S&P cuts Six Flags

Standard & Poor's lowered the ratings of Six Flags Inc., based on its weak operating outlook for 2003 and higher debt leverage. The senior debt was cut to B- from B and preferreds to CCC+ from B-. Six Flags Theme Parks Inc. senior debt was cut to B+ from BB-. The outlook is negative.

S&P expects discretionary cash flow will be slightly negative in 2003, despite lower capital spending, due to reduced profitability and heavy interest expense plus preferred dividends burden.

The company has provided guidance of roughly a 14% decline in EBITDA for 2003.

Standard & Poor's expects debt and debt-like preferred stock to EBITDA to increase to roughly 8x at the end of 2003 from 6.8x in 2002 based on company guidance. S&P also expects EBITDA coverage of total interest expense and preferred dividends to remain stable at roughly 1.5x in 2003 versus 2002.

Liquidity is provided by cash balances of $138 million at June 30 and access to revolving credit facilities. The $300 million revolving credit facility is used to fund seasonal working capital needs and must be repaid for 30 consecutive working days each year.

Maturity of the term loan will be shortened from June 30, 2009, to Dec. 31, 2006, if the company is unable to refinance the $430 million 9.75% senior notes due June 2007 before the end of 2006.

S&P said it expects the company will seek to refinance the 2007 notes over the near- to intermediate-term.

Moody's confirms Shaw ratings

Moody's Investors Service confirmed The Shaw Group's ratings, including its 10¾% notes at Ba2, LYONs at Ba3 and bank facility at Ba1, following its $200 million equity offering and increase to its bank facility to $300 million to accommodate the put on its 0% convertible in May 2004. The outlook is stable.

A tender offer for the convertible, with an accreted value of $250 million, has commenced.

The stock offering and bank facility increase, along with amendments to Shaw's bank credit agreements, remove the near-term liquidity requirements and will allow Shaw to further focus on business development and strengthening earnings capability.

The outlook reflects an expectation that Shaw will rebuild its earnings base in fiscal 2004 as the financial impact of problems with its contracts in the power industry conclude, Moody's said. Claims relating to the Pike Energy power plant cancellation have been settled with NRG Energy and NRG parent, Xcel Energy Inc.

Moreover, the circumstances giving rise to the level of cash burn experienced in fiscal 2003 from the power segment of the business are not expected to exist for all of 2004.

S&P rates Massey notes BB

Standard & Poor's assigned a BB rating to based Massey Energy Co.'s proposed $360 million senior unsecured notes due 2010 and confirmed its existing ratings including its 6.95% senior unsecured notes and 4.75% convertible senior unsecured notes at B+. The outlook is stable.

S&P said Massey's ratings reflect its substantial coal deposits, contracted production and moderate financial leverage verses its peers, offset by its high cost position and the difficulties of operating in Central Appalachia.

Massey's debt ratios are somewhat aggressive with total debt to total capital (adjusted for capitalized operating leases) and total debt to last 12 months EBITDA (adjusted for capitalized operating leases and including other income) of 52% and 4.6x, respectively, as of Sept. 30, 2003, S&P said. However, compared with other coal companies, Massey's overall financial leverage and performance benefits from significantly lower postretirement medical obligations and an overfunded pension plan, as the majority of the company's workforce is nonunion.

S&P said it expects free cash flow to be positive, but thin in 2004 given expected capital expenditures around $135 million and some benefit from tight working capital controls.

Moody's cuts Massey, rates notes Ba3

Moody's Investors Service downgraded Massey Energy Co. including cutting its $283 million 6.95% guaranteed senior unsecured notes due 2007 and $132 million of 4.75% guaranteed senior unsecured convertible notes due 2023 to B1 from Ba3 and $105 million guaranteed senior secured revolving credit facility due 2007 and $250 million senior secured term loan due 2008 to Ba2 from Ba1. Moody's assigned a Ba3 rating to the company's proposed $360 million of guaranteed senior unsecured notes due 2010. The outlook is stable.

Moody's said the downgrade reflects: Massey's incurrence of operating losses, excluding other income, in every reporting period since October 2000, with an operating loss projected for the fourth quarter of 2003; the geologic and operating difficulties which continue to impact the company's productivity targets; Massey's difficulty in reducing its cost base on a sustainable basis due to the aforementioned operating and geologic problems and to external factors such as higher medical and workers compensation costs; and the company's ongoing litigation and environmental challenges.

The stable outlook considers Massey's 2.1 billion ton reserve position, its strong competitive position in the Central Appalachia coal region and its favorable customer relationships and contract position for tonnage sales in 2004 and 2005.

Massey's performance in the third quarter of 2003 was pressured by numerous operating issues, resulting in an operating loss of $26 million before other income and receipt of an insurance settlement. Through the first six months of 2003, Massey had negative $46 million of free cash flow (cash from operations less capex) which included $33 million to collateralize letters of credit. Moody's anticipates that the company will incur an additional cash burn for the balance of 2003, primarily reflecting the need to cash collateralize the $55 million letter of credit related to the Harman litigation.

S&P rates Host Marriott notes B+

Standard & Poor's assigned a B+ rating to Host Marriott LP's new senior notes due 2013 and confirmed its existing ratings including Host Marriott Corp.'s senior unsecured debt at B+ and preferred stock at CCC+. The outlook is stable.

S&P said Host Marriott's ratings reflect its high debt leverage and the expectation that credit measures will remain weak for the ratings for several quarters given S&P's expectation for a gradual lodging industry recovery, rather than sudden improvement. These factors are partially offset by the high quality of Host's hotels, the geographic diversity of its portfolio, and its experienced management team. Moreover, the company's good liquidity position and ready access to both debt and equity capital markets are viewed favorably.

