Moody's puts Host Marriott on review

Moody's Investors Service put Host Marriott Corp. on review for downgrade including its senior unsecured debt at Ba3 and preferred stock at B3, Host Marriott, LP's senior unsecured debt at Ba3 and Host Marriott Financial Trust's preferred stock at B2.

Moody's said the review is in response to Host Marriott's announcement that it does not expect to make preferred dividend distributions in the fourth quarter of 2003 due to restrictions associated with its bond indenture.

Moody's noted that Host Marriott, which had $312 million in unrestricted cash on its balance sheet at the end of June, otherwise is anticipated to have sufficient liquidity to meet near-term funding requirements, including the fourth quarter dividend payments on its preferred stock.

Since the end of the second quarter of 2002, Host Marriott has had interest coverage below the covenant level in its bond indenture governing the REIT's ability to make restricted payments, including preferred dividend distributions. Host Marriott has been able to address this restriction because, so far, it has been able to generate sufficient taxable income to be required under REIT rules to make distributions to its preferred stock holders.

However, Host Marriott currently projects that, due to weak operating performance in the first half of 2003 and an expectation of continued weakness in lodging demand through the rest of 2003, its taxable income for 2003 will not be sufficient for the REIT to not be restricted from paying fourth quarter preferred dividends, Moody's said. Furthermore, the REIT has not provided assurances regarding preferred dividend payments thereafter because of bond covenant restrictions.

S&P puts Parker Drilling on watch

Standard & Poor's put Parker Drilling Co. on CreditWatch negative including its $150 million 9.75% senior notes series C due 2006, $235.612 million 10.125% senior unsecured notes due 2009 and $275 million 9.75% senior notes due 2006 at B+ and $175 million convertible subordinated notes at B-.

S&P said the CreditWatch placement follows Parker's announcement that it failed to complete the sale of a significant package of assets to a third party and the company's weaker-than-expected operating results in the second quarter of 2003. The weak results were due to slower-than-expected improvement in utilization and day rates. The failed asset sales and weak operating results have led the company to project even greater losses for 2003.

Parker has a significant debt maturity in 2004 and either asset sales or a strong improvement in business activity may be necessary for assuring a smooth retirement of that obligation, S&P said.

Parker Drilling has stated that it intends to continue to shop its Gulf of Mexico jack up and platform rigs and 16 land rigs in Latin America to potentially interested parties and expects to complete these asset sales by the third quarter or during the fourth quarter of fiscal 2003, S&P noted. Nevertheless the rating agency put Parker on watch because of concerns about the company's ability to execute on its proposed asset sales, combined with the lower-than-expected, revised guidance.

Parker Drilling's financial profile is burdened by aggressive debt leverage incurred to finance acquisitions and new rig construction just prior to the latest industry downturn, S&P said. Parker Drilling's total debt to total capital was a high 73% as of June 30, 2003, and total debt to EBITDA was a very high 5.3x. Given Parker Drilling's high fixed-charge burden (about $55 million of annual interest expense), EBITDA interest coverage for the second quarter of 2003 was only about 1.5x, although higher than a cyclical trough of 1x.

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