S&P cuts Rhodia to junk

Standard & Poor's downgraded Rhodia SA to junk, cutting its $215 million 7.75% bonds series A due 2009, $75 million 8.2% bonds series B due 2012, €300 million 6% notes due 2006 and €500 million 6.25% bonds due 2005 to BB from BBB-. The outlook is stable.

S&P said the downgrade reflects Rhodia's still weak financial measures.

The ratings continue to factor in the group's diversified business profile, underpinned by its leading positions and status as one of the largest specialty-chemicals concerns in the world.

Rhodia has, nevertheless, shown much lower resilience than expected to the chemical industry's softening market conditions during the past few years, and the group's operating margin is substantially lower than those of its peers, S&P said. Although Rhodia's financial profile was substantially strengthened in 2002, it remains extremely weak and maintaining investment-grade status would have required further substantial improvement in 2003.

S&P confirms Luscar, off watch

Standard & Poor's confirmed Luscar Coal Ltd. including its $275 million 9.75% senior unsecured notes due 2011 at BB and removed it from CreditWatch with developing implications.

S&P said the action follows the sale of Luscar's metallurgical coal assets, including its 50% interest in the Line Creek and Luscar mines, the undeveloped Cheviot deposit, and its 23% interest in Neptune Bulk Terminals Ltd., to the newly formed Fording Canadian Coal Trust.

In exchange for its metallurgical coal assets, Luscar acquired 2.98 million units in the Fording Trust, representing a 6.3% ownership interest.

The ratings on Luscar reflect the company's below-average financial profile, offset by its leading domestic market position as Canada's largest thermal coal producer, with the majority of its operating margin derived from long-life, stable mine-mouth operations (mines located in close proximity to the generating stations they supply), S&P said.

Although the restructuring of coal assets between Fording and Luscar has solidified Luscar's position as the dominant thermal coal producer in Canada, improving its business profile, the ratings were left unchanged due to the company's continuing weak financial measures, S&P explained.

Luscar's EBIT and EBITDA interest coverage ratios were 0.7x and 2.4x, respectively, in 2002, while funds from operations to total debt was 11.4%. These ratios should improve with the repayment of the company's C$45 million promissory note to SaskPower maturing in May 2003, which will reduce interest expense by C$5.7 million annually, S&P said.

S&P cuts Newmont Yandal

Standard & Poor's downgraded Newmont Yandal Operations Ltd. including cutting its $300 million 8.875% notes due 2008 to B- from BB-. The outlook is negative.

Moody's said the downgrade reflects heightened concern over Yandal's liquidity position arising from the future right to break clauses being exercised against the company's hedge book.

Taking into account current positive cash flow generation, available cash balances, and current gold prices, Yandal could face severe liquidity issues in June 2004 if hedge counterparties exercise their right to break existing contracts, S&P said.

Yandal's $300 million 2008 bonds and hedge book obligations rank pari passu in liquidation and are nonrecourse to its parent. Newmont has, however, indicated that it would negotiate with creditors if necessary, noting that it has a fiduciary duty to shareholders of Newmont.

Newmont's stated position is that previous actions, such as its tender offer for Yandal's bonds (an action Newmont was not obligated to undertake) should not be construed as a commitment by Newmont to provide ongoing financial or credit support to Yandal, S&P said. Nevertheless, the tender offer and Newmont's guarantee of the reclamation liabilities at Yandal speak to some level of parental support. Critically, this support is predicated on the direction of gold prices, the operational performance of the Australian mines, fluctuations in the Australian dollar, and, above all, Yandal's ability to develop and expand its reserve base.

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