S&P rates Crown Cork notes CCC+, CCC, loan B

Standard & Poor's assigned a CCC+ rating to Crown Cork & Seal Co. Inc.'s proposed $1.25 billion second-priority senior secured notes due 2011, a CCC to its proposed $500 million third-priority senior secured notes due 2013 and its $250 million convertible notes due 2008 and a B rating to its planned $1.05 billion senior secured credit facility. All the ratings were put on CreditWatch with positive implications.

Existing ratings were confirmed and remain on CreditWatch with positive implications where they were placed on Jan. 29 after Crown Cork announced the planned refinancing.

S&P said the positive watch reflects the potential improvement in Crown Cork's financial profile following completion of the refinancing. The proposed debt refinancing will significantly extend Crown's substantial near-term debt maturities and improve its liquidity.

Following the completion of the refinancing, S&P said it will raise Crown's corporate credit rating to BB- from B- and existing senior unsecured debt ratings to B from CCC. The senior secured bank credit facility rating would be raised to BB from B, the second-priority senior secured notes due 2011 to B+ from CCC+ and the $500 million third-priority senior secured notes due 2013 and $250 million convertible notes due 2008 to B from CCC.

Moody's upgrades AMC

Moody's Investors Service upgraded AMC Entertainment Inc. including raising its $425 million senior unsecured revolver due 2004 to B2 from B3 and its $175 million 9 7/8% senior subordinated notes due 2012, $200 million 9½% senior subordinated notes due 2009, $225 million 9½% senior subordinated notes due 2011 and $72.9 million add-on 9½% senior subordinated notes due 2011 to Caa2 from Caa3. The outlook is stable.

Moody's said it upgraded AMC because of the company's strong operating performance for calendar 2002, including its transition to positive free cash flow, which is expected to continue throughout the forward forecast period; the company's robust liquidity position, and the resulting financial flexibility; the successful acquisition and integration of the General Cinemas and Gulf States Theatres assets; and Moody's belief that the probability of default has been reduced, notwithstanding that some loss severity continues to exist in the event that the company did default under any of its obligations, particularly in the context of its substantial amount of off-balance sheet operating lease obligations.

Like other movie theater exhibitors more broadly, AMC has benefited from a very strong box office in 2002, which is expected to remain so in 2003 based on the assumed strength of the upcoming film slate, Moody's said. The company has also accumulated a significant liquidity position in the form of $241 million in cash on hand, and continues to have unfettered access to its full revolver which remains undrawn at the present time.

AMC's ratings continue to reflect its still high financial leverage, nonetheless, particularly after adjusting for the aforementioned leases; the company's modest coverage of interest and rents by pre-rent cash flow; the more competitive and higher cost characteristics of operating in many of AMC's key markets; concerns about management intentions with regard to further acquisitions and how such transactions might be financed, even though equity has been used in the past; and larger concerns about the theatrical exhibition industry as a whole, including slow growth due to its maturity; box office volatility; dependence on Hollywood film product; persistent structural over capacity; and low returns on invested capital, Moody's said.

Moody's upgrades NVR

Moody's Investors Service upgraded NVR, Inc. including raising its $115 million 8% senior notes due 2005 to Ba1 from Ba2. The outlook is stable.

Moody's said it upgraded NVR because of the company's strong returns and excellent interest coverage, healthy cash flow, progress in geographic diversification, the highest inventory turnover rate in the industry, the lowest debt to capital ratio in the industry, and conservative land policies.

The ratings also consider the company's aggressive share repurchase program, concentration in the Baltimore and Washington D.C. markets, limitation of geographic expansion into new markets where its very successful business model is transferable, and the cyclical nature of the homebuilding industry, Moody's added.

The company produces the strongest financial ratios in the industry, including interest coverage of 42x, return on assets of 49%, return on equity of 90%, return on capital of 68%, homebuilding debt to capital of 23%, and homebuilding debt/EBITDA of 0.2x, Moody's said.

