Moody's downgrades Conseco, outlook negative

Moody's Investors Service downgraded Conseco Inc. and its affiliates and maintained a negative outlook, affecting $6.1 billion of debt. Ratings affected include Conseco senior debt lowered to B2 from B1; senior subordinated debt lowered to Caa1 from B3; preferred stock lowered to Ca from Caa3; and trust preferred stock lowered to Caa2 from Caa1.

Moody's said the downgrade reflects "the continued uncertainty of the company's financial flexibility that, according to Moody's analysis, is already reflected in the market value of Conseco's debt securities."

Heightening the uncertainty is current fragile economic environment, which has weakened the profitability outlook for Conseco's annuity business and consumer finance operations, Moody's said.

To meet cash flow demands, Conseco plans on increasing dividends from insurance companies and raising cash from 'alternate cash flow sources,' the rating agency said.

Moody's said Conseco's liquidity "depends heavily" on whether it can complete certain transactions in the first quarter of 2002 that would generate sufficient cash to meet its debt service requirements. The rating agency called the plans "sound" but said they depend on "swift execution and the stability of the financial markets."

If the debt is successfully refinanced and expense savings are achieved, Conseco's outlook could be changed to positive in the second half of 2002, Moody's said.

Moody's downgrades SpectraSite

Moody's Investors Service downgraded SpectraSite Holdings, Inc. and its SpectraSite Communications, Inc. unit. Ratings affected include SpectraSite Holdings' $560 million 12.875% senior discount notes due 2010, $200 million 10.75% senior notes due 2010, $200 million 12.5% senior notes due 2010, $200 million 6.75% senior convertible notes due 2010, $225 million 12% senior discount notes due 2008 and $587 million 11.25% senior discount notes due 2009, all lowered to Caa3 from B3 and SpectraSite Communications' $350 million secured revolving credit facility, $500 million secured term loan and $450 million secured term loan B, all lowered to B3 from B1. The outlook is stable

Moody's said it lowered SpectraSite because it is concerned the company remains overlevered and may not be able to increase cash flow quickly enough to grow into its capital structure despite actions to improve near-term liquidity.

"The new Caa1 senior implied rating reflects Moody's opinion that SpectraSite's total indebtedness cannot be supported by its operations under conservative assumptions regarding the addition of new tenants onto its towers and the lease rates those prospective tenants will pay," Moody's said.

The credit facility's B3 rating benefits from good asset protection.

Moody's noted SpectraSite has "consistently failed to achieve" the rating agency's expectations for EBITDA growth.

Moody's downgrades Pinnacle

Moody's Investors Service downgraded Pinnacle Holdings and its Pinnacle Towers unit. Ratings affected include Pinnacle Holdings' $325 million 10% senior discount notes due 2008, lowered to Ca from Caa1, and Pinnacle Towers' $520 million senior secured credit facility, lowered to B3 from B2.

Moody's said it downgraded Pinnacle because of the company's "inability to get longer-term covenant relief from its bank group, its severe lack of liquidity, and the continuing erosion of its tenant base, primarily from ailing paging carriers."

Pinnacle is currently operating on its second forbearance agreement with its senior lenders and has no access to additional borrowings, Moody's said. The current forbearance runs through February 6.

While the secured debt is rated B3 reflecting Moody's view that there is enough collateral to support outstanding borrowings, the rating agency said there will likely be little recovery for senior discount note holders because of the relatively high level of secured debt.

Fitch puts Northern Natural Gas on positive watch

Fitch raised the Rating Watch on Northern Natural Gas Co.'s CC rated senior unsecured debt to positive from negative and said the rating could be lifted to the high BBB area.

Fitch said the change follows the announcement that Dynegy Inc. has settled its lawsuit with Enron Corp. to exercise its option to acquire Northern Natural Gas.

The current CC rating reflects Northern Natural Gas' position as a wholly owned subsidiary of Enron, Fitch said. A further negative is that unsecured lenders are subordinate to the company's fully drawn $450 million secured bank facility, a 364-day line negotiated to provide additional liquidity for Enron in the weeks prior to its bankruptcy filing.

Once purchased by Dynegy, Northern Natural Gas will likely be rated in the high BBB range, Fitch said. The rating will be affected by whether Dynegy fully pays off the secured loan. Fitch added that it will likely put Northern Natural Gas on Rating Watch Negative because of Enron's repurchase option through June 30, 2002.

S&P rates new Rural Cellular notes B-

Standard & Poor's assigned a B- rating to Rural Cellular Corp.'s planned $300 million offering of senior subordinated notes due 2010 and affirmed the company's existing ratings including its senior secured bank loan at B+, its senior subordinated notes at B- and its preferred stock at CCC+. The outlook is stable.

