S&P cuts Tom's Foods

Standard & Poor's downgraded Tom's Foods Inc. including cuttings its $60 million 10.5% senior secured notes due 2004 to B- from B. The outlook is negative.

S&P said the action reflects the company's weak operating performance for the 24-week period ended June 14, 2003 and S&P's expectation of weaker credit protection measures for the full fiscal year 2003.

The decline in profitability is due largely to decreased contract pack production and increased energy and commodity costs.

S&P said it is concerned that Tom's Foods' financial performance will continue to be pressured by challenging business conditions in the intermediate term. Moreover, the timing of any recovery in credit protection measures is uncertain.

The rating actions also reflect S&P's concerns that continued deterioration in operating performance could hurt the company's ability to refinance its credit facility, which matures in August 2004, and its 10.5% senior secured notes due Nov. 1, 2004.

Tom's Foods continues to be highly leveraged, S&P noted. Lease-adjusted EBITDA coverage of interest expense was about 2x and lease-adjusted total debt to EBITDA was about 4.6x for the 24 weeks ended June 14, 2003. However, these measures are weaker when taking into consideration about $49.2 million of preferred stock and related non-cash pay dividends. S&P said it believes Tom's Foods will be challenged to maintain credit protection measures at these levels.

S&P raises Universal Hospital outlook, rates notes B-, loan BB-

Standard & Poor's assigned a B- rating to Universal Hospital Services Inc.'s proposed $250 million senior unsecured note offering and a BB- to its proposed $100 million credit facility, confirmed its existing ratings including its corporate credit at B+ and raised the outlook to stable from negative.

S&P said the stable outlook reflects increased liquidity and an extended maturity schedule resulting from the expected successful completion of the proposed leverage recapitalization.

Universal Hospital's ratings reflect its dependence on its narrow but relatively predictable business of providing movable medical equipment and support on a supplemental or outsourced basis, as well as its heavy debt burden, S&P said.

In addition to its vulnerability to vagaries in its narrowly focused business, the company will continue to operate with a heavy debt burden. S&P said it expects lease-adjusted debt to EBITDA to be 4.3x at close, a slight increase from 4.2x in 2002.

While aggressive, this degree of leverage is characteristic for the rating category. Moreover, cash flow has improved recently, largely because of growth in the equipment sales and biomedical services components of the business. Funds from operations to lease-adjusted debt is currently about 20%, up from 16% in 2001. Still, high-cost debt dominates the capital structure, and pretax coverage of interest is only 1.0x, S&P noted.

Universal Hospital's senior secured bank facility is rated one notch higher than the company's corporate credit rating because S&P is reasonably confident of full recovery in the event of a default.

Moody's confirms Intrawest, rates notes B1

Moody's Investors Service assigned a B1 rating to Intrawest Corp.'s $250 million senior note offering due 2013 and confirmed its existing ratings including its senior notes at B1. The outlook is stable

Moody's said the ratings assignment and confirmation reflect Intrawest's diversified portfolio of properties, strategy of minimizing real estate risk by pre-selling real estate units, consistent operating results, success at developing integrated resort villages at several resorts and high barriers to entry in the ski resort business.

Additionally, the ratings consider the company's strong backlog of real estate properties providing a somewhat predictable cash flow stream - although as more projects are done through its Leisura joint ventures, Intrawest's on-balance sheet backlog should decline.

The ratings also incorporate the company's reliance on destination travel and recognize the significant amount of operating cash flow that is derived from real estate operations and a single ski resort such as Whistler/Blackcomb. Also considered are the capital-intensive nature of the ski industry and the non-recurring nature of the company's real estate sales.

In the first half of 2003 Intrawest entered into two joint ventures, Leisura Development Canada and Leisura Development US, in which the production phase for most large real estate projects are expected to take place going forward. Intrawest will be a minority investor in both partnerships but will not provide any guarantees or financial support. Moreover, all construction financing will be done by the joint ventures and will be non-recourse to the partners. Although the joint ventures may result in a reduction in on-balance sheet leverage over the long term, Moody's said it does not view the transactions as having a near-term ratings impact.

The stable ratings outlook reflects Moody's view that Intrawest will continue its de-leveraging efforts and liquidity will remain adequate, as well as its expectation that the company's Ski and Resort operations should begin to generate positive free cash flow as capital requirements in this segment decline to more normal levels.

