S&P downgrades WorldCom

Standard & Poor's downgraded WorldCom Inc. and kept the company on CreditWatch with negative implications. Ratings lowered include WorldCom's senior unsecured debt, cut to CCC- from B+, and its preferred stock, cut to C from CCC+.

S&P said the action follows WorldCom's announcement it intends to restate financial statements for 2001 and the first quarter of 2002 due to the overstatement of EBITDA by about $3.8 billion.

The downgrade reflects the high degree of uncertainty surrounding WorldCom's ability to ultimately pay its outstanding debt, S&P said.

Furthermore, the restatement and the expansion of the SEC investigation could adversely impact the current bank negotiations and the company's ability to retain customers, S&P continued. These events increase the likelihood of a debt restructuring or Chapter 11 filing near term.

Moody's downgrades WorldCom

Moody's Investors Service downgraded WorldCom, Inc. and its subsidiaries. The outlook is negative. Ratings lowered include WorldCom's senior unsecured debt, cut to Ca from B1, preferred stock, cut to C from Caa1, Intermedia Communications Inc.'s senior unsecured debt, cut to Ca from B2, subordinated debt, cut to C from Caa1, and redeemable preferred, cut to C from Caa2, and MCI Capital I's preferred stock, cut to C from B3.

Moody's said the downgrade is in response to WorldCom's announcement that it improperly booked $3.8 billion ($3.06 billion in 2001, $797 million in 2002) of expenses as capital expenditures for the past five fiscal quarters (i.e. 2001 and the first quarter of 2002).

Moody's said it is concerned that the company may not be able to recover from the accounting fraud allegations, accounting irregularities and fraud accusations make the successful renegotiation of the bank facilities unlikely, the company is now unlikely to be able to draw down on a key source of liquidity, its $1.6 billion bank facility, even if debt is not accelerated, WorldCom's current cash position and cash generating capability would likely be inadequate to cover its debt maturities in early 2003, and material numbers of current business customers may begin to migrate to other carriers.

The new rating level indicates that recovery of WorldCom's debt will be significantly compromised, Moody's said.

It is unclear at this juncture whether WorldCom's existing bank group will accelerate payment on the $2.6 billion outstanding, Moody's added.

WorldCom is likely to face a substantially limited ability to renegotiate its bank debt and receivable securitization facilities and must take corrective action to generate cash in order to address its upcoming debt maturities and reduce its debt burden, Moody's said.

Fitch downgrades WorldCom

Fitch Ratings downgraded WorldCom, Inc. and kept the company on Rating Watch Negative. Ratings lowered include WorldCom's senior unsecured debt, cut to CC from B and its preferred securities, cut to CC from CCC+. WorldCom's trust preferred securities remain at C.

Fitch said the CC category indicates a high default risk with some kind of default probable.

Fitch said the downgrade follows WorldCom's announcement of accounting irregularities that have led to an overstatement of reported EBITDA by almost $4 billion over the last five quarters (total reported EBITDA over the same time period was approximately $12.7 billion). The restatement will result in a reversal of reported net income into sizable operating losses.

WorldCom, already experiencing a challenging financial, competitive, and operating environment, is now facing insurmountable hurdles, Fitch said. A $30 billion debt burden and continuing financing needs place WorldCom at the mercy of its bankers.

While additional disclosures will elaborate on the extent of the accounting irregularities, potential covenant violations and a protracted legal and regulatory aftermath heighten an already tenuous financial condition, Fitch said.

Fitch said it believes WorldCom's financial condition, employee and capital expense reductions will accelerate the erosion of its business customer base, posing further challenges to stabilizing its operations.

Given its debt burden, the uncertainty over obtaining additional bank financing, and a total of $5.8 billion in debt maturities in 2003 and 2004, Fitch said it believes a debt restructuring is highly probable.

S&P puts Alamosa on watch

Standard & Poor's put Alamosa Holdings Inc. CreditWatch with negative implications. Ratings affected include Alamosa Delaware Inc.'s $350 million accreted face value senior discount notes due 2010, $250 million 12.5% senior unsecured notes due 2011 and $150 million notes due 2011, all at CCC, and Alamosa Holdings LLC's $333 million senior secured credit facility at B-.

S&P said the CreditWatch listing reflects its increased concerns over the impact of Alamosa's slowing growth on covenant compliance and liquidity.

The company recently reduced its guidance for net subscriber additions for the second quarter of 2002 by 30% to 50% due to competition, reduced additions of sub-prime customers, and a general expectation of slower subscriber growth, S&P noted.

