Moody's keeps Venture Holdings on review

Moody's Investors Service said it is postponing completion of its review of Venture Holdings Co., LLC for possible downgrade due to "serious and unexpected recent developments which have created significant new uncertainty regarding the company's financial condition and prospects."

Moody's said it is awaiting resolution of various questions and details surrounding news that four members of Venture's management board representing the company's Peguform subsidiaries in Germany have filed an application for the investigation of a potential insolvency of the company's German operations.

Until the latest developments, Moody's said it was close to completing its review.

The rating impact of the insolvency petition in Germany will vary widely depending upon the determinations made by the German court administrator regarding whether the insolvency claims made by the four individuals are valid, Moody's said.

Also critical to the rating outcome are reactions to the new developments by Venture's lenders, customers and suppliers.

In the event that the German insolvency claims are confirmed, Venture's ratings would be severely downgraded, as all of the company's debt obligations would default and the company would be forced to restructure on a global basis, Moody's said.

In the event that the German insolvency claims are determined by the German administrator to be unfounded, Venture's ratings would be evaluated based upon company's current credit quality after incorporating any lingering damage to the company's prospects that was caused by the confusion surrounding the German insolvency petition. Under that scenario, Venture's existing ratings could potentially even be confirmed, Moody's said.

Ratings under review are Venture's $425 million of senior secured bank credit facilities at B1, senior notes at B2 and senior subordinated notes at B3.

S&P cuts Weigh-Tronix

Standard & Poor's downgraded Weigh-Tronix LLC, cutting its corporate credit rating to D from CC and SWT Finance BV's $30 million tranche A bank loan due 2005, $40 million tranche B bank loan due 2007 and $50 million revolving credit facility due 2005 to D from CC and €100 million 12.5% subordinated notes due 2010 to D from C.

S&P said its action follows the failure of Weigh-Tronix's SWT subsidiary to pay a €6.25 million coupon on its €100 million senior subordinated notes due 2010.

The terms of the notes include a 30-day grace period, but S&P said it does not have sufficient evidence that the payment can be made within this period, or that payment of the company's other financial obligations can reasonably be expected.

S&P revises Sotheby to developing

Standard & Poor's revised its CreditWatch on Sotheby's Holdings Inc. to developing from negative. Ratings affected include Sotheby's $100 million 6.875% notes due 2009 and $250 million credit facility, both at B+.

S&P said the change in CreditWatch follows Sotheby's confirmation that former chairman Alfred

Taubman filed an amended Schedule 13D with the SEC in which he announced his intention to work in cooperation with Sotheby's to explore a possible sale or merger of the company or the sale of his own shares in the company.

The developing implications reflect the uncertain status of the company's future ownership, S&P said.

Because any buyer could have a stronger or weaker credit profile than Sotheby's, the rating could be raised or lowered on the sale of the company, S&P noted.

S&P said Sotheby's ratings continue to reflect S&P's expectations that the worldwide art auction market may experience difficulties in 2002 and that Sotheby's will continue to be challenged by heightened competition for consignments of significant collections and valuable individual properties.

Moody's rates Technical Olympic notes Ba3, B2

Moody's Investors Service assigned a Ba3 rating to Technical Olympic USA, Inc.'s $220 million three-year revolving credit facility and $200 million eight-year senior notes and a B2 rating to its $150 million 10-year senior subordinated notes. The outlook is stable.

Moody's said the ratings reflect Technical Olympic's newness as a combined entity and the associated integration risk, its still-heavy geographical concentration in Texas and Florida, and the uncertainty as to the plans of its ultimate owner, Technical Olympic SA of Athens, Greece, whose own management and requirements may be subject to change.

Positives include the increased size, scale, geographical diversification and improved competitive position resulting from the combination of Engle Homes, Inc. and Newmark Homes Corp., which will be merged and renamed as Technical Olympic USA, Inc., Moody's said.

In addition, the ratings reflect the company's conservative land policy, the strong historical financial performance of the two predecessor companies and the satisfactory pro forma capital structure coming out of the merger, Moody's added.

Pro forma for the merger and recapitalization, Technical Olympic USA, Inc. will be the 12th largest homebuilder in the U.S. as measured by 2001 closings of 5,304 homes, with pro forma 2001 revenues of $1.4 billion, net income of $86 million and EBITDA of $188 million, Moody's said.

