S&P cuts Southcorp to junk

Standard & Poor's downgraded Southcorp Ltd. to junk, cutting its debt to BB+ from BBB. The ratings were removed from CreditWatch negative. The outlook is negative.

S&P said the action reflects Southcorp's earnings collapse in fiscal 2003, its reduced liquidity buffer and S&P's expectation that a recovery in its earnings and cash flows could take several years given the tough market conditions for wine companies.

Although a recovery in its U.S. and Australian operations is anticipated, the company has flagged that its U.K./Europe business, which accounts for 28% of its revenue and where most wine is sold under promotion, will be far more difficult to turnaround, S&P added.

Although Southcorp has adequate funds available to repay its A$280 million debt due in October 2003, the company's liquidity reserves are expected to be about A$150 million at that point well below historic levels, S&P said. Most of this buffer will come from a new committed facility that replaces the expiring syndicated facilities.

All funds under its bank facilities should be readily accessible, as the company does not anticipate being in breach of its bank covenants when it reports its financial results, including any potential asset write-downs, for the fiscal year-end June 30, 2003. The headroom under its financial covenants, however, is tight, S&P said. Importantly, Southcorp relies on sustained recovery in its cash flows, prudent working capital management, and its zero dividend policy to maintain adequate liquidity reserves and reduce its debt in the next few years.

Moody's rates Ipsco notes Ba3

Moody's Investors Service assigned a Ba3 rating to Ipsco Inc.'s planned 150 million of guaranteed senior unsecured notes due 2013. The outlook is stable.

Moody's said the ratings reflect challenging market conditions for steel plate and tubular products and Ipsco's high leverage and near-term debt maturities, buttressed by the company's modern and cost efficient steelmaking facilities, ability to adjust product mix to meet market demand, and nominal legacy liabilities.

Ipsco's ratings reflect the impact on steel shipments and prices of lethargic industrial and manufacturing activity and the resulting excess capacity in a highly competitive industry, Moody's said. Steel prices have been, and may remain, low for some time, and producers are not always able to pass on increases in scrap and energy costs.

While Ipsco's labor and legacy costs are lower than many of its peers, its margins may continue to be pressured until the North American economy strengthens. For the 12 months ended March 31, 2003, Ipsco's operating income margin was 5.1% and operating income per ton of steel shipped was $20.

Ipsco is highly leveraged, with pro forma debt and capitalized leases totaling approximately $610 million, or 4.9x EBITDAR, as of March 31, 2003, Moody's said. In part, debt has risen due to the company's significant investment in two new plate mills over the 1996-2001 time period. While its modern facilities help minimize required capex over the next few years, financial risk is elevated by a fairly high level of amortizing and maturing debt - approximately $170 million - that must be repaid or refinanced between 2004 and 2006. A portion of this debt, as well as the preferred shares that the company may redeem in 2004, are Canadian-dollar denominated, which has become relatively more costly as the Canadian dollar has strengthened relative to the US dollar, which is Ipsco's functional currency.

S&P says Cablevision unchanged

Standard & Poor's said Cablevision Systems Corp.'s ratings including its corporate credit at BB with a negative outlook are not affected by its plan to spin off its satellite television venture and its interest in Clearview Cinemas to its stockholders.

The spin-off reduces the longer-term business risk for the company by removing uncertainty about the satellite venture, the plans for which still have not been clearly and specifically articulated.

However, given the incremental cash contributions being made to the project by Cablevision of about $564 million prior to the spin-off, the company's financial profile will be under pressure in 2003, S&P said.

As a result of these cash contributions, the company's consolidated debt to EBITDA is expected to be in the low-6x area for 2003, excluding preferred stock, and about the mid-7x area, including the preferred stock as debt.

These credit metrics are somewhat weaker than those previously incorporated in the ratings, and concomitant liquidity pro forma for the spin-off is somewhat lower, S&P said. Consequently, while the plan to spin off its satellite venture will not affect the ratings, failure to improve financial metrics and overall liquidity prospects beyond 2003 through on-going growth in its overall cable TV operating cash flows could result in a downgrade.

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