The lower growth trajectory and intensifying competition may make it challenging for Alamosa to meet the minimum subscriber level under its bank loan covenant, particularly when this tightens in the fourth quarter of 2002, S&P said. These factors could also narrow the cushion allowed by the total debt-to-EBITDA and EBITDA-to-pro forma debt service coverage covenants for execution risks in 2003.

Aside from the covenant issue, Alamosa has limited liquidity beyond 2002, S&P added. Alamosa had about $155 million in cash and bank availability at the end of the first quarter of 2002. S&P projects that cash usage will likely be in the $80 million area for the remainder of 2002, leaving the company with about $75 million in liquidity at year end.

Given industry volatility and that Alamosa is unlikely to generate material free cash flow in 2003, this level of liquidity does not provide a significant margin of safety, S&P said.

S&P cuts Adelphia to D

Standard & Poor's downgraded Adelphia Communications Corp. to D including its senior unsecured debt, subordinated debt and preferred stock, cut to C from D.

The actions follows Adelphia's Chapter 11 filing, S&P said.

S&P rates Alliance Laundry's loan B, raises outlook

Standard & Poor's assigned a B rating to Alliance Laundry Systems LLC's proposed $243 million bank facility due 2007 and affirmed the B corporate credit rating and CCC+ subordinated debt ratings. The outlook was changed to stable from negative.

The outlook change is due to the company's refinancing of its existing secured bank debt, S&P said. The new loan has an extended maturity, reduced annual amortization and revised financial covenants. It consists of a $193 million term loan due 2007 and a $50 million revolver due 2007. Security is all tangible and intangible assets and capital stock. Upon completion of the transaction the B rating on the existing loan will be withdrawn.

"The ratings for Alliance Laundry reflect its high debt leverage and thin credit protection measures offset by the company's solid market position in the niche commercial laundry equipment market," S&P said.

Pro forma for the proposed refinancing, S&P expects EBITDA coverage of interest to be at least 1.7 times, with lease-adjusted debt to EBITDA to be about 6 times in 2002.

S&P lowers Atlantic Express

Standard & Poor's downgraded Atlantic Express Transportation Corp. and kept the company on CreditWatch with negative implications. Ratings lowered include Atlantic Express' $120 million 10.75% senior secured notes due 2004, cut to CCC from B.

S&P said the action is in response to Atlantic Express' weakening financial profile and a delayed March (fiscal third quarter) 2002 10-Q filing with the SEC.

Atlantic Express Transportation's credit profile began to weaken in fiscal 2001 and this trend has continued into 2002, S&P said. In addition, the company has delayed filing its March 2002 10-Q report with the SEC, without any indication of when the filing is expected to occur.

In 2001, Atlantic Express Transportation's operating profit narrowed, which combined with higher interest expense due to an increase in outstanding debt, resulted in a wider loss of $7.9 million, S&P said.

This trend has continued in 2002, with the company's loss widening to $10.1 million in the first six months versus $7.2 million in the prior year period. The company has limited financial flexibility due to its privately held status and only $4.4 million available under its $125 million secured revolving credit facility at Dec. 31, 2001 (the latest information available), S&P added.

In addition, the company has indicated that it could have difficulty funding increased insurance and workers' compensation costs through cash on hand, internally generated funds, and external sources through December 2002, S&P said.

Moody's puts Applied Extrusion Technologies under review

Moody's Investors Service placed Applied Extrusion Technologies Inc.'s ratings under review for possible downgrade. Affected ratings include $275 million 10.75% senior unsecured notes due 2011 at B2, $80 million revolver at Ba3, senior implied rating at B1 and senior unsecured issuer rating at B3.

The review is in response to the company's recent announcement of its potential sale to unsolicited bidders as well as in response to the decline in operating performance through the first half of fiscal 2002, Moody's said.

At March 31, total debt to EBIDTA was at 9.6 times, EBIDTA less capital expenditures was insufficient to cover interest expense and EBITA return on assets was about 7%.

S&P upgrades Advance Auto

Standard & Poor's upgrade Advance Auto Parts Inc. and removed it from CreditWatch with positive implications. The outlook is stable. Ratings affected include Advance Auto Parts' $60 million 12.875% senior discount debentures due 2009, raised to B from B- and Advance Stores Co. Inc.'s $200 million 10.25% senior subordinated notes due 2008, raised to B from B-, and $160 million revolving credit facility due 2006, $165 million term loan due 2006 and $250 million term bank loan due 2007, all raised to BB- from B+.

S&P said the upgrade was based on Advance Auto's improved operating performance, as it has continued to generate strong same-store sales in a challenging economy.

