Moody's cuts Adelphia ratings

Moody's again downgraded the ratings for Adelphia Communications Corp. and subsidiaries, and left the company's ratings under review for possible further downgrade. The senior secured bank debt was cut to B1 from Ba3, senior unsecured notes to Caa1 from B3, convertible subordinated notes to Caa2 from Caa1 and convertible and exchangeable preferred stock to Caa3 from Caa2.

"The downgrade reflects our belief that we may not be fully aware of all potential issues surrounding the company's financial affairs, as suggested by the press release issued by the company today and specifically the commencement of an internal investigation into the circumstances surrounding the delayed filing of its requisite 10-K," Moody's said.

"We had previously suggested in our last press release that the company's liquidity position was extremely tight given its technical default under various bank credit facilities and potential delisting by the NASDAQ, the corresponding result of which was an inability to make additional draws under remaining available bank lines and the prospect of a large put of certain junior debt obligations back to the company in advance of their scheduled maturities," Moody's said.

"It had been our prior understanding based on extensive discussions with management on multiple occasions that the company would overcome its near-term hurdles by satisfying any and all of its reporting requirements and thereby averting an immediate liquidity crisis," Moody's said.

"In the absence of resolving these seemingly logistical hurdles we had also indicated in our last press release when the ratings were lowered by just one notch earlier this month that the ratings would likely be lowered again under an assumed event of default scenario.

"The downgrade represents our belief that we may in fact be in more than just a technical default situation today, that the situation may have deteriorated further, and that there is now little time left to remedy the same," Moody's said.

The revised ratings subsequently represent a new respective rating ceilings as currently anticipated.

While Mooyd's said it believes that the banks are likely to again waive the reporting requirement for some interim period of time, albeit continue to deny access to new monies, and that it would not necessarily be in the best interest of convertible subordinated noteholders to actually put their securities back to the company, in the absence of gaining renewed access to existing bank lines and/or some alternative source of liquidity on a large scale the company will likely run out of cash very soon, perhaps as early as today if and when its $50 million interest payment is made, Moody's said.

When coupled with the growing list of potential default triggers, and all of the cross-default and cross-acceleration language universally embedded in the various governing documents for the financial instruments that we rate, Moody's said it now believes that the prospect of a potential bankruptcy filing is more likely and may ultimately be unavoidable.

S&P downgrades Adelphia

Standard & Poor's downgraded Adelphia Communications Corp. and changed the CreditWatch to negative implications from developing. Ratings lowered include Adelphia's notes and debentures, cut to CC from CCC, its bank debt, cut to CCC from B-, its convertible subordinated notes and FrontierVision's notes, cut to C from CCC-, and its preferred stock, cut to C from CC.

S&P said its action reflects developments that have significantly increased the likelihood of covenant violations.

"Adelphia has suspended the ongoing audit of the company by Deloitte & Touche, pending completion of an investigation into issues raised in connection with Adelphia's yet-to-be-filed 10K. The company has also hired high-profile attorney David Boise of Boise, Schiller & Flexner in connection with this investigation," Standard & Poor's credit analyst Richard Siderman said.

"Because an investigation is likely to take a considerable amount of time, it is increasingly doubtful that the company can avoid at least a technical default. Moreover, liquidity may be jeopardized by these developments."

S&P also noted the resignation of John Rigas, its chairman, president, CEO and founder.

Moody's downgrades Northern Offshore

Moody's Investors Service downgraded senior unsecured and senior implied ratings of Northern Offshore ASA to C from Caa2.

Moody's said it lowered Northern Offshore because it has a "strong expectation" that the company will fail to make its $7 million interest payment due 15 May 2002 on its $340 million 10% notes due 2005.

Northern Offshore said in a press release on May 14 that it has concerns about being able to meet the interest payment.

Moody's said it is also concerned that within the 30-day period allowed in the bond indenture to rectify a non-payment of interest a significant portion of the company's existing loans may also become due if the company is unable to meet its bond interest obligation.

This, Moody's said, could likely undermine the viability of the business.

S&P lowers Atlas Air

Standard & Poor's downgraded Atlas Air Worldwide Holdings Inc. and kept the outlook at negative. Ratings lowered include Atlas Air, Inc.'s $150 million 10.75% senior notes due 2005 and $150 million 9.375% senior notes due 2006, cut to B- from B and various passthroughs, mostly cut one notch.

