Moody's rates Jefferson Smurfit (US) notes B2

Moody's Investors Service assigned a B2 rating to Jefferson Smurfit Corp. (U.S.)'s planned $700 million issue of senior notes due 2012 and confirmed the company's existing ratings including its senior secured bank debt at Ba3 and senior unsecured notes and debentures at B2, Stone Container Corp.'s senior secured bank debt, tranche C at Ba3 and senior unsecured notes and debentures at B2 and Stone Container Finance Co. of Canada's notes at B2. The outlook is stable.

Proceeds of the new note issue will be used to redeem $500 million in maturing notes and finance the $375 million acquisition of the Stevenson corrugating medium mill and associated facilities from

MeadWestvaco.

Moody's said Jefferson Smurfit and Stone Container's ratings continue to reflect their high debt leverage, the volatility in pricing of core products and an aggressive acquisition strategy. The ratings also reflect constraints imposed by the company's complex corporate structure, which may prevent the optimal use of financial resources.

The Stevenson mill will extend parent Smurfit-Stone Container Corp.'s North American market position in corrugating medium to about 25%.

Operating and financial synergies are expected to be realized in the form of reduced overhead, improved selling prices and improved mix, Moody's said.

However Moody's said the company is very highly concentrated in containerboard, a relatively volatile commodity. Small changes in pricing result in rather dramatic changes in earnings and cash generation. This, in conjunction with Smurfit-Stone's high debt level, can result in periods of weak debt protection measurements.

Management is comfortable with a leveraged capital structure, and Moody's said it expects Smurfit-Stone to periodically increase debt to finance future acquisitions.

S&P puts Royster-Clark on watch

Standard & Poor's put Royster-Clark Inc. on CreditWatch with negative implications, affecting its $275 million senior secured revolving credit facility at B+ and its $200 million 10.25% first mortgage bonds due 2009 at B.

S&P said the watch placement reflects continuing damage to Royster-Clark's financial performance from the challenging U.S. agribusiness environment, which has resulted in a narrowing in headroom under its bank covenants. Although the company was in compliance as of June 30, 2002, it will not likely be in compliance as of Sept. 30, 2002.

The firm is currently renegotiating loan covenants with its bank group. S&P said it will meet with management and review Royster-Clark's operating and financial plans, including its negotiations with its senior lenders.

S&P puts Matria on watch

Standard & Poor's put Matria Healthcare Inc. on CreditWatch with negative implications including its B+ corporate credit rating.

S&P noted that Matria is in violation of covenants that specify a minimum fixed-charge coverage ratio and maximum leverage ratio for Matria's $30 million senior secured bank facility maturing in 2004.

The violation prevents access to the currently undrawn facility, eliminating an important source of financial flexibility, S&P said.

The rating agency added that the CreditWatch will be resolved once Matria has successfully addressed this issue with its lenders and once its concerns about Matria's operating and financial strategies are clarified.

S&P cuts Titanium Metals

Standard & Poor's downgraded Titanium Metals Corp. including cutting its preferred stock to CCC- from CCC.

S&P said the action follows TIMET's announcement that it expects titanium demand to remain weak due to poor end-user markets.

Te aerospace industry, which accounts for 65% of titanium demand and 75% of TIMET's revenue, is not expected to recover to normal activity until 2006 at the earliest, S&P added.

With the aerospace industry continuing to either defer or cancel orders, TIMET's financial and liquidity position will continue to deteriorate, S&P said.

Although TIMET is taking steps to reduce its cost position by downsizing and reducing capacity, these actions may not be sufficient to mitigate the steep drop in demand for titanium or slow the company's liquidity usage, S&P said.

Moody's rates GenCorp's loan Ba2

Moody's Investors Service rated GenCorp Inc.'s proposed $125 million senior secured term loan B due 2007 at Ba2 and confirmed its $150 million senior secured revolver and $76 million term loan A at Ba2 and $150 million convertible subordinated notes due 2007 at B1. The outlook is negative.

Proceeds from the new term loan B will be used to purchase General Dynamics Space Systems from General Dynamics Corp. for $90 million and to repay $30 million of borrowings under its revolver.

Despite a modest increase in leverage and decrease in coverage owing to the acquisition, the company's substantial book equity, enterprise value, and market position support the rating, Moody's said.

Ratings also reflect weak cash flow, inadequate return on assets and increase in leverage due to the acquisition, Moody's said. Following the acquisition, debt/total capital will increase to 54%, from 45% as of May 2002, while total debt/EBITDAP increases from 3.4x to 3.6x, and senior debt/EBITDAP increases from 1.5x to 2.2x. EBITDAP coverage decreases from 6.3x interest in 2002 to pro forma 5.1x.

The negative outlook reflects "continued thin profit margins experienced in the GDX Automotive and AFC divisions, heightening the Company's vulnerability to adverse conditions in their respective markets," Moody's noted. "In addition, the outlook reflects concerns about possible unexpected adverse results in environmental litigation or proceedings against the Company and increases in the amount or timing of environmental remediation and compliance costs."

S&P puts Cable Satisfaction on watch

Standard & Poor's put Cable Satisfaction International Inc. on CreditWatch with negative implications. Ratings affected include the company's senior unsecured debt at CCC+.

S&P said the action is in response to its increased concerns about anticipated limited availability under Cable Satisfaction's credit facility, particularly at year-end 2002 and during the first quarter of 2003.

Although Cable Satisfaction has strengthened its business profile considerably over the past two years, as reflected by its completed fiber-optic broadband network and rapid subscriber acquisitions, the company's financial position remains vulnerable, S&P added.

In September 2001, Cable Satisfaction amended its €260 million secured revolving credit facility due December 2008 to include a one-year €100 million secured term loan maturing September 2002. In August 2002, Cable Satisfaction indicated that it exercised its option to extend the term loan to Dec. 31, 2002. The term and revolving facilities cannot be drawn at the same time. Cable Satisfaction intends to refinance the term facility from proceeds of its revolver tranche. The credit facilities are subject to a borrowing base, which is dependent on revenue and EBITDA measures.

S&P said it is concerned that Cable Satisfaction will not be able to generate sufficient EBITDA over the next several quarters to allow the refinancing of its term facility or fund capital requirements in a way that does not stifle subscriber, and thus, EBITDA growth.

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