S&P rates Hard Rock notes B

Standard & Poor's assigned a B rating to Hard Rock Hotel Inc.'s proposed $140 million second lien notes due 2013 and confirmed its corporate credit rating at B+. The outlook is stable.

The ratings for Hard Rock Hotel reflect its high debt leverage and lack of cash flow diversity, offset by its good quality casino/hotel, its niche market position, and loyal customer base, S&P said.

Since opening in March 1995, the Hard Rock has targeted a younger demographic group than many Las Vegas casinos, with many of its customers under 40 years old. The company attempts to attract these customers by offering trendy bars and restaurants and an atmosphere that appeals to a younger crowd, S&P noted. This strategy has enabled the company to generate relatively stable visitor demand despite a modest decline in travel to Las Vegas during the past two years.

Despite a 44% decrease in EBITDA for the fourth quarter ended Dec. 31, 2002, driven by a 4.2% decline in the table games hold percentage, EBITDA for fiscal 2002 declined only 3% against the prior fiscal year, S&P said. Casino revenues recovered in the quarter ended March 31, 2003, resulting from positive trends in gaming volume and a somewhat better hold percentage than the fourth quarter.

Higher casino, hotel, and other revenues contributed to the 10% increase in total EBITDA for the quarter over the comparable prior year period. S&P added that it expects that 2003 performance will reflect modest cash flow growth due to the property's loyal customer following, its ability to attract high profile entertainment and ongoing capital improvements to the property.

Pro forma debt leverage for the 12 months ended March 31, 2003, as measured by total debt to EBITDA was approximately 5.3x and EBITDA coverage of cash interest expense was more than 2.0x, S&P said.

Moody's rates Forest City Enterprises notes Ba3

Moody's Investors Service assigned a Ba3 rating to Forest City Enterprises' new senior unsecured notes. The outlook is stable.

Moody's said the rating reflects Forest City's demonstrated ability to generate stable cash flows from its diversified property portfolio while continuing to execute well on its development activities and managing associated risks.

The continuing real estate downcycle is adversely impacting the company's multifamily and lodging properties; however, stronger performance of the office, retail and residential land sales segments have been supporting overall operating results, Moody's added. In addition, the firm's lumber trading operation remains vulnerable to price volatility, further dampening performance.

Moody's primary concerns continue to center around the firm's leveraged capital structure given its exposure to highly cyclical investments, which contribute to higher cash flow volatility.

Moody's cuts Homer City to junk

Moody's Investors Service downgraded Edison Mission Holdings Co. - now Homer City Funding LLC - affecting $830 million of debt including its senior secured debt, lowered to Ba2 from Baa3. The action completes a review for downgrade. The outlook is stable.

Moody's said it cut Homer City because of the project's reliance on merchant energy sales to generate revenues and cash flows.

Although a portion of the output is hedged, the project is still reliant on the short-term electric market for revenues and cash flow.

While the project's low operating cost and base load characteristics position it reasonably well to operate competitively, revenues and cash flows are exposed to greater volatility than what was originally contemplated, Moody's said.

Moody's cuts Brooklyn Navy Yard to junk

Moody's Investors Service downgraded Brooklyn Navy Yard Cogeneration Partners, LP to junk, cutting its $407 million of senior secured debt to Ba1 from Baa3. The outlook is stable.

Moody's said the downgrade of Brooklyn Navy Yard Cogeneration reflects the volatile debt service coverage ratios that have persisted at this project for the past few years, reflecting poor operating performance at the plant in some years.

While Brooklyn Navy Yard Cogeneration anticipates future improving and more stable debt service coverage ratios in the future, the improvement, if it transpires, will still result in the coverages being at the lower end of the range for a power project with an investment-grade rating, Moody's said.

The Ba1 rating incorporates credit stresses at Brooklyn Navy Yard Cogeneration's two sponsors, Edison Mission Energy, and York Research, which has filed for bankruptcy.

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