S&P said the action reflects increased risk in both the company's financial and business profiles, stemming from current industry pressures and an increasing focus on new, more risky service offerings.

"Because of its high operating leverage, substantial debt burden, and reduced industry demand over the past year, Atlas has experienced a deterioration in financial measures, and liquidity has become constrained," S&P said.

At year-end 2001, lease-adjusted debt to capital was 84% and EBITDA interest coverage was 1.4 times.

Industry conditions are expected to remain challenging this year and, as a result, no material improvement in financial performance is expected over the near term, S&P said.

Over the longer term, Atlas should benefit from a rebound in air cargo demand. However, because of its changing business mix, Atlas will likely experience more volatility in operating results, the rating agency added.

S&P cuts Anker Coal

Standard & Poor's downgraded Anker Coal Group Inc.

Ratings lowered include Anker's $55 million revolving credit agreement, cut to D from CCC+, and its $125 million 14.25% second priority notes due 2007, cut to D from CCC-.

S&P puts Key Energy on positive watch

Standard & Poor's put Key Energy Services Inc. on CreditWatch with positive implications. The action affects Key Energy's $500 million senior secured bank loan due 2003, $175 million 8.375% senior unsecured notes due 2008 and $100 million 8.375% senior unsecured notes due 2008, all at BB- and its $150 million 14% senior subordinated notes due 2009 at B.

S&P said the move follows the announcement that Key has entered into a definitive merger agreement with Houston, Texas-based Q Services Inc.

Key plans on issuing approximately $185 million to $190 million of common equity in conjunction with the merger.

Q Services' strong regional market position will strengthen Key's ancillary services and broaden the company's current product offerings, S&P said.

The transaction is also expected to strengthen Key's financial profile, lowering overall leverage and improving cash flow measures, the rating agency added.

S&P said Key's ratings could be raised or confirmed, depending on its analysis of the merger.

S&P lowers Sequa

Standard & Poor's downgraded Sequa Corp. and removed it from CreditWatch with negative implications. The outlook is negative.

Ratings lowered include Sequa's $500 million 9% senior notes due 2009 and $200 million 8.875% unsecured notes due 2008, both cut to BB- from BB.

S&P lowers Teleglobe

Standard & Poor's downgraded Teleglobe Inc.

Ratings lowered include Teleglobe's $600 million 7.2% senior unsecured notes due 2009, $400 million 7.7% senior unsecured notes due 2029, $1.25 billion bank loan, C$125 million 8.85% debentures due 2002, C$125 million 8.35% debenture due 2003 and C$100 million 8% debenture due 2006, all cut to D from CC.

S&P upgrades Precision Partners

Standard & Poor's upgraded Precision Partners Inc. and removed it from CreditWatch with positive implications. The outlook is negative.

Ratings affected include Precision Partners' $100 million 12% senior subordinated notes due 2009, raised to CCC- from CC.

S&P says Sierra Pacific earnings have no immediate impact

Standard & Poor's said Sierra Pacific Resources' loss has no immediate ratings consequences, as the agency already incorporated into the current ratings the cause of the loss as well as the tight liquidity position.

On April 23, S&P lowered its corporate credit ratings on Sierra Pacific and subsidiaries to B+ from BB and put the ratings on negative watch.

"The key ratings determinant in the short term is the progress by Sierra Pacific in its current negotiations with power suppliers to achieve extended payment terms for its above-market contracts for this summer," S&P said.

Nevada Power's base tariff energy rate (BTER), effectively the commodity portion of rates, is $52 per megawatt-hour, above current spot prices and current forward prices for the summer, the rating agency said.

"Any agreement on an extended payment scheme that requires Sierra Pacific to pay rates that are closer to the BTER for this summer could significantly ameliorate the otherwise dire liquidity situation and limit the need to access the capital markets," S&P added.

"However, suppliers must also agree to waive their respective right to collateral under the contracts, which, on a total marked-to-market basis, is several hundreds of millions of dollars. If Sierra Pacific is not able to reach such an agreement, the ratings will be downgraded further."

S&P puts Encompass Services on watch

Standard & Poor's put Encompass Services Corp. on CreditWatch with negative implications. Ratings affected include Encompass Service's $300 million revolving credit facility due 2005, $130 million term A loan due 2006, $170 million term B loan due 2006 and $100 million term C loan due 2007, all at B+, its $135 million 10.5% senior subordinated notes due 2009 at B- and Building One Services Corp.'s $200 million 10.5% notes due 2009 at B-.

