Moody's rates new Conseco notes Caa2, downgrades old notes

Moody's Investors Service assigned a Caa2 rating to a series of six guaranteed senior notes issued by Conseco, Inc. in a recently concluded voluntary par-for-par exchange for six existing Conseco senior unsecured notes and downgraded the old notes not exchanged to Caa3 from Caa1. It also downgraded the trust preferred stock to Ca from Caa3. The outlook is negative.

The new longer maturity senior unsecured notes are subordinated to existing bank loans and structurally senior to the old senior unsecured notes, Moody's noted, adding that they are guaranteed by CIHC, Inc. - a wholly owned subsidiary of Conseco, Inc., which owns the stock of the company's operating entities.

Moody's said the actions reflect:

--The loss of certain critical claims-paying ratings of operating insurance subsidiaries, which are widely monitored and used by retail distribution channels. Loss of those ratings may make it more difficult to sell new business and to maintain stable levels of surrender and lapse activity.

--Continued uncertainty surrounding the company's cash raising initiatives. Moody's believes Conseco may not be in a position to have all of the cash resources needed to make its Oct. 15, 2002 principal payment until approximately the end of September. If any, or all, of certain cash raising initiatives cannot be completed before Oct. 15, it is unclear whether Conseco will be able to avoid a payment default on its 8.5% senior unsecured notes.

Moody's added that it continues to believe that Conseco's future beyond October 2002 rests on a radical change in the company's capital structure.

Such a restructuring needs to address the current imbalance between holding company sources of cash and its debt service needs, Moody's said.

The company's strategy of selling or reinsuring blocks of insurance business is unsustainable over the medium term, the rating agency added.

S&P cuts Conseco

Standard & Poor's downgraded Conseco Inc. including cutting its senior notes and notes to CCC+ from B and trust preferreds and Feline Prides to CC from CCC. The outlook is negative.

S&P said it cut Conseco because of the "immense pressure" on Conseco and its subsidiaries to meet the substantial debt and interest payment obligations due over the next two years.

Through June 30, 2002, Conseco has about $650 million principal and interest payment remaining for the balance of 2002 and about $1 billion per year for 2003 and 2004, S&P said.

Conseco will be severely stretched to meet its obligations over the next two years because of the continuing pressure on operational earnings associated with the weak economy and the uncertainty surrounding ongoing asset dispositions, S&P said.

As a result, S&P said it is revising its expectation of the insurance operations' GAAP pretax earnings to significantly less than the earlier expectation of $800 million per year.

The company has disposed of or is in the process of disposing of several non-core operations, which will contribute nearly $300 million for the remainder of 2002, the rating agency noted.

S&P said it believes the disposal of operations will have to continue to support the debt repayment.

Although the debt holders that exchanged their bonds in early 2002 are senior to the holders that did not extend, S&P said it has not distinguished between these two classes because of the significant level of bank debt that is senior to both these classes.

S&P rates URS loan BB-, notes B

Standard & Poor's assigned a BB- rating to URS Corp.'s proposed $100 million term loan due 2007, $200 million revolver due 2007 and $350 million term B loan due 2008 and a B rating to its planned $250 million notes due 2012. The outlook is stable.

The bank facility is secured by a lien on all material tangible and intangible assets of URS and its subsidiaries, S&P noted. Financial covenants include minimum fixed charge coverage, maximum debt leverage, and minimum current ratio.

URS' ratings reflect its solid position in the highly competitive and fragmented engineering services markets and its aggressive financial profile, S&P said.

Leading market positions, a highly variable cost structure, and modest growth opportunities over the next couple of years limit downside ratings potential, S&P added.

A very aggressive financial policy and profile, the potential for additional debt-financed acquisitions to fund management's growth initiatives, and meaningful debt maturities restrains ratings upside potential, S&P said.

S&P rates MedQuest's loan BB-

Standard & Poor's rated MedQuest Inc.'s proposed $80 million senior secured credit facility due Aug. 2007 at BB-, proposed $180 million subordinated notes due Aug. 2012 at B- and assigned a corporate credit rating of B+. The outlook is stable.

The speculative-grade ratings on MedQuest reflect the company's single-business-line concentration, ambitious growth plans, and very highly leveraged capital structure, S&P said. Disciplined operating strategies, top-tier standing in an otherwise highly disaggregated market, and the high-margin, rapidly growing nature of its specialty medical field partly offset these vulnerabilities.