S&P rates KC Southern notes BB-

Standard & Poor's assigned a BB- rating to Kansas City Southern Railway Co.'s proposed

$150 million senior unsecured notes offering due 2009 and confirmed the corporate credit rating of the company and its parent Kansas City Southern at BB. The outlook is stable.

The ratings reflect the favorable risk characteristics of the U.S. freight railroad industry and the company's strategically located albeit limited size rail network, offset by an aggressive financial profile, S&P said.

Although Kansas City Southern is the smallest of the Class 1 (large) U.S. railroads, its rail network is strategically located to take advantage of north-south trade volumes, including trade between Canada, the U.S., and Mexico, the rating agency said.

In addition, Kansas City Southern maintains ownership interests in the main privatized Mexican railroad, TFM, and through TFM the Texas-Mexican Railway Co., a short-line railroad that links the TFM system with Kansas City Southern trackage and the broader U.S. railroad system.

Kansas City Southern transports a diversified mix of commodities, consisting of paper and forest products (23% of 2001 revenues), chemical and petroleum (22%), coal (21%), agriculture and minerals (15%), and intermodal, automotive, and other (19%), S&P said.

Benefits from its traffic diversity and management's focus on improving efficiencies and increasing length of haul are reflected in the company's operating performance over the past year, S&P added. Despite the weak economy, revenues increased 1% over 2000 levels and the operating ratio (operating expenses including depreciation as a percentage of revenues) remained unchanged at 88.2%. While this ratio is weaker than average compared with other Class 1 railroads, it is expected to improve over time as the economy recovers and the company continues to benefit from cost containment and efficiency improvement initiatives.

Moody's rates JLG notes Ba2, loan Baa3

Moody's Investors Service assigned a Ba2 rating to JLG Industries, Inc.'s the proposed $150 million senior subordinated notes due 2012 and a Baa3 rating to its amended $250 million senior secured revolving credit facility due 2004. The outlook is stable.

Moody's said the ratings reflect JLG's leading market position in the global aerial work platform market, strong brand recognition and premier product quality, favorable long-term growth potential, moderate financial leverage, good interest coverage and modest on-going capital spending requirements.

Negatives are the highly cyclical nature of JLG's business, sensitivity to economic activities and corporate capital spending cycles, considerable customer concentration, increasing credit exposure through the provision of vendor financing, uneven financial performance and cash flow generation, Moody's said.

Moody's added that the stable outlook reflects its expectation of a continued challenging environment for JLG's major end-markets over the near term, offset by potential gains from the company's rationalization and cost-saving initiatives.

In line with the broad construction equipment industry, demand for access equipment is closely tied to the level of economic activities in the construction and industrial sectors, Moody's said. As a result, sales are highly cyclical. In the latest downturn, demand for JLG's products declined sharply as manufacturing and construction activities contracted and capital expenditures by equipment rental companies plummeted. Revenues declined 8.7% in fiscal 2001 (ended July 2001) from fiscal 2000, and they decreased a further 16.7% in the LTM period ended April 2002 from fiscal 2001. Operating income fell more precipitously from $115.5 million in FY 2000 to $73.8 million in FY 2001, and further down to $31.8 million for the LTM period ended April 2002, due primarily to volume declines and low fixed cost absorption.

S&P rates Technical Olympic notes B+, B-

Standard & Poor's assigned a B+ rating to Technical Olympic USA Inc.'s planned $200 million senior unsecured notes due 2010 and a B- rating to its planned $150 million senior subordinated notes due 2012. The outlook is stable.

S&P said ratings reflect Technical Olympic's substantial presence in several key homebuilding markets, the historical profitability of its two predecessor companies and its relatively conservative pro forma capital structure.

These strengths are tempered by the risks inherent in integrating two previously autonomous companies under one new senior management team, S&P added.

In the near term, growth is expected to be generated internally via increased penetration of existing markets, S&P said. While the combination may provide operating synergies, cost savings, and improved access to capital, there remain general risks associated with the integration of these two previously autonomous companies.

The pro forma capital structure is relatively conservative, S&P commented. Debt-to-total capital going forward is expected to be about average in the low-50% range. Assets and liabilities will be well matched post-closing, as the weighted average maturity of all debt will be eight years and there are no maturities until 2005, when the newly negotiated $175 million revolving line of credit expires.

EBIT interest coverage is expected to remain strong, in the 4.0x to 5.0x range, and this measure will be stabilized by a large component of fixed-rate debt, S&P said.