S&P said that action follows Encompass Service's announcement of reduced revenue guidance to $3.5-$3.8 billion (from $3.6-$3.9 billion), EBITDA guidance to $155-$195 million (from $200-$230 million), and earnings per share guidance to 5-35 cents (from 45-70 cents).

Additionally, the company said it now expects no meaningful debt reduction in 2002, compared with previous expectations of debt reduction in the $25-$40 million range, S&P noted.

Encompass stated that weaker-than-expected demand in the commercial office, industrial, and hotel markets, combined with intense pricing pressures in certain end-markets, has led to the guidance revisions, S&P added.

The quickness of the guidance revision and the severity of the EBITDA decline, compared with pro forma EBITDA of $341 million in 2000 and compared with results of other leading competitors, suggest that internal issues beyond industry fundamentals may be occurring, S&P commented.

S&P raises Stater outlook

Standard & Poor's raised its outlook on Stater Bros. Holdings to positive from stable. The corporate credit rating is B+.

Standard & Poor's said its revision was based on Stater Bros.' continued strong same-store sales and satisfactory liquidity over the past 12 months.

Same-store sales grew 6.4% for the first six months of fiscal 2002 on top of a 4.5% increase for fiscal 2001, S&P noted.

The company maintains sufficient liquidity with a $50 million revolving credit facility, and cash balances were $75 million as of March 31, 2002.

S&P said it believes Stater Bros. benefits from a concentrated market position in the Inland Empire region of southern California and that the ratings could be raised over the next 18 months if the company can continue to leverage strong sales trends.

Moody's rates Outsourcing Services loan and lowers ratings

Moody's Investors Service assigned ratings to Outsourcing Services Group Inc.'s proposed senior secured credit facilities and lowered existing company ratings. New ratings include its $40 million proposed senior secured revolver A due Oct. 1, 2005 at B2 and $30 million senior secured revolver B due Oct. 1, 2005 at B3. Lowered ratings include, $105 million 10 7/8% subordinated notes due March 1, 2006 to Caa2 from B3, senior implied to B3 from B1 and senior unsecured to Caa1 from B3. The ratings outlook is stable.

The B2 rating on the A tranche reflects the benefits of its collateral package. The tranche B is rated B3 because it has less "robust collateral support, "Moody's said.

The downgrade reflects the company's inability to improve operating margins and free cash flow despite platform enhancing acquisitions, Moody's said. Due to this, leverage and interest coverage have not strengthened as anticipated in the initial ratings.

Negative factors affecting the ratings include high concentration of sales to a small number of clients, the competitive and fragmented nature of the sector and the potential for business interruption and/or damages due to quality control issues at its plants, Moody's said.

Positive factors reflected in the ratings include, improved critical mass through strategic acquisitions, strong customer relationships, the breadth and improved adequacy of production capabilities, and the proposed refinancing structure that enhances liquidity, Moody's said.

The stable outlook is based upon improved liquidity provided by the proposed refinancing and the company's vigilance regarding the production quality of its plants, Moody's said.

Moody's rates Sybron Dental loans Ba3; notes B2

Moody's Investors Service assigned ratings to Sybron Dental Management Inc.'s proposed credit facilities and Sybron Dental Specialties Inc.'s senior subordinated notes. Ratings include $150 million senior secured revolver due 2007 at Ba3, $200 million senior secured term due 2009 at Ba3 and $150 million senior subordinated notes due 2012 at B2. The outlook has changed to positive from stable.

Upon the refinancing, ratings of Ba3 will be withdrawn from the $150 million senior secured revolver due 2005, $150 million senior secured term A due 2005 and $150 million senior secured term B due 2007.

Ratings reflect moderately high leverage and modest coverage, high competition, recent weakness in the orthodontics market and concerns of acquisitions hindering deleveraging, Moody's said. Ratings also reflect consistent performance and successful transition to an independent company.

"The positive outlook reflects Moody's expectation that Sybron will improve its credit metrics and profile going forward," Moody's said. "The company should continue to see moderate top line growth in the mid-to-high single digits, with more than half generated organically and the rest through acquisitions. Cash flow should continue to be adequate for the company's capital needs and for small acquisitions."

At March 31, the company had $352 million of debt outstanding, EBITDA/Interest coverage was 4.0 times and total debt/EBIDTA was 2.8 times.

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