Host's hotels are generally well located and have historically been solid performers in the markets in which they operate, S&P noted. However, hotels that operate in the upscale and luxury segments have been among the most significantly affected by the weak economic conditions and unstable global political developments during the past few years. In particular, the sharp decline in business travel has negatively affected Host's performance. Host's revenue per available room (RevPAR) declined 14% and 5% in 2001 and 2002, respectively. For the first three quarters of 2003, comparable portfolio RevPAR declined 5.6%. While negative, this performance is in line with the upscale segment of the lodging industry. Moreover, Host's portfolio is well positioned to benefit as the economy improves.

However, credit measures will likely remain weak for the current rating through 2005, S&P said. During its third quarter conference call, Host lowered its 2003 guidance. The company now expects a 4%-5% decline in RevPAR and annual EBITDA of $715 million - $730 million. For the 12 months ended Sept. 12, 2003, the company had operating lease-adjusted debt to EBITDA of 7.8x and EBITDA to interest coverage of 1.5x.

Moody's rates Host Marriott notes Ba3

Moody's Investors Service assigned a Ba3 rating to Host Marriott's new senior notes and kept its existing ratings on review for downgrade.

Given the lower all-in cost of the new debt, this transaction will be accretive to the REIT's earnings, and better support its fixed charge coverages, Moody's commented.

Host Marriott's ratings continue to be under review for possible downgrade, reflecting the REIT's reiteration in its third quarter earnings announcement that it does not expect to be able to make preferred dividend distributions due to bond indenture covenant restrictions.

Due to the extended lodging downcycle, the REIT's interest coverage continues to be below 2.0x, a condition under the restricted payment covenant in its bond indenture that has triggered the restriction on payments of preferred dividends and other distributions to equity owners. While Moody's recognizes that this covenant restriction serves to preserve cashflow for bondholders, nonpayment of the dividends diminishes the credit quality of the preferred stock. The ratings of Host Marriott's preferred stock would likely be downgraded, probably no more than one notch, should the fourth quarter dividend payment not be made, and future dividend payments be suspended for some time. Moody's would likely not downgrade the ratings on Host Marriott's senior debt.

Moody's noted positively Host Marriott's recent equity raising of $500 million, and unlevered acquisition of the Maui Hyatt for $320 million, which demonstrate the REIT's continued access to equity capital markets and ability to make strategic acquisitions on a leverage-enhancing basis. Nevertheless, the business environment continues to be weak for Host Marriott and other owners of high-end lodging properties as a slow recovery in corporate profitability continues to negatively affect higher rate business travel. Host Marriott's operating performance is still weak, but is in line with Moody's expectations.

Moody's lowers Dura outlook, rates revolver Ba3

Moody's Investors Service assigned a Ba3 rating to Dura Operating Corp's. proposed $175 million guaranteed senior secured revolving credit facility due 2008, lowered its outlook to negative from stable and confirmed its ratings including its $149 million guaranteed senior secured term loan C due 2008 at Ba3, $350 million 8.625% guaranteed senior unsecured notes due 2012 at B1, $456 million 9% guaranteed senior subordinated notes due 2009 and €100 million 9% guaranteed senior subordinated notes due May 2009 at B2 and Dura Automotive Systems Capital Trust's $55.25 million of 7.5% convertible trust preferred securities due 2028 at B3.

Moody's said the ratings and change in rating outlook to negative reflect Dura Automotive's persistently high leverage, failure of the company to meaningfully reduce its absolute net debt level over the past year, and moderate EBIT coverage of cash interest.

While a small cash payment was applied against debt during the past 12 months period, the translation adjustment applicable to the €100 million guaranteed senior subordinated notes actually caused the reported level of total debt to increase.

Moody's additionally has concerns surrounding Dura Automotive's high cash balance and potential to pursue additional acquisitions or alliances unsupported by equity over the near-to-intermediate term. The company is also likely to further step up spending for engineering and capital improvements, in an effort to enhance its core product base and more rapidly develop an expanded set of capabilities in electronics technologies.

The ratings more favorably continue to reflect Dura Automotive's global presence in 14 countries; breadth of product line, with content on a large number of vehicle programs; focus on safety-oriented and regulated driver control systems; capabilities as both a Tier 1 and Tier 2 supplier; leading market shares within its core business niches, and improved cost structure following restructuring and facility rationalization efforts, Moody's said.

For the 12 months ended Sept. 30, 2003, Dura Automotive's total debt/EBITDA and net debt/ EBITDA leverage (including the company's trust preferred stock and present value of operating leases as debt) was approximately 5.2x and 4.9x, respectively, Moody's said. Total debt-to-revenue remained high at almost 48%. EBIT coverage of cash interest was about 1.7x, and the EBIT rerun on total assets was about 7.2%.

S&P says Avaya unchanged

Standard & Poor's said Avaya Inc.'s ratings are unchanged including its corporate credit at B+ with a stable outlook after it announced CommScope Inc. will acquire its cable and wiring business for $263 million of cash and securities.

The sale of the connectivity business allows Avaya to exchange a noncore business unit for cash and securities, improving balance sheet liquidity and allowing the company to focus exclusively on its corporate telephony businesses, S&P said. In conjunction with recent evidence of improvements in operating trends, this action to enhance liquidity, along with other recent actions including raising $350 million of equity, could result in the outlook being reviewed for a revision to positive within several quarters, particularly if Avaya continues to restore some revenue growth and makes further improvements in margins and leverage.

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