Free cash flow generation, an $89 million secondary equity offering and the expected refinancing of a portion of its bank facility have contributed to significant debt reduction since the company completed the acquisition of Discount Auto Parts Inc. in November 2001, S&P said.

The risks of an aggressive acquisition strategy and high leverage are mitigated by the company's leading position in the auto supply retail segment and its success in integrating previous acquisitions, S&P said.

Lease-adjusted operating margins improved to 13% in 2001 from 11% in 1999. Margins should improve in 2002 if the company realizes the $30 million of expected synergies from the Discount Auto Parts integration and other operating initiatives. EBITDA coverage of interest is trending at about 3 times and could improve to more than 3x in 2002 if the company continues to improve earnings and reduce debt, S&P said.

S&P rates Plains Exploration corporate credit BB-

Standard & Poor's assigned a BB- corporate credit rating to Plains Exploration & Production Co. LP. The company is on CreditWatch with negative implications.

S&P said the action follows Plains Resources Inc.'s announcement it will spin off about 90% of its oil and gas exploration and production business into a new entity, Plains E&P.

Under the proposed spin-off, Plains Resources will distribute substantially all of its E&P assets (but not its 29% ownership interest in Plains All American Pipeline LP) on a tax-free basis through the distribution of Plains E&P common stock, S&P noted. In conjunction with this spin-off, Plains E&P intends to undertake a common stock IPO that will float slightly less than 20% of the company. Proceeds from the issuance are expected to repay debt anticipated to be outstanding at Plains E&P.

The negative CreditWatch listing on Plains E&P reflects the likelihood of a downgrade to a B+ corporate credit rating if an equity issuance yielding proceeds of at least $60 million is not completed by Oct. 31, 2002, S&P said.

S&P upgrades Ispat

Standard & Poor's upgraded various Ispat issues and removed them from CreditWatch with positive implications. The outlook is stable.

Ratings affected include Ispat Europe Group SA's €150 million 11.875% notes due 2011, Ispat Inland Inc.'s 7.9% first mortgage bonds series R due 2007, Ispat Inland LP's $850 million senior secured credit facility and Ispat Sidbec Inc.'s $400 million senior secured credit facility, all raised to B- from CCC+.

Moody's rates Plains Exploration notes B2

Moody's Investors Service assigned a B2 rating to Plains Exploration & Production Co., LP's planned $250 million senior subordinated notes due 2012. The outlook is positive.

Net proceeds from Plains Exploration's senior subordinated note offering together with expected initial borrowings of $66 million under a planned new $300 million senior secured credit facility (with an initial borrowing base of $225 million) are intended to be distributed to Plains Resources which intends to repay in full amounts outstanding under Plains Resources' existing credit facility and redeem its $267.5 million 10.25% senior subordinated notes due 2006.

The proceeds from Plains Exploration's subordinated note issue will be held in escrow to be applied to the redemption of Plains Resources' existing senior subordinated notes.

The positive outlook anticipates Plains Resources planned IPO of slightly less than 20% of Plains Exploration prior to its spin off (although the spin off could proceed without completion of the planned IPO), Moody's said.

Proceeds from the IPO would build financial flexibility for Plains Exploration to opportunistically pursue strategic transactions to accelerate growth. A ratings upgrade then could follow acquisitions that build basin diversification or intensify its position in its existing core areas, if well bought and funded appropriately, Moody's said.

If the IPO is not completed, Moody's said it could adjust the ratings outlook to stable.

S&P cuts Gemstar-TV Guide outlook

Standard & Poor's lowered its outlook on Gemstar-TV Guide International Inc. to negative from stable. Ratings affected include Gemstar's senior unsecured debt at BB+ and its subordinated debt at BB-.

S&P said the action reflects its concern that Gemstar could face increasing competition following a determination by a judge at the U.S. International Trade Commission that the patents of Gemstar have not been infringed by rival guides included in imported set-top cable-television boxes. The ITC also ruled that the company misused one of the patents which was found to be unenforceable for failure to name a co-inventor. The judge did uphold the validity of all patents in suit.

The ruling potentially undermines the company's position as industry leader in developing and licensing TV programming guide technology, its ability to win new or renew existing contracts, and generate revenues from its technology and interactive programming guides in line with expectations, S&P said.

The company may now have to transition to a more product-oriented, marketing-driven, and customer-centric operating model given that the foundation for a legal strategy has weakened, S&P added.

Ongoing patent infringement litigation and the potential for future management instability exacerbate concerns, S&P said.

Fitch confirms Nash Finch

Fitch Ratings confirmed Nash Finch's bank credit facility rating at BB and its senior subordinated debt at B+. The outlook is stable.

