S&P puts Rite Aid on positive watch

Standard & Poor's put Rite Aid Corp. on CreditWatch with positive implications including its senior unsecured debt and senior secured debt at B-, senior secured synthetic lease notes at B, senior secured bank facility BB- and Rite Aid Lease Management Co.'s preferred stock at CCC+.

S&P said the action reflects Rite Aid's improving operating performance over the last few years and the strengthening of its balance sheet as a result of the company's proposed $2.0 billion credit facility.

The new capital structure lengthens significant maturities to 2008, S&P noted.

S&P raises XTO outlook, rates notes BB

Standard & Poor's raised its outlook on XTO Energy Inc. to positive from stable, confirmed its ratings including its senior unsecured debt at BB and subordinated debt at BB- and assigned a BB rating to its proposed $300 million senior notes due 2013.

S&P said the outlook revision reflects XTO's improvement in credit quality resulting from the recently announced acquisition of properties from The Williams Cos. Inc. for approximately $400 million, moderating financial policies that could lead to a financial profile that is consistent with an investment-grade rating, and improving debt service capacity as a result of strong intermediate-term fundamentals for U.S. natural gas producers.

XTO is acquiring 311 billion cubic feet equivalent (cfe) of natural gas properties in the Hugoton, San Juan, and Raton basins from Williams that have attributes that improve XTO's credit quality. The properties have slower production decline characteristics than XTO's pretransaction portfolio (i.e. Hugoton and San Juan are less than 10%, and the Raton Basin production is growing as wells dewater) and generate strong free cash flow, S&P said. The properties have substantial upside in production and reserves from further development drilling and downspacing.

XTO estimates that the capital spending associated with the acquired properties is approximately $15 million per year while the operating cash flow exceeds $60 million.

As XTO is acquiring the properties by issuing up to $250 million of common equity, XTO effectively is adding these properties to its portfolio at a free cash flow to debt ratio of about 33%, S&P added.

Although the transaction is favorable for XTO, its small size relative to XTO and the potential for $300 million to $500 million of additional acquisitions in 2003 preclude a ratings upgrade at this time, S&P said. Nevertheless, ratings could be upgraded, possibly within the next year, if XTO were to continue to fortify its capital structure.

S&P rates Equistar notes BB

Standard & Poor's assigned a BB rating to Equistar Chemicals LP and Equistar Funding Corp.'s proposed $325 million senior unsecured notes due 2011 and confirmed Equistar's existing ratings including its senior secured bank loan at BB+ and senior unsecured notes at BB. The outlook is negative.

S&P said the outlook highlights the risk of downgrade this year if sub-par operating results extend beyond the first quarter of 2003, or result in further erosion of available sources of liquidity.

Still, the successful sale of the senior unsecured notes will substantially eliminate concerns related to scheduled debt maturities until 2006, and earnings should begin to improve in the second quarter to reflect the positive effects of recent price initiatives, and some relief from the recent escalation in raw material costs, S&P added.

S&P said Equistar's ratings reflect its position as a major petrochemical producer, as well as the risks associated with an aggressive financial profile that reflects an onerous debt burden and operating margins that vary widely over the course of the business cycle.

Although the current credit facility arrangements should provide adequate borrowing capacity given recently revised financial bank loan covenants, along with recent pricing initiatives and limited cash requirements this year, business conditions have proven to be more difficult than expected due to volatile feedstocks and conditions remain somewhat uncertain over the near term, S&P said. Over the intermediate term, Equistar's liquidity will benefit from a manageable debt maturity profile with limited maturities scheduled over the next several years.

Moody's rates Equistar notes B1

Moody's Investors Service assigned a B1 rating to Equistar Chemicals, LP's $325 million senior unsecured note offering and confirmed its existing ratings senior secured credit facility and term loan at Ba2 and senior unsecured notes and debentures at B1. The outlook remains negative.

Moody's said the B1 rating for the notes reflects the company's weak financial profile due to an extended industry trough and subordination of the notes to roughly $400 million of secured debt and a secured credit facility.

Moreover, Equistar's position as an effective subsidiary of Lyondell Chemical Co. (Ba3 senior implied) limits the company's ratings.

Furthermore, Moody's believes that the vast majority of Equistar's free cash flow will be distributed to its partners and not used for debt reduction over the intermediate-term.

The B1 rating is supported by Equistar's position as a leading North American supplier of olefins, polyolefins and derivatives, as well as the company's high degree of feedstock flexibility, which is critically important now that natural gas prices are anticipated to remain near or above $5/mmBTU, Fitch said.

