S&P puts PerkinElmer on watch

Standard & Poor's put PerkinElmer Inc. on CreditWatch with negative implications. Ratings affected include PerkinElmer's $100 million revolving credit facility due 2002, $250 million 364-day revolving credit facility, $115 million 6.8% notes due 2005 and $400 million zero-coupon convertible debentures due 2020, all at BBB-.

S&P said the action follows PerkinElmer's announcement that it will retain its Fluid Sciences business and, as a result, will not be able to materially reduce debt and improve credit measures over the near term.

It had been expected that proceeds from the sale of its Fluids Sciences business would be used to materially lower debt and enhance credit measures that are weak for the rating, S&P said. However, the company does plan to meet significant near-term maturities with a pending refinancing.

S&P said it will assess prospects for PerkinElmer's deleveraging of its financial profile and the impact of proposed refinancing actions that extend coming maturities, to determine the effect on the credit profile and resolve the CreditWatch.

The rating agency also noted PerkinElmer faces substantial near-term maturities of about $389 million, due to provisions associated with its convertible bond issue that allow the bonds to be put back to the company in August 2003. Management has received a commitment for a senior secured credit facility of up to $445 million, contingent on issuance of $225 million of new subordinated debt securities. The company intends to use these funds to meet the near-term maturities.

Moody's puts Navistar on review

Moody's Investors Service put Navistar International Corp. and Navistar Financial Corp. on review for possible downgrade, affecting $1.16 billion of debt including Navistar International's senior unsecured debt at Ba1 and subordinated debt at Ba2 and Navistar Finance's senior unsecured debt and medium-term notes at Ba1 and subordinated debt at Ba2.

Moody's said the review is in response to the prolonged downturn in Navistar's truck and engine operations, the cash outflow associated with the company's just-announced restructuring program, and the decision by Ford Motor Co. to not utilize Navistar's V6 diesel engine that was designed to Ford's specifications - Navistar had devoted considerable capital to a facility that was expected to produce these engines under an exclusive, long-term supply agreement.

Moody's said its review will examine the degree to which Navistar's already weak debt protection measures will be further eroded by this more challenging operating environment; the time frame over which the restructuring program, in combination with a newly signed contract with the UAW, will lower Navistar's breakeven point, improve longer-term operating efficiency, and support a recovery in earnings and cash generation; the company's plan to refinance approximately $200 million in manufacturing-company debt that matures in early 2003; Navistar's ability to minimize the rate of cash burn and to preserve an adequate cash/liquidity cushion for its manufacturing operations through 2003; and Navistar Financial's ability to preserve its current level of access to various committed borrowing facilities including the ABS market.

Fitch downgrades Continental

Fitch Ratings downgraded Continental Airlines, Inc. including cutting its senior unsecured debt to CCC+ from B- and its TIDES preferred equity securities to CCC- from CCC. The outlook remains negative.

Fitch said the downgrade reflects the continuing impact of a weak domestic airline revenue environment on Continental's cash flow generation capacity and a deteriorating liquidity outlook.

Although Continental's operating results have consistently beaten those of its major network carrier competitors and should continue to do so (largely as a result of both a revenue premium and a better operating cost structure), the airline is facing several quarters of weak operating cash flow and high fixed financing obligations (interest, aircraft and facilities rents, scheduled debt amortization payments and pension contributions), Fitch said.

Barring a rebound in U.S. air travel demand in 2003 (particularly high-yield business traffic), Continental is likely to see a reduction in its cash balances, Fitch added.

Continental reported a total of $1.3 billion in cash and short-term investments on its balance sheet as of Sept. 30. This level has been sustained as a result of several securities issuances and the sale of a portion of its ExpressJet operation since Sept. 11, 2001. The company has projected a year-ending cash balance of approximately $1.0 billion, assuming no further financing activity in the fourth quarter. In addition to cash on hand, the airline holds 53% of the outstanding shares of its publicly traded Continental Express regional airline affiliate (ExpressJet Holdings, Inc.). If this stake were to be monetized, it could generate $300 to $400 million in cash proceeds at current market levels, Fitch noted. Continental has stated that it does not intend to remain an owner of the shares over the long term. However, Continental management noted in its Oct. 17 earnings call that it has no intention of selling the remaining ExpressJet shares at the depressed market prices that currently prevail.