Operating margins are expected in the 30% area and EBITDA interest coverage is expected to average around 3 times.

S&P takes Primedia off watch

Standard & Poor's confirmed Premedia Inc.'s ratings and removed them from CreditWatch with negative implications. Ratings affected include Primedia's $100 million 10.25% notes due 2004, $300 million 8.5% senior notes due 2006, $200 million 7.625% senior notes due 2008, $500 million 8.875% senior notes due 2011, $475 million revolving credit facility due 2008, $100 million term loan A due 2008 and $425 million term loan B due 2009, all at B, and its $175 million exchangeable preferred stock due 2010 series G, $200 million exchangeable preferred stock series C and $125 million 9.2% exchangeable preferred stock due 2009 series F, all at CCC. The outlook is negative.

Standard & Poor's said the action is in response to a 37% increase in Primedia's second quarter EBITDA from continuing operations. That rise was in line with S&P's expectations.

In addition, management has taken appropriate measures to assure immediate term liquidity, S&P said.

EBITDA coverage of interest expense and preferred dividends declined to 1.0 times in the 12 months ended June 30, 2002, from 1.3x in 2000, S&P noted. Despite flat EBITDA in the first half of 2002, the company expects full-year 2002 EBITDA from continuing businesses to increase more than 20% due to cost reductions already taken, the elimination of Internet losses, and a full-year ownership of EMAP USA.

S&P said it takes a cautious view of 2002 EBITDA growth and gains in interest coverage, which may be restricted by the uncertain industry outlook for traditional and Internet advertising demand.

Moody's rates new Hawk notes B2, bank loan B1

Moody's Investors Service assigned a B2 rating to Hawk Corp.'s proposed $65 million of new guaranteed senior unsecured notes due approximately June 2006 expected to be issued at or near par on conclusion of an exchange offer for its existing senior unsecured notes due December 2003 and assigned a B1 rating to its proposed $53 million of guaranteed senior secured credit facilities made up of a $50 million guaranteed senior secured asset-based revolving credit facility due approximately February 2006 and a $3 million guaranteed senior secured capital expenditures revolving credit facility convertible to a term loan due approximately February 2006. The existing notes and credit facility were confirmed at B2 and B1 respectively but will be withdrawn on completion of the transaction. The outlook remains negative.

Moody's said the ratings and negative outlook reflect the sharply deteriorated debt protection measures which Hawk has been consistently reporting beginning with the second quarter of 2001, together with the rating agency's limited optimism that the company's leverage, interest coverage, or return on assets will approach historical levels over the near-to-intermediate term.

The company's performance decline over the past year-and-a-half is attributable to a combination of factors, including Hawk's exposure to highly cyclical end markets in the face of a weak overall economy; the sharp downturn suffered by Hawk's aerospace friction business following the Sept. 11 terrorist attacks, and the prolonged decline in overall commercial aerospace demand; substantial out-of-pocket costs incurred in connection with several start-up operations including new plants in China and Mexico; and Hawk's inability to completely absorb its fixed costs in the face of materially lower volumes, Moody's said.

However Moody's said the proposed exchange will substantially alleviate its concerns about the adequacy of Hawk's near-to-intermediate term liquidity position.

S&P raises Williams Scotsman

Standard & Poor's upgraded Williams Scotsman Inc. including raising its $400 million 9.875% senior notes due 2007 and $150 million 9.875% senior unsecured notes due 2007 to B from B-. The ratings are removed from CreditWatch with positive implications and the outlook is stable.

S&P said the upgrade is in response to Williams Scotsman's improved financial flexibility after the recent sale of $150 million of senior unsecured notes and $670 million of secured credit facilities. The actions had already been factored into the BB- rating on the secured credit facilities.

The ratings reflect Williams Scotsman's strong number-two position in the somewhat recession-resistant mobile office leasing business, offset by an aggressive financial profile, S&P said.

The leasing of mobile units has tended to be somewhat recession-resistant due to the wide customer base that operates in approximately 470 industries, including construction, education, healthcare, and retail, S&P noted. Leasing mobile office units offers customers more flexibility and lower costs than building permanent facilities for certain purposes.