Fitch says Equistar unchanged

Fitch Ratings confirmed its ratings on Equistar Chemicals LP including its senior secured credit facility at BB- and senior unsecured notes at B. The outlook is negative.

Fitch said it had included Equistar's potential refinancing activities in 2003 into the assessment of the rating.

Equistar plans to use the proceeds from the announced offering of $325 million senior unsecured notes to prepay their maturity of $300 million due February 2004.

Moody's rates Susquehanna notes B1

Moody's Investors Service assigned a B1 rating to Susquehanna Media Co.'s proposed $100 million issuance of add-on senior subordinated notes due 2009 and confirmed the company's existing ratings including its $450 million of senior secured credit facilities at Ba1 and $150 million of existing 8.5% senior subordinated notes due 2009 at B1. The outlook is stable.

Moody's said the confirmation reflects the stability of Susquehanna's financial performance, relatively sound credit profile and substantial asset value (particularly versus its debt burden), offset by the challenges associated with improving the company's operating performance and potential acquisition risk.

Susquehanna's ratings are supported by the company's strong cash flow coverage of interest and the high underlying asset value associated with its portfolio of radio stations and cable systems, Moody's added. The company's radio station portfolio is dominated by stations in the top 50 markets, which garners a higher valuation than a portfolio of smaller market stations, and its cable systems are well clustered and mostly upgraded.

These assets provide noteholders and bank lenders with more than ample collateral coverage, even in a downside scenario.

In addition, the company is likely to benefit from the prospect of broadcast cash flow margin improvements at "turn-around" radio properties, as well as the potential benefits of rolling out enhanced cable services.

However, Susquehanna's ratings also reflect the risks posed by its high financial leverage and the comparatively weak operating margins for its broadcast and cable business segments. The proportion of "turn-around" properties in the portfolio negatively impacts the radio segment's margins, Moody's noted. While Moody's expects the company to benefit from some margin improvement in the near-term, performance metrics (the low to mid 30% range) are still likely to fall short of industry standards (the 40%+ range) over the intermediate-term. Similarly, cable segment margins have steadily fallen as newly acquired, non-upgraded systems have been added to the portfolio.

Susquehanna's leverage is high with total debt/EBITDA of 4.8 times as of Dec. 31, 2002. However, cash flow coverage is good with (EBITDA - capex)/(interest + preferred dividends) of 2.8 times over the same time period, Moody's said. While the company's credit metrics are expected to continue to improve in the near-term, as margins for "turn-around" radio properties approach industry standards, the impact of these improvements may be moderated by the acquisition of additional "turn-around" radio properties or cable systems that require capital improvements.

S&P rates Susquehanna notes B

Standard & Poor's assigned a B rating to Susquehanna Media Co.'s proposed $100 million add on to its 8.5% senior subordinated notes issue due 2009 and confirmed its existing ratings including senior secured debt at BB- and subordinated debt at B. The outlook is stable.

S&P said Susquehanna's ratings reflect its high debt leverage, competition from larger radio operators in the company's key markets, its cable system capital spending needs, and the potential for further debt-financed acquisitions. Offsetting factors include the company's decent cash flow as a large market radio broadcaster, relatively stable cash flow provided by modest-size cable operations in smaller markets, and good asset values.

Susquehanna's radio operations are in attractive markets. A majority of radio revenues is derived from four of the top 10 radio markets, including San Francisco, Dallas, Houston, and Atlanta, S&P noted. However, the company's clusters are smaller than its rivals, which could make them more vulnerable to competitive pressures.

Relatively small scale also likely contributes to a below-average radio business EBITDA margin of about 30%, S&P said. The radio unit converted about 65 cents of every incremental dollar of revenue into broadcast cash flow in 2002. Higher listener ratings that raise ad rates, coupled with improving demand for radio advertising, contributed to radio revenue growth in 2002.

Although most of the company's major markets have been experiencing high-single digit or double-digit revenue growth on a year-over-year comparison, the San Francisco market remains soft due to weak economic conditions and the significant falloff in dot-com advertising, S&P said. Favorable trends in overall radio advertising had been expected to continue into 2003. Still, revenue visibility is limited, and the near-term outlook is somewhat uncertain, given advertising's vulnerability to economic weakness and the conflict in Iraq.

EBITDA coverage of interest expense was about 3.1x in 2002, S&P said. Total debt divided by EBITDA was approaching 5.0x at year-end 2002. Total debt divided by EBITDA, adjusted for ESOP expense, was about 4.5x at Dec. 31, 2002, compared with a 6x leverage covenant.