S&P cuts Allegiance

Standard & Poor's downgraded Allegiance Telecom Inc. including cutting its $205 million 12.875% senior notes due 2008 and $250.5 million senior discount notes due 2008 to CC from CCC+ and Allegiance Finance Co.'s $500 million secured bank facility bank loan due 2006 to CCC from B. The ratings remain on CreditWatch with negative implications.

S&P said it originally put Allegiance Telecom on CreditWatch on March 28 due to the possibility that the company could be in default of its bank agreement if it does not obtain a waiver for a maintenance covenant.

The downgrade is in response to continued weak fundamentals of the competitive local exchange carrier industry and S&P's belief that Allegiance Telecom could have a difficult time meeting its minimum revenue targets under its $500 million secured bank facility in the second or third quarter of 2002, S&P said.

The company's churn rate has been trending upward due to incumbent carriers' "win back" programs and recession-induced customer financial difficulties, S&P explained. As a result, in the first quarter of 2001, net installations were 124,000, about 8% lower than in the fourth quarter of 2001.

A slower turnaround in the economy is expected to continue to impact near-term revenue and cash flow results, S&P added. Although Allegiance Telecom's EBITDA margin loss of about 13% has continued to improve on a quarterly basis and capital expenditures have been declining due to the completion of the 36-market buildout, S&P said it does not expect the company to be free cash flow positive in the near term given the challenges facing the CLEC industry.

S&P puts Liberty Group on positive watch

Standard & Poor's put Liberty Group Publishing Inc. on CreditWatch with positive implications. Ratings affected include Liberty Group Operating Inc.'s $180 million 9.375% senior subordinated notes due 2008 at CCC+ and $175 million revolving credit facility due 2003 and $100 million term loan B due 2007 at B and Liberty Group Publishing Inc.'s $62.813 million 11.625% senior discount debentures due 2009 at CCC+.

S&P said the action is in response to Liberty Group Publishing's filing for an initial public offering of up to $225 million of common stock.

Proceeds will be used to fund tender offers for the company's senior discount debentures and senior preferred stock, as well as repay a portion of Liberty Group Operating's senior secured term loan, S&P said. In addition, holders of Liberty Group Publishings' junior preferred stock have agreed to exchange their shares for common shares of the company.

Moody's cuts AT&T Canada to Ca

Moody's Investors Service downgraded AT&T Canada Inc.'s $3 billion of senior unsecured notes to Ca from B3. The outlook is negative.

Moody's said it remains concerned that without some form of support from AT&T Corp. AT&T Canada's debt will need to be restructured.

Last week's release of the CRTC price cap decision, which provided little interconnect fee relief to AT&T Canada, puts further doubt on the prospect that AT&T Corp. will provide support, Moody's said.

AT&T Corp. has indicated it would like to buy out the public shareholders of AT&T Canada before the merger of AT&T Broadband with Comcast expected later this year, Moody's noted. This action may require Canadian government approval, as legislated foreign ownership limits are very unlikely to be changed this year. However, this action by AT&T Corp. does not in any way suggest that they will then support ATTC financially.

AT&T Canada has recently announced that their secured bank facility has been amended in a reduced amount of C$400 million, and that the banks have agreed not to pursue a default based upon the going concern footnote in the 2001 audited financials, while reserving their rights for future audited statements, Moody's said. Half of the facility is now drawn, while C$85 million of the remainder will be available if 2/3rds of the banks approve a new business plan, to be presented after the CRTC price cap ruling, showing that the company will remain in compliance with existing bank covenants, and the company has received C$85 million for monetizing swaps, which it has recently done. The other C$115 million will be available upon unanimous consent of the banks.

AT&T Canada states it has sufficient liquidity to fund operations until the end of 2003 and that it is in compliance with bank covenants and expects to remain so in the future, Moody's said.

While these company initiatives are all positive actions for the rating, they are overshadowed by the size of ATTC's debt, which is approximately C$4.7 billion versus annualized cash flow of about C$160 million, Moody's said, adding that it believes it is unlikely AT&T Corp. will provide funding support to ATTC in order to service this debt.

AT&T Canada's debt is likely to be restructured at some point in the future. The value of ATTC's assets in a restructuring scenario is likely to be a deep discount to par given foreign ownership restrictions for potential buyers, and economic difficulties of alternate carriers generally in the Canadian market, Moody's said.

S&P cuts La Petite Academy

Standard & Poor's downgraded La Petite Academy Inc. including lowering its $145 million senior unsecd notes to CC from CCC- and its $40 million term loan and $25 million revolving credit facility to CCC from CCC+.

