Moody's upgrades Hovnanian

Moody's Investors Service upgraded Hovnanian Enterprises, Inc. including raising its $150 million 10.5% senior notes due 2007, $150 million 9.125% senior notes due 2009, $100 million 8% senior notes due 2012, $150 million 8.875% senior subordinated notes due 2012 and $150 million 7.75% senior subordinated notes due 2013 to Ba3 from B2. The outlook is stable.

Moody's said the upgrades reflect Hovnanian's continuing success in diversifying its operating profits and substantial improvement in its credit statistics.

The stable outlook reflects Moody's expectations that capital structure discipline will be maintained.

The ratings acknowledge Hovnanian's increased size, scale and market penetration, success at integrating previous acquisitions, strong liquidity, long history and significant management ownership, Moody's added.

At the same time, however, the ratings consider Hovnanian's higher-than-average business risk profile given its apparent appetite for acquisitions, greater use of debt leverage than that of its peers, capacity under its credit agreement that could lead to substantial additional debt incurrence, integration risks associated with its most recent group of acquisitions, long land position (although heavily optioned) and the cyclical nature of the homebuilding industry.

The company's credit metrics, which consistently trailed those of most of its Ba2 and Ba3 peer group, caught up with, and began surpassing, its peer group comparables in fiscal 2002, with continued noteworthy improvement seen thus far in fiscal 2003, Moody's said.

Moody's raises Innova outlook

Moody's Investors Service raised its outlook on Innova S de RL to positive from stable and confirmed its ratings including its $375 million 12 7/8% senior unsecured notes due 2007 at B3.

The positive outlook incorporates improving operating performance by the company during recent periods, expectations that cash flow growth will accelerate now that the perceived subscriber base inflection point has been reached and the high likelihood that certain external events will have a favorable impact on the company and its business prospects. Specifically, Moody's believes that the company will be able to grow free cash flow based on continued under-penetration of the pay-TV market in Mexico, limited market share gains, ongoing success with its differentiated programming strategy, declining subscriber acquisition costs, more competitive upfront fees, further economies of scale and possible cancellation of the tax on pay-TV services. This should more than offset the expected decline in the ARPU levels.

Moody's said ratings reflect Innova's high financial leverage, weak coverage of interest and fixed charges, intense competition and susceptibility to volatile economic conditions and adverse currency exchange rate fluctuations.

The ratings are supported, however, by Innova's status as the largest pay-TV company in Mexico, national coverage, large and growing size of the company's subscriber base, strong sponsorship from majority equity owners Televisa and NewsCorp, and good prospects for further near-term growth given current market and competitive conditions.

Moody's said it believes Innova needs to strengthen its financial profile in anticipation of a more competitive environment. Currently, free cash flow generation is very low relative to the company's high debt levels. Cash flow coverage of interest is inadequate at less than 1x in consideration of capital expenditures. Lease-adjusted leverage currently represents more than 5x EBITDA, and this is exclusive of shareholder loans which are expected to eventually be capitalized as equity.

Fitch confirms Kobe Steel

Fitch Ratings confirmed Kobe Steel, Ltd.'s ratings including its senior unsecured debt at B+. The outlook is stable.

Fitch said the ratings reflect Kobe Steel's improved but still weak financial profile amid a still severe industrial operating environment characterized by sluggish demand, especially from the domestic construction industry, protectionism by the U.S. and China and the problem of global steel overcapacity.

Fitch said it takes a positive view of the company's strategy to specialize in high-value-added products and a smooth start in the profitable independent power production business.

In the fiscal year ended March 2003, operating profit surged by 128% to ¥81 billion, Fitch noted.

The ratio of net debt to EBITDA improved to 5.3x as of the fiscal year ended March 2003 from 8.4x in the previous year. Nevertheless, the leverage is still high compared to its global peers.

Fitch confirms Sumitomo Metal

Fitch Ratings confirmed Sumitomo Metal Industries, Ltd.'s ratings including its senior unsecured debt at B. The outlook is stable.

Fitch said the ratings reflect Sumitomo Metal's continuing weak financial profile amid a still severe industrial operating environment characterized by sluggish demand, especially from the domestic construction industry, protectionism by the U.S. and China and the problem of global steel overcapacity.

Although the company has instituted measures to cut debt faster than initially planned, its leverage ratio remains high at 7.9x, Fitch said. An improvement in the operating rates of its mills is becoming evident, but Fitch believes this will not contribute sufficiently to profit until after 2005.

On the other hand, Fitch views positively the company's strong seamless pipe business as profit contributor.

Net debt to EBITDA ratio improved to 7.9x as of the fiscal year ended March 2003 from 9.7x, Fitch noted. Nevertheless, the ratio is seriously weak compared to its domestic peers.

Fitch confirms Nippon Steel

Fitch Ratings confirmed Nippon Steel Corp.'s ratings including its senior unsecured debt at BB+. The outlook is stable.

Fitch said the ratings reflect Nippon Steel's improved but still weak financial profile amid a still severe industrial operating environment characterized by sluggish demand, especially from the domestic construction industry, protectionism by the U.S. and China and the problem of global steel overcapacity.

Chinese demand for steel, however, is rising and remains the main driver for world demand. But Fitch foresees a slowdown in its import demand as production from its domestic steel companies increase.

The agency also notes that the joint venture between Nippon Steel and the Shanghai-based Baoshan will have limited effect on the former's financial performance in the short-term, while it should prove to be an effective strategic move for the company to expand its steel business in China in the long-term.

Nippon Steel's financial profile has improved. It reduced debt by ¥143 billion over one year, or 7%, to ¥1.87 trillion as of March 2003. This was below the company's own target of ¥1.9 trillion. The main contributors were strong operating profit as well as holding capital expenditure.

As a result, net debt to EBITDA ratio improved to 5.3x compared to 7.2x in the previous year, Fitch said. Nevertheless, leverage is not at a favourable level compared to the company's global peers.

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