In addition, Williams Scotsman has the flexibility to redeploy assets to different geographic areas if demand and/or supply necessitates, S&P said. As a result, the company's utilization rates have tended to be relatively stable in the low-to-mid 80% area, resulting in predictable and stable cash flow.

Williams Scotsman's credit ratios remain relatively weak due to increasing levels of debt used to expand its fleet, S&P said. Pretax interest coverage has averaged in the mid-1 times area, EBITDA coverage at around 2x, and funds from operations to debt at around 10%. These are all adequate for the rating category, but substantially below levels achieved by higher rated transportation equipment lessors.

S&P keeps Tyco on watch

Standard & Poor's said Tyco International Ltd. remains on CreditWatch with negative implications. Ratings affected include Tyco's senior unsecured debt at BBB-, subordinated debt at BB+ and preferred stock at BB.

S&P's announcement was made in response to the resignations of the CFO and General Counsel.

After last week's appointment of a new CEO, this development is not unexpected, S&P said, adding that it does not believe the resignations should impede debt refinancing.

S&P cuts Pueblo Xtra

Standard & Poor's downgraded Pueblo Xtra International Inc. including lowering its $177.3 million 9.5% senior notes due 2003 to C from CCC- and its $43 million revolving credit facility due 2003 to CCC from B. The outlook is negative.

S&P said the downgrade is in response to Pueblo Xtra's announcement that its operating subsidiaries will not pay $8.4 million of interest due to Pueblo Xtra, the parent company.

As a result of this action, it is unlikely that Pueblo Xtra will be able to make the $8.4 million semi-annual interest payment due Aug., 2, 2002, on its $177 million senior unsecured notes maturing in August 2003.

S&P puts USI on watch developing

Standard & Poor's put USI Holdings Corp. on CreditWatch with developing implications including its $75 million revolver and $125 million bank loan at B+.

S&P said the action is in response to USI's planned IPO.

If USI successfully completes the IPO, it is expected to pay down its debt significantly, thereby substantially improving leverage and coverage ratios, S&P said. This scenario could lead to the ratings being affirmed or raised by one notch.

If the IPO is unsuccessful, the company's high leverage, poor operating results, and history of having to amend its bank debt covenants to remain in compliance will likely lead to the ratings being lowered by one or two notches, S&P added.

S&P puts Hawk on positive watch

Standard & Poor's put Hawk Corp. on CreditWatch with positive implications. Ratings affected include Hawk's $100 million 10.25% senior notes due 2003 at CCC+ and its $35 million secured term loan due 2003 and $50 million secured revolver due 2003 at B.

S&P said the action is in response to Hawk's announcement of an exchange offer for its senior unsecured notes and its expectation it will obtain a new bank credit facility in the near term.

As a result of Hawk's proposed transactions, the company's near-term refinancing risk should be eliminated and the company should have adequate liquidity to help finance its operating needs, S&P said.

S&P said it views both transactions favorably because they reduce Hawk's near-term refinancing risk, reduce scheduled debt amortization payments, and provide the company with additional liquidity.

If the transaction be completed as proposed, the bank loan would be rated B+ and the notes B-, S&P added.

S&P rates Leiner bank loan B

Standard & Poor's assigned a B rating to Leiner Health Products Inc.'s $192 million senior secured credit facility. The outlook is stable.

S&P said its assessment of Leiner reflects the company's customer concentration, lack of pricing flexibility in the highly competitive private-label market, vulnerability to adverse publicity, and a leveraged capital structure.

These risk factors are somewhat mitigated by its leading market positions in private-label vitamins, minerals, and supplements and over-the-counter drugs, S&P said.

The company has improved its business profile by restructuring operations and by winning an antitrust lawsuit against its suppliers, forcing them to price products competitively, S&P said. Prior to its Chapter 11 filing and through 2002, Leiner refocused on profitable customers and restructured its business.

With higher profitability, in fiscal 2002, EBITDA coverage of interest expense, adjusted for leases and nonrecurring events, was 1.7 times, up from 0.6x in fiscal 2001, S&P said. The rating agency expects EBITDA coverage will exceed 2.5x in fiscal 2003. EBITDA coverage improved because Leiner reached a settlement with its former bondholders and applied the proceeds from its antitrust lawsuit to reduce debt.

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