Fitch withdraws Oakwood Home ratings

Fitch Ratings withdrew its CCC rating on Oakwood Homes Corp. at the request of the company.

Moody's rates Metropolitan Bank notes Ba1

Moody's Investors Service assigned a prospective Ba1 rating to Metropolitan Bank & Trust Co.'s proposed $100-$150 million subordinated notes due 2012. The outlook is stable.

Moody's said the rating reflects MBT's status as the Philippines' largest bank, its well established middle-market franchise, and anticipated strong regulatory support in case of need.

Also incorporated in the rating are the risk that the deteriorating environment could pressure the bank's financial health, which has already been weakened by unfavorable events following Asia's financial crisis, as well as the issue's structural subordination to senior bank obligations, Moody's said

Moody's believes that the risk associated with the issue's subordination is mitigated by the low likelihood that the bank will face a regulatory intervention that could potentially cause credit losses to the noteholders, given the bank's systemic importance.

Moody's lowers International Power outlook

Moody's Investors Service lowered its outlook on International Power plc to stable from positive and confirmed its ratings including its senior unsecured debt at Ba3.

Moody's said the revision is due to the loss in value of International Power's tolling contract with TXU Europe for the Rugeley power plant, due to the deterioration in credit quality of TXU Europe.

Moody's noted that it had previously considered the revenues from the Rugeley contract to be amongst the highest quality available to International Power.

Whilst many uncertainties remain as to the action the Rugeley project finance lenders might take, and any recoveries from TXU Europe should the contract be terminated, Moody's said it believes that the contract may now no longer have ongoing value for International Power.

Moody's believes International Power's initial loss is likely to be limited to its equity investment of £56 million. International Power's corporate facilities do not cross-default to its project financings, and Moody's understands that International Power is unlikely to inject additional capital to support the project financing under these circumstances. However, Moody's notes that the company may eventually have additional exposure through a £70 million letter of credit that it has posted to install flue gas desulfurization equipment to Rugeley.

Moody's assigns Fleming SGL-2 liquidity rating

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Fleming Cos., Inc.

Moody's said the rating considers its belief that operating cash flow will exceed cash interest expense and planned capital expenditures over the next 12 months, regardless of successful divestiture of the retail division or possible loss of additional Kmart distribution business.

Liquidity following the pending asset sales will not materially change given the requirement that virtually all net proceeds be used to pay down bank debt, Moody's noted. The rating agency expects that drawings under the revolving credit facility will increase from third quarter 2002 levels only for short-term working capital needs.

Moody's expects Fleming to maintain access to the revolving credit facility over the next 12 months because it has cushion to meet bank credit agreement covenants, the 2007 and 2012 indentures carve out additional revolving borrowings from their fixed charge incurrence tests, and the credit agreement exempts further Kmart deterioration as a breach of the material adverse change clause.

Moody's cuts some Vivendi, Houghton Mifflin ratings

Moody's Investors Service downgraded Vivendi Universal's senior implied rating to Ba3 from Ba2 and, as a consequence, the senior unsecured bond rating of its Houghton Mifflin subsidiary to Ba3 from Ba2. Vivendi Universal's senior unsecured rating remains at B1. All ratings are still on review for downgrade.

Moody's said its action follows Vivendi Universal's rejection of Vodafone Group plc's offer to buy Vivendi Universal's stake in French mobile phone operator Cegetel SA as it stands.

Moody's said Vivendi Universal's unwillingness for the time being to utilize this major de-leveraging opportunity (for €6.8 billion) removes a significant mitigant of its current liquidity and refinancing risk profile as the company remains dependent on the timely disposal of a number of small to medium-sized asset sales to meet its debt repayment obligations and to fund other cash outflows over the next six to 12 months.