Moody's notes that this ratio performance is greatly enhanced by an operating model that eschews investments in land inventory and, in the case of ROE and ROC, by an aggressive share repurchase program.

The company consistently generates strongly positive free cash flow by avoiding investing ever-larger amounts of working capital in new and replacement land purchases as a result of its lot option strategy.

Formerly concentrated heavily in the Baltimore and Washington D.C. market areas, which accounted for 71% of closings in 1994, NVR has made progress in diversifying its revenue base. The Baltimore and Washington D.C. market areas accounted for 45% of closings in 2002, Moody's noted.

Moody's puts Hyundai, Kia on upgrade review

Moody's Investors Service put Hyundai Motor Co.'s long-term debt at Ba2 and Kia Motors Corp.'s long-term debt at Ba3 on review for possible upgrade.

Moody's said the review was prompted by the steady improvements that both companies have demonstrated in their recent financial performances, given the support from the steady recovery of the Korean market and their increased share of the U.S. market.

Hyundai and Kia have together more than 70% of the Korean market. Kia became a consolidated subsidiary of Hyndai after Hyundai acquired it in 1999. The two companies have since made efforts to integrate many areas of their operations.

Moody's said its review will focus on the abilities of Hyundai and Kia to sustain and improve their positions in key markets, the competitiveness of their new products, the implementation of cost-reduction programs to strengthen cost competitiveness, and how the two entities can manage the impact of currency movements.

S&P cuts GKG

Standard & Poor's downgraded Gerling-Konzern Globale Ruckversicherungs-AG including cutting Gerling Global Finance Alpha BV's €220 million variable-rate subordinated bonds due 2021 to CCC from BB+ and Constitution Capital Trust I's $85 million capital securities to CC from BB. The ratings were removed from CreditWatch with negative implications. The outlook is negative. S&P then withdrew the ratings at the request of the company although it said the two securities issues will remain under surveillance.

S&P said the company's decision to withdraw the ratings means that S&P will not be able to perform the additional depth of analysis that it had planned in order to gain sufficient comfort that the run-off of GKG is likely to proceed in an orderly manner.

As a result S&P said it considers there is sufficient uncertainty to justify adopting a conservative stance and lowering the insurer financial strength ratings to BB before withdrawing them.

S&P added that it increased the notching on the hybrid securities and preferred stock because of the potential for interest and/or principal payments to be deferred.

Fitch confirms Petroleum Geo-Services

Fitch Ratings confirmed Petroleum Geo-Services ASA's senior unsecured debt at C and kept it on Rating Watch Negative.

Fitch said its confirmation follows Petroleum Geo-Services' payment of interest on its 6 5/8% senior notes due 2008 and 7 1/8% senior notes due 2028.

Petroleum Geo-Services finds itself in the same situation it was in last month as it has utilized a 30-day grace period to make an $8.2 million interest payment on its 8.15% senior notes due 2029. This grace period expires Feb. 15, 2003, Fitch noted. Failure to make such payment within the 30-day grace period will be considered to be an event of default, and the rating will be lowered to D. Should the coupon payment default be cured in the grace period, a new rating will be assigned, but reflective of the just cured default.

S&P cuts Vantico notes

Standard & Poor's downgraded Vantico Group SA including cutting its €250 million 12% bonds due 2010 to D from C.

S&P said it cut Vantico after the company announced it did not pay the coupon due Feb. 1 on the notes.

Vantico's long-term corporate credit rating had already been cut to D on Jan. 3 after it delayed a loan payment on its senior bank debt.

Although Vantico benefits from a 30-day grace period following the coupon due date, S&P said it believes that Vantico is likely not to pay the interest due on its notes.

Vantico disclosed a proposed debt restructuring, which has been agreed with its bondholders and equity sponsor, Morgan Grenfell Private Equity. Under the plan, bondholders and MGPE will exchange their existing debt for 95% of the ordinary equity of the company. Noteholders have also been offered a cash alternative in lieu of shares equivalent to 30% of the bond par value.