S&P said the downgrade reflects further deterioration in La Petite's operating results and the risks associated with the Aug. 15, 2002 expiration of the limited waiver of noncompliance of financial covenants received in April 2002.

The low-speculative grade rating reflects increased concern that the company may be unable to improve its operating and cash flow performance to a level sufficient to make its scheduled interest payments over the next year, S&P said.

S&P said the company has been unable to achieve the operating improvements necessary for it to contend with the heavy debt burden associated with its recapitalization in 1998.

In the quarter ended June 30, 2001, the company was in default of certain financial covenants in its bank agreement. La Petite received an amendment revising the covenants from 2002-2004 and provided for the issuance of new convertible preferred stock. The $15 million proceeds from the sale of convertible preferred stock and warrants enabled La Petite to satisfy its interest payment requirements in November 2001 and May 2002, S&P said.

La Petite currently has a sufficient cash balance for its November 2002 payment, but continued negative cash flow may potentially reduce available cash. Assuming the company makes its November payment, the ability to satisfy any subsequent payments is uncertain, S&P added. There is no bank revolver availability.

S&P cuts Viasystems

Standard & Poor's downgraded Viasystems Group Inc. including lowering its $400 million 9.75% senior subordinated notes due 2007 and $100 million 9.75% senior subordinated notes due 2007 to D from C. S&P confirmed its senior secured credit facility at CC.

S&P said the action is in response to Viasystems' announcement it will not make the June 1 interest payment on the notes.

The company also announced that it has obtained an amendment to its existing credit agreement that provides for a 90-day extension, which it anticipates will be sufficient to complete its recapitalization plan, S&P said.

S&P takes ISG off watch

Standard & Poor's confirmed ISG Resources Inc.'s rating and removed it from CreditWatch with negative implications. Ratings affected include ISG's $100 million 10% senior subordinated notes due 2008 at CCC and $50 million senior secured revolving bank loan due 2003 and $15 million tranche B revolving credit facility due 2003 at B. The outlook is stable.

S&P said the action is in response to improved financial performance and liquidity at ISG.

Reduced losses and a more effective asset utilization increased cash flow generation, with cash balances of $14 million-$15 million at March 31, S&P noted. Although ISG had no availability under its secured credit facility at March 31, cash balances are expecting to trend higher for the remainder of 2002 and to be sufficient to meet debt service obligations and operating needs.

Credit protection measures are thin but are appropriate for the ratings, S&P said.

Moody's rates Intermet notes B2

Moody's Investors Service assigned a B2 rating to Intermet Corp.'s planned $175 million guaranteed senior unsecured notes due 2009.

Moody's said the ratings reflect Intermet's weak credit protection measures, both on a historical basis and on a pro forma basis upon closing the notes issuance transaction.

Intermet has high leverage; marginal interest coverage; constrained liquidity based upon effective revolving credit availability; and a substandard return on assets for its rating category, Moody's said.

Intermet's high debt levels and high proportion of intangible assets are a by-product of significant acquisition activity since 1995 as the company added to the breadth of its product line, as well as of the approximately $350 million spent during that period on expanding and modernizing the company's production facilities, the rating agency noted.

On the positive side, Intermet has already weathered the first quarter 2002 working capital build; its senior notes issuance will remove a major near-term liquidity event by eliminating the December 2002 term loan maturity; the company projects a steady improvement in effective liquidity throughout 2002 based upon expectations of better operating performance; and Intermet has reduced total debt by $129 million since 1999, despite the problems that were encountered with an accident in 2000 and the recession that later ensued, Moody's said.

In addition, Moody's noted that Intermet has content on almost every light vehicle in North America and is therefore not dependent on the success of a limited number of automotive platforms.

For the last twelve months ended March 31, 2002 Intermet reported Total Debt/EBITDA leverage of approximately 3.7x; EBITA interest coverage of about 1.2x and an EBITA return on assets of only about 4.4%. Total Debt/Revenues was significant at almost 40%, Moody's said.

S&P cuts Contour Energy

Standard & Poor's downgraded Contour Energy Corp. including lowering its $155 million 10.375% senior subordinated notes due 2006 to D from C and its $135 million 14% notes due 2003 to D from CCC.

S&P said its action follows the announcement that the trustee for its $105 million 14% senior secured notes due 2003 is accelerating repayment of principal and interest, due immediately.

The company is in default on the senior secured notes as a result of a cross default provision with its $155 million 10 3/8% senior subordinated notes due 2006, S&P said.

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