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 cuts Pac-West Telecomm

Standard & Poor's downgraded Pac-West Telecomm including cutting its $150 million 13.5% senior notes due 2009 to C from CC and kept the company on CreditWatch with negative implications.

S&P said it lowered Pac-West because of further deterioration of its liquidity and the increased likelihood of debt restructuring or cash default in the near term.

The company's already weak liquidity was weakened further in June 2002 when the company allowed its $40 million bank facility to expire without putting in place any replacement facility, S&P said. With no backup source of liquidity and no expectation of the company generating sustainable free cash flow in the near term, Pac-West's cash equivalents of about $64 million at the end of the second quarter of 2002 provide no safety against execution risks stemming from its dependence on reciprocal compensation, competition, and the weak economy.

In addition, S&P said it believes that the potential for Pac-West to restructure its senior unsecured notes or undertake a cash default has increased. Given limited liquidity, weak capital market conditions for CLECs, and annual cash interest on the notes of about $17 million, Pac-West will find it extremely challenging to service these notes and still have adequate cash for operations. Furthermore, the company openly stated that it is considering debt restructuring in a recent conference call.

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 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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