Vivendi Universal's bond ratings remain unchanged at B1 to reflect the protection offered to bondholders by the company's broad and deep asset base. Announced disposals such as the sale of Telepiu to News Corp. (for a headline price of €920 million) and the sale of Vivendi Universal's publishing businesses (except Houghton Mifflin) to Lagardere (on the basis of an enterprise value of €1.25 billion) are encouraging and evidence the company's asset strength.

Fitch keeps Reliant Resources on watch

Fitch Ratings said Reliant Resources, Inc. remains on Rating Watch Negative including its senior unsecured debt at BB.

Fitch's comment follows Reliant Resources' announcement that it has executed a three-year extension of $1.33 billion of outstanding Orion Power subsidiary-level bank debt.

Fitch said it views the successful refinancing of the Orion bank facilities as a favorable development.

In particular, the extension is an important first step in alleviating Reliant Resources' significant near-term debt refinancing burden, Fitch added. However the revised terms of the Orion bank debt will substantially restrict Reliant Resources' ability to extract cash generated by the Orion assets for debt service at the corporate level.

Fitch is maintaining its Rating Watch Negative for Reliant Resources pending the successful re-negotiation of Reliant Resources' corporate-level bank facilities, including the $2.9 billion Orion acquisition bridge loan maturing in February 2003.

S&P keeps Reliant Resources on watch

Standard & Poor's said Reliant Resources Inc.'s ratings are unchanged at BB+ on CreditWatch with negative implications.

S&P's comment follows Reliant Resources' announcement it successfully refinanced $1.57 billion of credit facilities (net of cash, now $1.33 billion) at wholly owned Orion Power Holdings and its respective subsidiaries, Orion Power MidWest and Orion Power New York.

Importantly, the loans were extended for three years, which will provide an opportunity for Reliant Resources to return to the capital markets, S&P said. The loan terms have an accelerating interest rate (initially Libor plus 250 basis points for the first year) to encourage their replacement with more permanent financing.

While this was a significant hurdle for Reliant Resources to clear, it now must turn to refinancing its debt by February 2003 when a $2.9 million bank loan matures; Reliant Resources plans to negotiate a "global refinancing" for holding company debt, which totals $5.9 billion, including a synthetic lease, S&P added.

It is anticipated that the terms will be more harsh; Reliant Resources will likely pay higher rates than Orion, and secure the debt, potentially with the stock of key subsidiaries and certain unencumbered generating facilities, S&P said.

S&P puts J.L. French on negative watch

Standard & Poor's changed its CreditWatch on J.L. French Automotive Castings to negative from positive. Ratings affected include J.L. French's $105 million term loan A due 2005, $190 million term loan B due 2006 and $75 million revolving credit facility due 2005 at B and its $175 million 11.5% senior subordinated notes due 2009 at CCC+.

S&P said the revision reflects its concerns about J.L. French's ability to complete a planned equity offering in the near term, given extremely challenging current market conditions.

Without such an equity infusion or a refinancing of its current debt obligations, the company may face a credit crunch, S&P said.

Over the next 24 months, J.L. French faces approximately $130 million in debt amortization payments, S&P noted. Free cash flow is not expected to cover scheduled debt amortization and capital expenditures. Therefore, failure to restructure the capital structure could significantly impair credit quality, and possibly lead to a default. J.L. French has limited financial flexibility, with about $40 million in availability under its $90 million revolving credit facility as of March 31, 2002.

Moody's cuts Metallurg

Moody's Investors Service downgraded Metallurg Holdings, Inc. and its subsidiaries. Ratings lowered include Metallurg's $121 million senior discount notes due July 15, 2008, cut to Ca from Caa1, and $100 million guaranteed senior notes due Dec. 1, 2007, cut to Caa2 from B3. The outlook is negative.

