Moody's rates Hovnanian notes B2

Moody's Investors Service assigned a B2 rating to the new $150 million 10-year senior subordinated notes of Hovnanian Enterprises, Inc. and confirmed Hovnanian's existing ratings including its $150 million 10.5% senior notes due 2007, $150 million 9.125% senior notes due 2009 and $100 million 8% senior notes due 2012 at Ba3 and $150 million 8.875% senior subordinated notes due 2012 at B2. The outlook is positive.

Moody's said the positive outlook reflects the company's success in diversifying its operating profits, improvement in its credit statistics, and Moody's expectations that the credit profile, including debt leverage measures, will continue to strengthen.

Moody's raised Hovnanian's outlook on May 1.

Moody's cuts Kaneb to junk

Moody's Investors Service downgraded Kaneb Pipe Line Operating Partnership, LP's senior unsecured debt to Ba1 from Baa3. The outlook is stable.

The action concludes a review prompted by concerns raised by a rapid succession of four large and diverse acquisitions consummated last year.

Kaneb's acquisition of the Northern Great Plains Products System (North Pipeline) from Tesoro Petroleum Corp. for $100 million in cash, which closed in December 2002, closely followed those of Statia Terminals for $285 million in February 2002, terminals in Australia and New Zealand for $47 million in September, and an ammonia pipeline for $140 million in November. Together, these acquisitions roughly doubled KPOP's assets and debt from year-end 2001 levels.

Moody's said the downgrade reflects concerns about the decline in Kaneb's overall credit quality from the acquisitions of businesses - in particular Statia and the ammonia pipeline - that have shown variability and declining financial results in recent years; the company's yet-to-be established track record in integrating and operating this diverse set of assets; and the probability that Kaneb will make other acquisitions in the future, and its demonstrated willingness to step out from its existing geographic and product scope.

The stable outlook takes into consideration the historic performance of Kaneb's new assets under prior ownership as well as tariff increases, certain investments and other changes that Kaneb expects under its ownership, Moody's said.

Debt-to-gross cash flow (debt, pro forma for the March equity offering, plus operating leases-to-cash flow from operations before working capital changes) was roughly 6 times for fiscal 2002, Moody's said.

Moody's rates Medco Energi notes B3

Moody's Investors Service assigned a B3 rating to the proposed guaranteed Notes of MEI Euro Finance Ltd (MEI) guaranteed by its parent PT Medco Internasional Tbk (Medco Energi). The outlook is stable.

Moody's said the rating reflects Medco Energi's solid cost position, its experience in Indonesia's operating environment, a successful track record of making prudent reserves acquisitions in Indonesia, and appropriate liquidity.

Negatives are the company's relatively short proved reserve life index, the embedded decline in its current oil production profile, and a certain degree of event risk arising from new exploration and production investments that the company plans to undertake this year.

The rating also reflects Medco Energi's strategy of substantially increasing financial leverage over the medium term (albeit from a relatively low base) to commercialize its large undeveloped gas reserves, which itself carries a high degree of uncertainty.

Other risk factors include an evolving regulatory framework for the Indonesian oil and gas sector, and potential structural subordination issues.

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