struggled to create customer loyalty since becoming the latest competitor to open. While the Black Hawk market has successfully absorbed capacity additions in the past, an absorption period is likely, S&P added.

Still, the market has continued its solid growth and competing facilities have performed well. Isle of Capri Black Hawk LLC has seen operating results significantly exceed expectations, while operations of Riviera Black Hawk Inc., an indirect subsidiary of Riviera Holdings Corp., have improved as it benefits from being the first casino on the main access route into Black Hawk.

Significant cash flow generation is limited in this market, however, due to issues of accessibility, including traffic congestion on weekends in the summer and severe weather in the winter, S&P said. In addition, betting limits have historically restricted significant upside cash flow potential.

S&P cuts CR Resorts, Raintree

Standard & Poor's downgraded CR Resorts Capital S de RL de CV and Raintree Resorts International Inc. to D. Ratings lowered include CR Resorts' and Raintree Resorts' $100 million 13% notes due 2004, cut to D from CCC.

S&PO said the action follows the company's failure to pay a $6.1 million coupon due June 1.

Moody's raises Hercules' outlook

Moody's Investors Service confirmed the debt ratings of Hercules Inc. after the company repaid $1.6 billion of debt from proceeds of the sale of its Betz-Dearborn unit. In addition, the ratings outlook was revised to stable from developing because of the expectation that further major restructurings are less likely and that remaining business lines will generate positive cash flow.

Confirmed ratings include Hercules' senior secured revolver and senior secured debt at Ba1, senior implied, issuer rating and senior unsecured notes at Ba2 and junior subordinated debentures at Ba3 and preferred stock at Ba3.

Currently, the company's capital structure includes a $200 million revolver and $225 million of senior secured notes. Bank loan collateral consists of a lien on the company's property and assets. Senior secured notes collateral consists of a lien on property and assets, excluding working capital items, investment property and general intangibles. Unsecured debt includes $400 million in senior notes and about $625 million of junior subordinated preferred securities.

Ratings reflect operating challenges, consolidation among the paper and pulp customer base and rising raw material costs in the Aqualon division. Offsetting these factors is the company's cost saving initiatives.

Despite the company's asbestos related lawsuits, "Moody's believes that Hercules exposure can be managed within the rating category," Moody's said.

Moody's maintains H&E ratings

Moody's Investors Service said it maintained its first-time ratings on H&E Equipment Services LLC after the company restructured its bond offering. The outlook remains stable. Ratings are B3 for the proposed $200 million senior secured notes due 2012 and B2 for the proposed $150 million senior secured revolving credit facility due 2007. Moody's is not rating the $50 million new senior subordinated notes.

Moody's said that the revised financing structure would have no material impact on the company's overall credit profile or liquidity position.

Although the $25 million increase in the revolver from the original structure may result in a slight decrease in the recovery value of the senior secured notes, this is mitigated by the loss severity that would be absorbed by the $50 million new senior subordinated notes, Moody's said.

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