Moody's said the action is in response to Metallurg's weak operating performance, limited liquidity, and poor credit metrics, which have fallen short of the rating agency's previous assumptions, and by Moody's expectation that the difficult environment in which the company currently operates will persist over the intermediate term.

Metallurg's liquidity position is currently tenuous given its negative cash flow and uncertainty regarding its ability to service holding company obligations due to various contractual and legal restrictions governing dividend distributions from its operating subsidiaries, Moody's said.

The more severe downgrade of Metallurg Holdings' unsecured debt ratings reflects these same limitations, as well as the subordination of Holdings' senior discount notes to all other debt, including trade debt, and sizable pension and environmental liabilities, the rating agency added.

For the 12 months ended June 30, 2002, leverage was high at approximately 16x EBITDA, EBITDA/interest was about 0.6x, and gross margins have been compressed to about 12.3% in the second quarter of 2002 from 19% in the second quarter of 2001, Moody's noted.

Moody's raises United Industries outlook

Moody's Investors Service raised United Industries Corp.'s rating outlook to positive from stable due to recent acquisitions that have increased the company's revenue base and improved its market relevance with national retailers. In addition, the outlook was changed due to expected stable or reduced levels of operating expenses and operating working capital as a percentage of revenues in 2003-2004.

Furthermore, Moody's confirmed United Industries' $90 million senior secured revolver due Jan. 20, 2005 at B1, $75 million senior secured term loan A due Jan. 20, 2005 at B1, $215 million senior secured term loan B due Jan. 20, 2006 at B1 and $150 million 9.875% senior subordinated notes due 2009 at B3.

"After completing two major acquisitions this year, UIC has nearly doubled its revenue and increased its product lines beyond pesticides and herbicides to include fertilizers, organic growing media, plant foods and potting soils," Moody's said.

With the increased product line, the company has improved its negotiating position with major retailers and reduced potential weather related revenue and cash flow volatility, Moody's explained.

"The company's improved scale and product mix did not result in a proportional increase in debt, operational costs or maintenance capital expenditures, thus boosting net free cash flow," Moody's added.

Restraining the ratings is the company's high leverage, potential liabilities from product and environmental issues or accidents, high customer concentrations, potential weather driven spikes in revenue and cash flow, and the concentration of customers among major national retailers.

Supporting the ratings is the company's increased scale on a low cost production platform, positive industry trends and extensive involvement and follow-on investments by the equity sponsors.

S&P upgrades American Axle

Standard & Poor's upgraded American Axle & Manufacturing Holdings including its $375 million term loan B due 2006 and $379 million revolving credit facility due 2004, raised to BB+ from BB, and $300 million 9.75% senior subordinated notes due 2009, raised to BB- from B+. The outlook is stable.

S&P said that despite the challenges of the automotive supply industry, American Axle has improved its credit protection measures during the past two years.

Funds from operations to total debt (adjusted to capitalize operating leases) has increased to 38% from 27% at year-end 2000, and total debt to capital has declined to 60% from 76%, S&P said.

A large capital investment program, designed to improve quality, productivity, and technological expertise, was recently completed, S&P noted. As a result, free cash flow has strengthened by about $150 million for the first nine months of 2002 over the same period during 2001 (excluding the effect of a change in customer payment terms).

American Axle has reported strong financial results during 2002, S&P said. For the first nine months of the year, sales increased 11%, EBITDA increased 22%, and net income increased 48% from the same period during 2001. The company's strong performance is a result of the 6% increase in North American vehicle production, the successful launch of several new programs, which have offset discontinued programs, and a continued focus on productivity improvement and cost controls.

The rating continues to be constrained by American Axle's reliance on General Motors sport utility vehicles and light trucks, but less so than in prior years, S&P said. General Motors represents 82% of the company's total sales, down from 93% five years ago. The recent launch of DaimlerChrysler AG's heavy-duty Dodge Ram, for which American Axle supplies the front and rear axles, has improved the diversity of the company's customer base. Non-General Motors sales grew 63% during the third quarter of 2002.

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