S&P said Rural Cellular's ratings reflect its high leverage, the challenges it faces managing rapid growth and a much larger business, increased competition, and decelerating roaming revenue growth.

Partially offsetting these negatives are solid cash flow growth, improving EBITDA margins, relatively low churn despite recent issues in its southern region, and the potential to reduce debt levels with free cash flow, S&P said.

S&P downgrades Western Wireless, on negative watch

Standard & Poor's downgraded Western Wireless Corp. and put the ratings on CreditWatch with negative implications. Affected ratings include its $200 million 10.5% senior subordinated notes due 2006 and its $200 million 10.5% senior subordinated notes due 2007, both lowered to B from B+, and its $2.1 billion senior secured credit facility, lowered to BB- from BB.

S&P said it lowered Western Wireless because of the "continued weakening" in the competitive position of its domestic operations and higher cash flow exposure due to the start-up losses of its consolidated international operations.

Preliminary fourth quarter operating results announced Jan. 7 were "well below" S&P's expectations, the rating agency said.

Although normally the industry's strongest period, Western Wireless added only 19,000 subscribers, down from 41,000 in the third quarter, S&P said.

Higher costs converting subscribers to CDMA and TDMA platforms from analog and to acquire subscribers hurt cash flow, resulting in an EBITDA decline in the fourth quarter of between 12% to 15% compared with the same quarter in 2000, S&P added.

S&P said it put the company on CreditWatch because it is concerned continued deterioration in operating results could potentially result in violations of credit facility covenants, particularly after December 2002 when they become stricter.

S&P rates new AMC Entertainment notes CCC

Standard & Poor's assigned a CCC rating to AMC Entertainment Inc.'s planned offering of $150 million of senior subordinated notes due 2012 and confirmed the company's existing ratings, including its subordinated debt at CCC. The outlook is stable.

Proceeds will be used, among other things, to help fund the company's planned purchase of GC Cos. Inc., the owner of General Cinemas. That acquisition should maintain AMC's key credit measures, S&P said.

The ratings reflect AMC's modern theater circuit as well as its aggressive financial profile and the still weak, but stabilizing, industry operating environment, S&P said.

Purchasing GC will add 22% more screens and modestly improve geographic diversity, S&P said. It anticipates the combination will result in cost reductions and other synergies.

S&P said AMC's circuit will remain relatively modern with a high percentage of complexes including both stadium seating and a large number of screens, features popular with patrons.

But the rating agency cautioned that the industry "remains highly competitive with a lingering oversupply of screens, especially in AMC's more densely populated markets. The company also maintains a large number of very large megaplexes, which have questionable economics in Standard & Poor's opinion."

Fitch downgrades Hilton Hotels

Fitch downgraded Hilton Hotel Corp.'s senior unsecured notes and debentures to BB+ from BBB-, its senior subordinated notes to BB- from BB+ and its commercial paper to B from F3. The ratings were removed from Rating Watch Negative and the outlook is negative.

Fitch said it lowered Hilton's rating because of the company's reduced cash flow generation, a result of the slowing economy, the events of Sept. 11 and high leverage for the rating category.

Fitch added that cash flow visibility to total debt has been weak for the rating category and it expects this trend to continue.

Although revenue per available room (RevPAR) trends have shown "meaningful improvement" since Sept. 11, Fitch said business travel which accounts for nearly two-thirds of Hilton's business has been dramatically reduced, "leading to a significant decline in both occupancy and room rates that could extend throughout much of 2002."

Fitch cuts Starwood to junk

Fitch downgraded Starwood Hotels & Resorts Worldwide, Inc. to junk and removed the ratings from Rating Watch Negative where they were placed after the events of Sept. 11. The outlook is negative. Ratings affected include Starwood's $1.1 billion revolving credit facility due 2003, $800 million term loan due 2003, $423 million term loan due 2003 and $500 million IRN facility due 2003, all lowered to BB+ from BBB-, and ITT Corp.'s $250 million 6.75% notes due 2002, $450 million 6.75% notes due 2005, $448 million 7.375% debentures due 2015 and $148 million 7.75% debentures due 2025, all also lowered to BB+ from BBB-.

Fitch said the downgrade reflects Starwood's reduced cash flow generation as a result of the slowing economy and the events of Sept. 11 which will result in weakened credit profile. In addition, Fitch said Starwood's cash flow visibility to total debt has deteriorated is expected to remain at levels more appropriate for the lower rating category.