Moody's rates D.R. Horton Ba1

Moody's Investors Service assigned Ba1 rating to the new $200 million issue of 6.875% senior notes due 2013 of D.R. Horton, Inc. and confirmed its existing ratings including the senior notes at Ba1, senior subordinated notes at Ba2 and speculative-grade liquidity rating of SGL-2. The outlook remains stable.

Moody's said the ratings acknowledge the progress Horton has made to date in meeting its conservative capital structure projections, with the debt/capitalization ratio of 52.3% at fiscal year-end 2002 representing the lowest level in many years, as well as its successful integration to date of Schuler Homes.

The ratings also incorporate the company's enviable operating performance (101 consecutive quarters of year-over-year earnings growth), success at integrating prior acquisitions, strong equity base, geographic diversity, and tight cost controls.

At the same time, the ratings continue to reflect Horton's higher than average business risk profile given its appetite for acquisitions, greater debt leverage than that of its peers, capacity under its credit agreement that could lead to substantial additional debt, and the cyclical nature of the homebuilding industry, Moody's said. However, if the company successfully executes on its new strategy of buying less land, forswearing an active acquisition policy, and using excess cash flow for debt repayment and share purchases, Moody's will review the existing outlook and ratings.

Fitch rates D.R. Horton notes BB+

Fitch Ratings assigned a BB+ rating to D.R. Horton, Inc.'s $200 million 6.875% senior notes due May 1, 2013. The outlook is stable.

Proceeds from the new debt issue will be used to call the approximately $148.5 million outstanding principal amount of 10% senior notes due 2006 and to repay indebtedness outstanding under its revolving credit facility.

The new issue has more favorable rates and attractive maturity relative to the debt it would replace, Fitch said.

Fitch added that it remains comfortable with D.R. Horton's stated debt to capital target of 49% or less by the end of fiscal year 2003.

Ratings for D. R. Horton are based on the company's above-average growth during the recent economic expansion, execution of its business model, steady capital structure and geographic and product line diversity, Fitch said.

The company has been an active consolidator in the homebuilding industry which has kept debt levels a bit higher than its peers. But management has also exhibited an ability to quickly and successfully integrate its many acquisitions. During fiscal 2002 the company completed its largest acquisition in absolute size (Schuler Homes) and is unlikely to make additional acquisitions during the balance of fiscal 2003.

D.R. Horton has expanded EBITDA margins over the past several years on healthy price increases, volume improvements and steady operating expense ratios and has produced record levels of home closings, orders and backlog in excess of expectations for this unprecedented lengthy upswing in the housing cycle, Fitch said.

The homebuilding EBITDA margin increased from 9.5% in 1997 to 12.6% in 2001 and was 10.9% for the twelve months ending Dec. 31, 2002, taking into account the purchase accounting associated with Schuler Homes which was acquired in February 2002, Fitch added.

Moody's rates Central Garden loan Ba2

Moody's Investors Service assigned a Ba2 rating to Central Garden & Pet Co.'s proposed $200 million senior secured credit facilities and confirmed the existing ratings including its $150 million senior subordinated notes due 2013 at B2. The outlook is stable.

Moody's said the loan rating reflects its pre-eminent position in the firm's capital structure and the high degree of direct collateral support it enjoys compared to general unsecured creditors.

The ratings are supported by the firm's continued successful transition into a relevant branded lawn, garden and pet products manufacturer and away from a distributor of third-party products, Moody's said. The ratings are also supported by Central Garden & Pet's historical conservative capitalization and acquisition strategy, its tangible efforts to simplify and improve its operating and legal structure and its maintenance of liquidity and coverage levels consistent with its ratings category.

The positive demographics and strong consumer receptivity to brand relevance and brand extensions in the lawn, garden and pets sectors, as well as the attractive sales and margin potential to retailers underpin Central Garden & Pet's ratings fundamentals.

The ratings are restrained by possible challenges associated with pressure from certain of Central Garden & Pet's competitors that are either better capitalized or have more advanced core competencies and financial flexibility, Moody's said.

Central Garden & Pet's high concentrations in EBITDA from a handful of key brands and its high customer concentrations also restrain the ratings. Finally, the company's history of engaging in legal recourse in resolving its commercial disputes and the inherent corporate governance concerns relating to

William Brown's (Central's CEO) 9.1% ownership of Central's total common shares and 47% ownership of its voting interests remain concerns.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.