S&P cuts Rayovac

Standard & Poor's downgraded Rayovac Corp. including cutting its €125 million term B loan due 2009, €40 million revolving credit facility due 2008, €50 million term A loan due 2008, $120 million revolving credit facility due 2008 and $300 million term B loan due 2009 to B+ from BB-. It confirmed Rayovac's 350 million 8.5% senior subordinated notes due 2013 at B-. All ratings were removed from CreditWatch negative.

S&P also upgraded Remington Products Co. LLC including raising its $130 million 11% senior subordinated notes due 2006 and $50 million 11% senior subordinated notes due 2006 to B- from CCC and removed them from CreditWatch positive.

The outlook for Rayovac is stable.

S&P said the action follows the completion of Rayovac's acquisition of Remington.

The rating actions are in line with S&P's previously stated intentions.

The downgrade reflects Rayovac's more aggressive financial policy and weaker credit protection measures pro forma for the $322 million debt-financed acquisition of Remington Products, S&P said. Also, there is a significant degree of integration risk, as Remington will represent Rayovac's first acquisition outside the battery industry. Partially offsetting these risks is the broadening of Rayovac's product portfolio.

Rayovac has stated its intention to grow externally and has made a number of acquisitions within the battery market during the past several years to accomplish this goal, the most recent being the addition of Varta AG's consumer battery business in October 2002, which expanded Rayovac's global presence significantly and made the company the third-largest battery manufacturer in the world.

S&P said it believes that the Remington acquisition will challenge Rayovac's management in light of difficult industry fundamentals. The U.S. personal care appliance segment is very competitive and relatively mature, with slow volume growth, highly seasonal sales patterns and limited pricing flexibility.

Higher debt leverage from the acquisition will result in a material weakening of credit protection measures (adjusted for operating leases and nonrecurring charges) on a pro forma basis. S&P expects that EBITDA interest coverage for fiscal 2003 (ended Sept. 30) will be in the 2.5x area, and debt to EBITDA will be about 5x. S&P also expects that Rayovac's credit protection measures will strengthen in the intermediate term through debt repayment and higher operating profits, and anticipates that future Rayovac acquisitions will be financed in a manner consistent with the revised ratings.

S&P rates Paramount notes B

Standard & Poor's assigned a B rating to Paramount Resources Ltd.'s proposed $150 million bonds due 2010.

S&P said the bond issue serves to increase and diversify the company's funding sources and as its capital expenditures will focus on the development and exploitation of its existing asset base serves to partially prefund Paramount's near-term capital program.

Paramount's below-average business profile reflects the company's exploration and production focus on natural gas production, its small proven reserve base and its limited geographic diversification.

The company's six-year reserve life index (on a gross and net proven basis) reflects Paramount's focus on shallow natural gas production, with annual declines of about 20%-25%, S&P said. Although 91% of the company's proven reserves and 93% of its production are concentrated in Alberta, Paramount's sizable portfolio of 3.1 million net acres of undeveloped land provide good growth prospects in the Western Canadian Sedimentary Basin, the Northwest Territories and Canada's East Coast.

Although Paramount had historically maintained a strong balance sheet, and its operating cash flow interest coverage measures are nominally strong for the B ratings category, the company's financial profile is characterized more by Paramount's growth targets and the required spending to meet those objectives, S&P said.

Moody's confirms Birds Eye, loan on review

Moody's Investors Service confirmed Birds Eye Foods, Inc. including its $200 million 11.875% senior subordinated notes due 2008 at B3 and put its $200 million senior secured revolving credit facility maturing 2007 and $270 million senior secured term loan maturing 2008 on review for possible downgrade to from Ba3. The outlook is stable.

Moody's said the credit facilities would be downgraded if the company completes a possible tender offer for up to $150 million of its $200 million senior subordinated notes. The company announced it has secured an amendment to its credit facilities to permit such a transaction.

The ratings adjustment would reflect the removal of a large portion of junior capital from Birds Eye's balance sheet, which would leave the secured revolver and term loan as the bulk of the company's $336 million of pro forma June 30, 2003 debt.

The confirmation takes into account materially lower net leverage after a large fiscal 2003 build-up in cash balances to $154 million at June 30, 2003, primarily from inventory reduction and asset sales.

However, the rating also reflects flat underlying frozen vegetable category demand trends, continuing margin pressure from a consolidating retail and foodservice customer base, and potential for acquisition activity to grow the business.

Pro forma for the $150 million subordinated note tender offer and a $13 million term loan payment, Birds Eye would have June 30, 2003 total debt of $336 million, or 2.9x last 12 months EBITDA of $114 million. Debt is at a seasonal low in June, however, and would be higher if adjusted for revolver usage during the year, which Moody's estimates would increase leverage to about 3.6x EBITDA.

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