S&P said the transaction is tantamount to a default under its criteria and would have triggered a downgrade to D on the senior notes upon its completion.

S&P cuts Key3Media

Standard & Poor's downgraded Key3Media Group Inc.'s $150 million revolving credit facility due 2004 to D from CCC.

S&P said the action follows Key3Media's Chapter 11 filing.

S&P says Alliant Techsystems unchanged

Standard & Poor's said Alliant Techsystems Inc. is unchanged including its BB- corporate credit rating with a positive outlook in response to the loss of the space shuttle Columbia.

ATK produces the reusable solid rocket motors that are used to launch the space shuttle, business that accounts for 15%-20% of the company's sales. However, the motors are built to inventory and not to launch, therefore, production is not immediately affected by the suspension of shuttle launches while the cause of the accident is being determined, S&P said.

The near-term financial impact on ATK is not expected to be significant, but the intermediate-term impact cannot be determined until the investigation is complete, S&P added. The remainder of ATK's businesses, including propulsion and ammunition, are performing well and are likely to benefit from possible U.S. military action in Iraq and the overall increases in defense spending. In addition, the company's current financial profile is relatively strong for the rating.

S&P cuts MMI

Standard & Poor's downgraded MMI Products Inc. including cutting its $11.3 million 13% senior subordinated notes due 2007, $188.7 million 11.25% subordinated notes due 2007 and $30 million 11.25% senior notes series C due 2007 to CCC+ from B-.

S&P said it lowered MMI because of the company's weaker-than-expected credit measures, a very aggressive acquisition strategy, and tighter liquidity.

Recent results have been affected by a slowdown in fencing demand and very competitive pricing amid an already depressed commercial construction market that has hurt the company's construction products business, S&P noted. In addition, MMI recently acquired Structural Reinforcement Products Inc., a manufacturer of welded wire fabric products, for $24 million. Although the acquisition should provide strategic benefits to MMI, the transaction was financed with borrowings under the company's $75 million revolving credit facility, reducing availability to about $23 million.

Although MMI has increased annual revenues to $500 million through a series of acquisitions during the past several years, it needs to integrate and rationalize these operations in order to reduce overcapacity, S&P said.

The company has a very aggressive capital structure, with cash dividends periodically paid to its holding company parent to support the parent's debt obligation, S&P said. Interest on parent company debt, which is held by an affiliate of MMI's equity sponsor, is payable in cash or in kind at the borrower's option. During 2000 and 2001, MMI paid dividends totaling $47 million to its parent, including accumulated amounts from previous years, but paid only $5.5 million in 2002.

Operating company capitalization is expected to remain at levels sufficient to meet minimum requirements under the bond indenture and bank credit agreement. Debt to EBITDA and EBITDA interest coverage, including holding company debt, are currently weak for the ratings at well over 6x and below 1.5x, respectively, S&P said.

S&P rates WKI Holding's loan B; notes CCC+

Standard & Poor's rated WKI Holding Co. Inc.'s proposed $315 million senior secured credit facilities at B and $123 million senior subordinated notes due 2010 at CCC+. The outlook is stable.

The loan consists of a $240 million five-year term loan B maturing in 2008 and a $75 million 4½ year revolver maturing in 2007. Availability under the revolver will be subject to a borrowing base of 85% of eligible accounts receivable, 25% of adjusted eligible raw materials and 50% of adjusted eligible finished goods. Amortization of the term B is back-ended, with equal quarterly installments of 0.25% of principal during the first five years and a final payment of 95% of principal due at maturity. Security is substantially all of the company's domestic assets, 100% of the capital stock of domestic subsidiaries and 65% of the capital stock of foreign subsidiaries.

Proceeds from the bank loan and subordinated notes will be used as part of the exit financing under the company's Nov. 15, 2002, proposed plan of reorganization. In May 2002, the company filed for Chapter 11. WKI emerged from bankruptcy on Jan. 31 and its previous bank lenders will now own about 80% of the company.

