Moody's cuts Unicco

Moody's Investors Service downgraded Unicco Service Co. including cutting its $47 million 9.875% senior subordinated notes due 2007 to Caa1 from B2. The outlook is negative.

Moody's said the negative outlook reflects the uncertainty surrounding the company's financial position.

The downgrade is because of Unicco's technical covenant default under its existing secured credit facility (not rated) and the indenture governing the 9.875% senior subordinated notes, Moody's said. The downgrade also reflects the challenges that Unicco has had in dealing with the financial difficulties at Ashmont Insurance Co. Ltd., its captive insurance affiliate.

Unicco had provided certain guarantees and is obligated to pay the deductibles in certain insurance contracts that were previously reinsured with Ashmont. As a result of Ashmont's difficulties, Unicco has had to make various payments including non-insurance related liabilities related to Ashmont. These payments and the uncertainty surrounding Unicco's related liabilities have clouded the company's financial position and overall credit quality in part because they have restricted the company's ability to post audited financial results.

Moody's noted that Unicco currently maintains a self insured retention program, that limits its liability, thereby allowing the company to work around Ashmont's troubles but also increasing the possibility for cash flow volatility. Unicco's performance has been hurt by economic conditions and has seen increased pricing pressure from the company's customers. As a result, the company's margins and free cash flow generation have been under pressure.

Fitch cuts Asiana

Moody's Investors Service downgraded Asiana Airlines, Inc. including cutting its senior unsecured foreign-currency debt to CCC+ from B. The outlook is negative.

Moody's said the rating reflects the agency's concern over ongoing liquidity pressure faced by Asiana and its weak financial performance in the second quarter in the wake of the SARS (severe acute respiratory syndrome) outbreak in Asia.

Fitch said the company has a high dependence on short term borrowings, and hence a major refinancing risk. Its short-term debt of KRW814.2 billion represented about 1x of 2002 EBITDAR and 36% of total on-balance sheet debt as of December 2002.

The company has low financial flexibility and limited funding options. In the last two years, the company has utilized a variety of funding sources including sale and lease back transactions, operating leases, securitization of future revenue streams and asset sales to meet its short-term debt obligation.

The company also has a low cash balance and limited undrawn credit facilities and unencumbered assets.

Its EBITDAR/(rent+interest) ratio, which fell sharply to 1.19x in the first quarter of 2003 from 1.5x in 2002, could drop further in the second quarter, Fitch said. This could threaten the 1.1x threshold required by the OZ receivable securitization transaction, which in turn, among other events, could trigger early amortization and put further pressure on the company's liquidity position.

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