Moody's puts Preem on review

Moody's Investors Service put Preem Holdings AB on review for possible downgrade including its €305 million senior secured notes due 2011 at Ba3.

Moody's said the review was prompted by its concerns that the financial profile of Preem continues to be somewhat weaker than anticipated. Preem's weaker debt protection measures are primarily a result of lower than expected operating results and poorer retained cash flows, which may have resulted in coverages no longer in line with Moody's acceptable level for the existing ratings categories.

Moody's said the review will concentrate on achievable refining margins by each of the company's refineries over the medium term; projected retained and free cash flow in 2003 and 2004; the company's future investment plans and respective financing structure (Preem has notably approved a SEK2.5 billion investment for an "isocracker" in Scanraff); and the ongoing ability of the company to continue to adequately fund its working capital requirements through its well diversified but uncommitted short-term liquidity facilities

S&P cuts Vitro

Standard & Poor's downgraded Vitro SA de CV including cutting Vicap, SA de CV's $250 million 11.375% notes due 2007 to B from B+. The outlook is negative.

S&P said the downgrade reflects the continued increase in Vitro's debt leverage relative to its cash flow generation over the past two years, a result of the economic slowdown in Mexico and the U.S.

The weakness in the company's performance is reflected in its financial indicators, which consider Vitro's off-balance-sheet debt (factoring programs that total $60 million), for the last 12 months ended March 31, 2003. For this period, EBITDA interest coverage, total debt to EBITDA, and FFO to total debt ratios were 2.5x, 4.2x, and 9.5%, S&P said. These ratios compare unfavorably to the 2.6x, 2.9x, and 16% posted in 2000.

The company's consolidated EBITDA during the first quarter decreased 22% versus the first quarter of 2002. In particular, the company's flat glass business was hurt by the lower sales in the non-residential construction sector in the U.S. and in sales to auto OEMs, S&P said. Sales of glass containers in

Mexico and the U.S. were also lower because of lower demand for beer and soft drinks in the domestic and export markets. The performance of the glassware business was also weak in light of the drop of 15% in domestic sales.

Liquidity is limited. Vitro faces short-term debt maturities of $495 million (of which $279 million are revolving trade finance facilities) over the next 12 months, S&P added.

Moody's cuts Resona, still on review

Moody's Investors Service downgraded Resona Bank and kept it on review for further downgrade. Ratings lowered include AB International Cayman Trust's preferred stock, cut to Caa1 from B2, and Resona Bank Ltd.'s junior subordinated debt, Asahi Finance (Cayman) Ltd.'s junior subordinated debt and Daiwa PB Ltd.'s junior subordinated debt, cut to B1 from Ba3. Resona Bank Ltd.'s senior unsecured debt was confirmed at Ba1, senior subordinated debt at Ba2, Asahi Finance (Cayman) Ltd.'s senior subordinated debt at Ba2 and Daiwa International Finance (Cayman) Ltd.'s senior subordinated debt at Ba2. All other deposit and debt ratings of Resona Bank Ltd., Saitama Resona Bank Ltd. and Resona Banking & Trust Banking Co., Ltd. were confirmed. The outlook for these institutions is stable.

Moody's said the actions followed the announcements by Resona Holdings, Inc. of its decision to apply for government capital injection under the Deposit Insurance Law, and to suspend dividends payment on its preferred stock obligations.

According to the announcement, Resona Bank Ltd. will post large net losses for the fiscal year ended March 2003, and its regulatory capital ratio will decline to slightly above 2% as of March 2003.

The downgrade of Resona Bank's junior subordinated obligations to B1 from Ba3 and continued review for downgrade reflect the deterioration of Resona Bank's regulatory capital ratio and erosion of the its distributable profits, which would allow the bank to defer its interest payment on the junior subordinated securities, Moody's said. The continued review status reflects the increased uncertainty arising from possible regulatory intervention in the servicing of these securities.

S&P puts Resona on positive watch

Standard & Poor's put Resona Bank Ltd. on CreditWatch positive including its ¥50 billion 1.35% bonds series 2 due 2005 and ¥50 billion 1.57% bonds series 1 due 2005 at BB+.

S&P said the watch placement follows the decision by the Japanese government to inject capital, reportedly amounting to ¥2 trillion.

On May 17 Resona Holdings Inc. announced revised financial results for fiscal 2002 (ended March 2003), dropping the regulatory capital ratio of Resona Bank, its major subsidiary bank, to about 2% from 6%, which is far below the 4% regulatory requirement for banks operating domestically, S&P said.

At the same time, Resona stated its intention to apply to the government's Deposit Insurance Corp. for an injection of public funds. Following the announcement by Resona, the Japanese government announced its decision to inject public funds into Resona Bank under Article 102 of the Deposit Insurance Law, although details of the amount and conditions have not yet been revealed.

S&P said it is assuming that Resona bank will not be forced by the government to skip any financial obligations as a consequence of the public fund injection. So far, there has been no indication that creditors will be asked to bear losses.

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