Ratings reflect "significant debt leverage, participation in the highly competitive housewares industry, customer concentration risk, seasonality, and the potential lingering impact of its bankruptcy filing on its relationships with customers and suppliers. Somewhat mitigating these risks are the company's solid market position in the mature housewares industry and portfolio of recognized brands," S&P said.

Pro forma for the reorganization, lease-adjusted EBITDA coverage of interest expense will be about 2.8 times and lease-adjusted total debt to EBITDA will be about 4.7 times for fiscal 2002.

S&P rates Old Evangeline notes B-

Standard & Poor's assigned a B- rating to Old Evangeline Downs LLC's planned $110 million senior secured notes due 2010. The outlook is developing.

The notes will be secured by substantially all current and future assets of the company, however, its proposed bank facility will benefit from a priority lien. Proceeds from the proposed notes will be used to help fund the construction and development of the company's planned pari-mutuel horse racetrack with slot machines (racino), to refinance existing debt, and for transaction related expenses.

Old Evangeline's ratings reflect its high amount of debt, the company's reliance on a single source of cash flow, and construction risks associated with the planned development, S&P said. These factors are offset by the limited competition in its surrounding market, and the expected adequate liquidity throughout construction.

Construction is scheduled to commence in March 2003 on the 519-acre site, which is located at the intersection of US-190 and I-49. Competition is limited due to legislation restrictions and the facility's location. The facility is expected to benefit by attracting customers in a previously underserved market, S&P said. There are no other gaming licenses to be issued in the state of Louisiana and the closest casino is a Native American casino approximately 50 miles south of the property. The closest racino, Delta Downs, is located more than 100 miles west of the site.

As with any project financing, construction risks exist. Helping to mitigate these risks is the planned phased development, with the slot machines opening in advance of the track, S&P noted. However, pursuant to OED's gaming license, the racino construction must be completed by January 2005. Other mitigating factors include: an expected guaranteed maximum price contract for 100% of the hard construction costs, 100% completed drawings, and an expected contingency reserve of $5 million.

The project's debt service burden is expected to be approximately $16 million, including contingent interest, and will be serviced from cash flow beginning in 2004. Management fees will be paid to the parent if the fixed charge coverage ratio exceeds 1.25x, otherwise they will be deferred, S&P said.

S&P raises Peninsula Gaming outlook

Standard & Poor's lifted its outlook on Peninsula Gaming Co. LLC to stable from negative and confirmed its existing ratings including its senior secured debt at B.

S&P said the outlook revision reflects steady operating results during the last few years at the company's Diamond Jo riverboat casino and the expectation that this trend will continue as the Ice Harbor (where Diamond Jo operates) redevelopment project attracts additional visitors to the area. In addition, the recent purchase of the Old Evangeline Downs racetrack is expected to provide an additional source of cash flow in the form of a management fee.

The ratings reflect the company's high debt levels and small cash flow base. These factors are mitigated by the limited competition in its current market, stable operations at the Diamond Jo, and potential EBITDA growth as a result of the Ice Harbor redevelopment project, S&P noted.

The acquisition of the Old Evangeline racetrack diversifies the company's cash flow base, and similar to the Diamond Jo, Old Evangeline possesses limited direct competition, S&P said. Peninsula Gaming is planning on developing and constructing a new casino and contiguous racetrack (racino) in Opelousas, La., which is expected to include approximately 1,600 slot machines. Despite OED being designated as an unrestricted subsidiary, Peninsula Gaming will receive a management fee based on revenues and EBITDA, subject to covenant restrictions. Through its ownership of Old Evangeline, Peninsula Gaming should benefit from positive cash flow due to the predictable and high-margin nature of slot machine operations.

EBITDA for the last 12 months ended Sept. 30, 2002, was about $17 million, up from $16 million in fiscal 2001 due to the purchase of the Old Evangeline racetrack and steady performance at the Diamond Jo, S&P said.

S&P raises Solutia loan

Standard & Poor's upgraded Solutia Inc.'s $300 million credit agreement due 2004 to BB+ from BB and removed it from CreditWatch with positive implications. Solutia's other ratings were confirmed including its senior secured notes and senior unsecured debt at BB-.