Fitch said Nash Finch's ratings reflect a steady financial profile and position as a niche operator in the food wholesale industry.

They also consider that Nash Finch operates in a highly competitive industry that has experienced significant consolidation both at the wholesale and retail level, Fitch said.

Going forward, the company must maintain above average operating execution as it faces competition from larger, better capitalized operators, Fitch added.

Nash Finch continues to enhance both its retail and wholesale retail businesses in its core market of the Upper Midwest, by making select acquisitions of its wholesale customers as well as its competitors which increases its retail store base and improving operating efficiencies in order to attain new wholesale customers, Fitch noted. In addition, the company is developing niche retail concepts such as Avanza and Buy n Save to differentiate themselves from some of their larger competitors.

Moody's rates LBI notes B3

Moody's Investors Service assigned a B3 rating to LBI Media, Inc.'s planned $200 million of guaranteed senior subordinated notes. The outlook is stable. Moody's does not rate the company's $150 million senior secured reducing revolving credit facility due 2009.

Moody's said the ratings reflect the risks posed by LBI's high financial leverage and modest cash flow coverage of interest, along with the potential for the company to continue to pursue debt financed acquisitions.

In addition, the company faces challenges associated with reformatting newly acquired stations, which requires building station revenue and cash flow from scratch; the challenges associated with operating independent television stations, especially effectively managing programming costs; and the development of adequate management depth, Moody's said.

Further, the ratings consider the high concentration of the company's revenue and cash flow in the Los Angeles market, as well as the company's relatively limited operating history and track record of operating with a highly leveraged balance sheet.

Positives include LBI's station presence in important markets and margin performance that has been above the company's comparative industry peer group, Moody's said.

Moody's also views the company's station portfolio, particularly the television and FM radio assets in Los Angeles and Houston, as providing reasonably good underlying asset coverage for subordinated noteholders.

The ratings draw additional support from the growth opportunity that exists for Spanish-language media generally, Moody's added.

As of March 31, 2002, LBI's leverage is high with Debt/EBITDA of 6.4 times and cash flow coverage is modest with (EBITDA-CapEx)/Interest of 1.6 times, pro forma for the announced transactions, Moody's said.

Moody's rates Oregon Steel notes B1, raises outlook

Moody's Investors Service assigned a B1 rating to Oregon Steel Mills, Inc.'s proposed $300 million offering of guaranteed first mortgage notes due 2009 and confirmed its $228 million of 11% guaranteed first mortgage notes due June 2003 at B1. The latter rating will be withdrawn following the

repayment of the notes. Moody's also raised the outlook to stable from negative.

Moody's said the ratings reflect the cyclical and competitive nature of Oregon Steel's business, low returns on assets, its exposure to the volatile energy industry for sales of welded and seamless pipe, the potential for cost pressure due to higher energy, raw material and labor costs, and environmental risks and costs inherent to the steel industry.

Positives include Oregon Steel's moderate leverage, the diversity of its steel products, favorable market outlooks for rail, rod, and to a lesser extent, plate products, and a favorable competitive position within its primary western U.S. market, Moody's added.

The rating of the first mortgage notes benefits from the value of the fixed assets securing the notes, Moody's continued. The company's plants are well-maintained and produce a variety of specialized products at attractive costs.

The change to a stable outlook reflects the favorable impact of Section 201 and other trade rulings on many of Oregon Steel's products and improved supply-demand balance throughout North America due to the strengthening economy and idled capacity at several financially distressed plate, rod, and coil producers, Moody's said.

S&P says JC Penney rating unchanged

Standard & Poor's said the exchange offer announced by J.C. Penney Co. Inc. has no impact on the company's rating of BBB- or its negative outlook.

"The exchange offer is not deemed coercive, and it improves the company's debt maturity schedule," S&P commented.

S&P upgrades Domino's ratings

Standard & Poor's upgraded Domino's Inc.'s corporate credit rating to BB- from B+, senior secured bank loan to BB- from B+ and subordinated debt to B from B-. The upgrade was based on improved operating performance and credit protection measures.

Systemwide sales increased 6.8% to $3.8 billion in 2001, same-store sales for domestic franchise stores rose 8% in the first quarter of 2002 and operating margins expanded to 15.4% for the 12 months ended March 24.

Profits increased resulting in improved credit protection measures, with EBIDTA coverage of interest for the 12 months ended March 24 at 2.6 times, up from 2.0 times in the comparable period of 2001.

The ratings reflect Domino's participation in the highly competitive pizza industry, a narrow product focus, and a significant debt burden, S&P said. These factors are partially mitigated by the company's strong brand identity, simple and cost-efficient operating system, and improved profitability.

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