Moody's raises Mothers Work outlook, rates notes B3

Moody's Investors Service assigned a B3 rating to the proposed $125 million senior unsecured notes maturing 2010 of Mothers Work, Inc., confirmed its existing ratings and raised the outlook to positive from stable. Confirmed ratings include the company's $56 million senior secured credit facility expiring September 2004 at B1.

The ratings assume completion of the new note issue and a simultaneous equity offering expected to yield $34 million in proceeds.

Proceeds of the equity and notes offerings will be used to retire the existing senior notes, two preferred stock issues, and a small outstanding subordinated note issue, Moody's noted. Excess cash proceeds of about $20 million are expected to go into cash or repay outstanding seasonal bank borrowings.

Moody's said the ratings and positive outlook recognize Mothers Work's improving performance trends, visible in part from increases in net operating cash flow during this fiscal year and from its ability to maintain operating margins while reducing prices on items; and also recognize the benefits to its capital structure from the proposed transaction.

While the transaction is only very modestly deleveraging, the recapitalization will extend Mothers Work's debt maturities and reduce the ultimate financial burden on the company's operations, Moody's said. The preferred securities have been accruing dividends which required an eventual payout in cash.

Moody's added that it also expects the new senior notes to carry a lower interest payment.

Debt protection measures should improve somewhat following the proposed transactions, but are expected to remain modest. EBITDA to interest should rise by a full turn from the 2.2 times coverage reported last year, but EBITDAR to interest plus rents is expected to remain near or below 1.5 times, Moody's said.

Moody's cuts Alcatel to junk

Moody's Investors Service downgraded Alcatel to junk, affecting €5.4 billion of debt securities. Ratings lowered include Alcatel's senior debt, cut to Ba1 from Baa2, and its short-term debt, cut to Not-Prime from Prime-2. The outlook is negative.

Moody's said the action is in response to expected continued declines in telecom equipment demand over the next two years and consequently concerns over the company's ability to timely adjust its cost base and financial flexibility in the current environment.

Management has prepared the company well financially for the expected period of earnings pressure, by shoring up cash liquidity and reducing overall debt. Moody's noted.

However, Alcatel's ample liquidity today is likely to erode over time, if its market continues to decline rapidly, the rating agency said.

The negative outlook reflects continued low visibility of the shrinking order patterns by the telecom carriers and complex challenges for management to turnaround the optics division, which operates in depressed markets, Moody's said.

Moody's raises Invensys outlook

Moody's Investors Service raised its outlook on Invensys plc to stable from negative. The company's long-term senior debt is rated Ba1.

Moody's said the outlook change reflects Invensys' proactive approach for liquidity and refinancing issues as it addressed covenant pressure and arranged a replacement for the most immediate short-term debt maturities.

It reflects also the design and implementation of a comprehensive strategic restructuring program, which is expected to improve the group's profitability and financial profile, the rating agency said.

Future rating actions will be dependent upon the successful execution over the near term of its de-leveraging strategy through asset sales, the extension of the debt maturities and an enhanced sustainable operating profitability.

S&P lowers Mail-Well, rates new loan BB-

Standard & Poor's downgraded Mail-Well Inc. including cutting Mail-Well I Corp.'s $300 million 8.75% senior subordinated notes due 2008 to B from B+, Mail-Well's $150 million 5% convertible subordinated notes due 2002 to B from B+, its corporate credit, senior secured and senior unsecured ratings to BB- from BB and assigned a BB- rating to the company's $300 million secured revolver due 2005, which is secured by inventory, accounts receivables, machinery, capital stock of subsidiaries, intangibles and certain real estate.

The downgrade followed the company's announcement that due to continuing difficult business conditions, the company's second quarter and full year EBITDA would be well below management's previous guidance and S&P's expectations, the rating agency said. As a result, credit measures will not improve to previously expected levels for 2002, S&P added.

Ratings reflect the company's narrow business focus, competitiveness of the industry and weak market conditions. Offsetting these factors is the company's leading market position in the envelope and commercial print segments, S&P said.

EBIDTA for 2002 is expected to be in the range of $125 million to $140 million, down from the previously expected $145 million. EBIDTA coverage of interest expense is expected to be about two times and total debt to EBIDTA is expected at more than five times.

S&P rates GenCorp shelf

Standard & Poor's assigned BB senior unsecured and B+ subordinated debt preliminary ratings to GenCorp Inc.'s $300 million SEC Rule 415 shelf registration.

Also, S&P affirmed the existing ratings of GenCorp., including the 5.75% convertible due 2007 at B+. The outlook is stable.

The ratings reflect a below average business profile, offset by manageable debt levels. The firm has moderate internal cash-generating ability and there is potential for debt-financed acquisitions.

GenCorp sold its electronics and information systems business for $315 million in October with the proceeds used to repay debt. However, acquisitions are an important part of its growth strategy and borrowings are likely to rise again.

Debt to total capital was satisfactory, in the high-40% area at May 31. Environmental issues, although significant, are expected to be manageable financially due to agreements with government agencies and potential reimbursement from insurers.

Management, although acquisitive, is expected to preserve GenCorp's financial risk profile consistent with current ratings.

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