S&P said the upgrade to the loan follows the sale of Solutia's resins, additives, and adhesives businesses to UCB SA for $500 million.

Given the significant reduction in secured bank debt as a result of the sale, S&P said it expects that the bank loan collateral package would retain sufficient value in a default scenario to cover a fully drawn revolving credit facility.

The ratings continue to reflect Solutia's average business risk profile, tempered by relatively sizable debt levels and significant long-term liabilities, S&P added.

The sale of the resins, additives, and adhesives businesses to UCB somewhat weakens the company's business profile, S&P noted. These businesses generated good profitability on revenues of more than $400 million for the first nine months of 2002. The business profile reflects a loss of diversity and a greater dependence on the commodity nylon business, which has yet to significantly recover from difficult market conditions.

Credit protection measures have been weak, with funds from operations to total debt of about 15% and EBITDA interest coverage less than 3.5x, S&P said. These ratios should improve with the application of the proceeds from the UCB transaction applied to debt reduction. Still, credit protection measures will remain sub-par for the ratings and leverage will remain elevated.

S&P raises Meritage

Standard & Poor's upgraded Meritage Corp. including lifting its $165 million 9.75% senior unsecured notes due 2011 to B+ from B and raised its outlook to positive from stable.

S&P said the rating actions acknowledge Meritage's conservative financial risk profile relative to the present ratings, as well as the improved financial flexibility provided by the company's new unsecured revolver.

Management has demonstrated the ability and willingness to finance a rapidly growing homebuilding business in a manner that will preserve below average levels of debt and very strong interest coverage measures, S&P said. Furthermore, the integration of acquired homebuilding companies appears to have proceeded smoothly as evidenced by the maintenance of solid margins and inventory turnover levels.

Negatives include S&P's assumption that Meritage will continue to aggressively pursue acquisitions in familiar and possibly unfamiliar markets, potentially challenging a lean corporate infrastructure.

Over the past three years Meritage has been one of the nation's fastest growing homebuilders. During that period total assets have increased at a compound annual growth rate of approximately 61% while homebuilding revenues have similarly risen at an annual pace of 43%, topping $1 billion for the first time in 2002.

With improved flexibility, and a track record to date of successfully integrating acquired companies, Meritage appears well positioned to pursue further growth opportunities, S&P said. An improvement in the ratings would be warranted should Meritage continue to profitably execute its growth strategy, while maintaining a conservative financial profile.

Fitch raises Transwestern

Fitch Ratings upgraded Transwestern Pipeline Co.'s indicative senior unsecured debt rating to B+ from CC. Transwestern currently has no senior unsecured debt outstanding. The Rating Watch was changed to Evolving from Negative.

Transwestern is an indirect subsidiary of Enron Corp. Transwestern's rating had been lowered to CC and placed on Rating Watch Negative on Nov. 28, 2001 following termination of Enron's agreement to merge with Dynegy Inc. and shortly before Enron filed for bankruptcy on Dec. 2, 2001.

The rating upgrade reflects Transwestern's operating status outside the Enron bankruptcy and its standalone credit measures which are generally consistent with investment grade, Fitch said.

Based on Transwestern's legal structure and other practical and economic considerations, consolidation into Enron's bankruptcy is not a likely scenario.

In addition, creditors are protected by Transwestern's collateral value which Fitch estimates at between 1.5 times - 2x the amount of its outstanding debt, Fitch said. Cash flow from operations was 3.8 times cash interest for 2002 and debt is currently less than 50% of capitalization and should reduce in 2003.

The indicative senior unsecured rating considers the subordinated position of senior unsecured creditors to $535 million of secured debt, Fitch added. The rating also reflects the uncertainty concerning the Enron bankruptcy. While the sale of Transwestern to a creditworthy purchaser is a reasonable possibility, Enron's bankruptcy issues are complex and the ultimate ownership and structure is unresolved.

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