While revenue per available room (RevPAR) trends have shown meaningful improvement since Sept. 11, business travel, nearly 90% of Starwood's business, has been dramatically reduced, leading to a significant decline in both occupancy and room rates that could extend throughout much of 2002, Fitch said.

The rating agency added that its negative outlook reflects the possibility that results could be weaker than expected due to a prolonged recession and refinancing risk from $2.7 billion maturing in early 2003.

Moody's downgrades Formica notes, still on review

Moody's Investors Service downgraded some Formica Corp. ratings including its $215 million 10.875% senior subordinated notes due 2009, cut to C from Ca and its senior implied rating, cut to Caa3 from Caa1. Formica's $345 million secured bank credit facility was left at Caa1. The ratings remain on review for further downgrade.

Noting it already downgrade Formica on Dec. 11, 2001, Moody's said the rating remain on review for possible further downgrades because the company had already entered a second waiver period from its bank group which expires on Feb. 9, 2002.

Unless it is extended again, the covenant violations are cured, or the credit facility is amended, "Formica may very well be forced into bankruptcy," Moody's said.

Formica's announcement it has replaced its chief executive officer and retained Lazard Freres as restructuring advisor "suggest that bankruptcy might be moving up in order of preference as a solution to the company's liquidity problems," Moody's said.

It added the banks will probably block the $11.7 million coupon payment due March 1, 2002 "unless a long-term solution to the company's problems is reached by that date, which appears increasingly uncertain," Moody's said.

S&P removes Microcell from watch, lifts outlook to positive

Standard & Poor's removed Microcell Telecommunications Inc. from CreditWatch and confirmed the company's ratings. Ratings affected include Microcell's C$429 million 11.125% discount notes due 2007 and its $270 million 12% senior discount notes due 2009 rated B-. It gave the company a positive outlook.

S&P said its actions reflect Microcell's success in obtaining additional funding through a rights offering, private placements and bank financing.

"The ratings take into consideration the strength of Microcell's subscriber growth and operating metrics; the prospect of growing positive EBITDA in the near term; and the prefunding of its business plan despite more challenging market conditions," S&P said. But it noted Microcell also faces increasing competition from incumbents with access to greater financial resources and the execution risks of deploying advanced mobile data services.

S&P said its positive outlook anticipates that Microcell will continue to meet its business plan expectations. Microcell could be upgraded within the next 12 months if it can give a clearer demonstration of positive EBITDA growth during the next few quarters, the rating agency added.

S&P downgrades Integrated Electrical

Standard & Poor's downgraded Integrated Electrical Services Inc. and removed the company from CreditWatch. Ratings affected include Integrated Electrical's $150 million 9.375% senior subordinated notes due 2009 and its $125 million 9.375% senior subordinated notes due 2009, both lowered to B+ from BB- and its $150 million bank loan, lowered to BB+ from BBB-. The outlook is stable.

S&P said the downgraded reflects Integrated Electrical's "weaker-than-expected profitability and cash flow generation, which has eroded the credit profile.

"Mixed end-market fundamentals, including increased pricing pressures and the potential for project deferrals and cancellations, make it unlikely that credit protection measures will meet Standard & Poor's prior expectations in the intermediate term," the rating agency said.

Moody's rates new Weight Watchers bank loan Ba1

Moody's Investors Service assigned a Ba1 rating to Weight Watchers International, Inc.'s new bank loan tranches, withdrew ratings on the old, repaid loan tranches and confirmed the company's other existing ratings. Ratings affected include Weight Watchers' new $108 million term loan B and new $64 million transferable loan certificate, both rated Ba1; Weight Watchers' old $ 70.8 million term loan B and $82.1 million transferable loan certificate, both of which had their ratings withdrawn; and Weight Watchers' $45 million revolving credit facility and $63.6 million term loan A, both confirmed at Ba1 and its $150 million 13% senior subordinated notes due 2009 and €100 million 13% senior subordinated notes due 2009, both confirmed at Ba3. The outlook is stable.

Moody's noted the new loans have lower pricing and longer maturity dates than the repaid loans.

Moody's said Weight Watchers' ratings are supported by the wide recognition of the company's brand name, its geographic diversity, the demographic trend of increasing obesity in industrialized countries and the pattern of repeat visits by former clients. The ratings also recognize the company's highly variable cost structure, substantial free cash flow available for balance sheet improvement and recently established access to equity financing sources.

On the negative side, Moody's noted Weight Watchers' leverage, the competitive nature of the weight control industry, and potential pressures in responding to the high expectations of equity investors.

It also noted the company's relatively narrow focus and minimal tangible asset value.

© 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.