S&P ups Rite Aid corporate credit rating

Standard & Poor's raised the corporate credit rating on Rite Aid Corp. and Rite Aid Lease Management Co. to B+ from B and its senior secured second-lien notes to B+ from B-, plus assigned a BB rating to Rite Aid Corp.'s pending $2 billion senior secured credit facility.

S&P affirmed the B- senior unsecured and CCC+ preferred ratings.

The upgrades reflect improved operating performance in the past three years and balance sheet strengthening as a result of the $2 billion credit facility and a recent $360 million notes offering. The new capital structure lengthens significant maturities to 2008 and improves liquidity, S&P said.

The ratings reflect challenges in improving operations amid intense competition, as well as a significant debt burden and thin cash flow protection.

Recurring EBITDA margin increased to 7.6% in fiscal 2003 ended March 1 from 6.6% in fiscal 2002, and 4.0% in fiscal 2001.

Credit protection measures have strengthened due to improved operating results, as EBITDA coverage of interest rose to 1.4x in fiscal 2003 from 1.0x in fiscal 2001 and 0.4x in fiscal 2000.

Nevertheless, leverage is high with total debt to EBITDA at 7.8x, so that any operating difficulties could quickly diminish credit protection measures, S&P said. The proposed recapitalization is not expected to increase leverage, as the majority of the proceeds will likely be used to retire debt.

Currently, liquidity is provided by a $500 million secured revolving credit facility that matures in 2005 and $365.3 million of cash and equivalents on the balance sheet as of March 1. The proposed refinancing will increase the revolving credit facility to $850 million and lengthen the maturity to 2008.

The outlook is stable.

Fitch affirms CMS Energy

Fitch Ratings affirmed the existing ratings of CMS Energy Corp., including the convertible preferreds at CCC+, and its primary subsidiary, Consumers Energy Co. and removed the ratings from negative watch.

In addition, Fitch has assigned a senior secured rating of BB- to CMS' $925 million of secured bank facilities.

The outlook for CMS is negative. The outlook for Consumers is stable.

The confirmations follow the recent sale of the Panhandle Cos. to Southern Union Co. for $1.828 billion, the successful refinancing of $1.465 billion of bank facilities and the release of audited annual financial restatements.

Importantly, the bank agreements reduce near-term liquidity pressures on CMS and should enable the company to meet all its debt maturities through October 2004.

The negative outlook for CMS takes into consideration continuing uncertainty surrounding its business strategy. CMS is reliant upon the timing and execution of its remaining asset sale program to pay down debt beyond the required maturities and improve credit metrics. Following the Panhandle sale, CMS will be almost entirely dependent on cash distributions from Consumers for debt service.

As a result, Fitch believes further improvement in Consumers' ratings will be largely dependent on the stabilization of CMS' credit quality. There is room, however, for modest rating deterioration at the CMS level without a negative impact at the regulated subsidiary, thus its stable outlook.

S&P cuts Apogent to BBB-

Standard & Poor's lowered the senior unsecured ratings of Apogent Technologies Inc. to BBB- from BBB, including the 2.25% convertible due 2021, reflecting a more aggressive financial policy.

Apogent announced plans to buy back some 15% of outstanding common shares in a Dutch auction, financing the purchases with debt, which S&P estimates would raise lease-adjusted total debt to capital to almost 60% from 44% as of Dec. 31.

The investment-grade ratings on Apogent reflect its leading position in several business segments, offset by its debt burden, S&P said.

Liquidity remains adequate to meet both foreseeable cash needs and a more modest pace of acquisitions, through internally generated funds. Operating cash flow provides about $200 million annually, well exceeding the $65 million in ongoing capital spending requirements.

The company has about $485 million available under its credit facility and debt maturities are modest, with around $25 million during the next 12 months and another $28 million in the following two years. It also faces a cash put of $300 million in 2004, 2006, 2011 and 2016 the convertibles.

The outlook is stable.

Moody's puts Apogent on review for downgrade

Moody's Investors Service placed the ratings of Apogent Technologies Inc. under review for possible downgrade, including the Baa3 rated senior convertibles, as a result of plans to purchase up to 15% of its stock and the after-tax goodwill write-off of $86 million related to acquisitions.

These developments will reduce cash flow-to-debt metrics near term, Moody's said, and will significantly reduce tangible equity.

The review will focus on free cash flow generation and ability to deleverage following the stock repurchases, longer term prospects for growth that may be impacted by fewer opportunities to make value-added acquisitions, balance sheet strength and the potential for more shareholder value initiatives.

S&P cuts Arch Coal outlook

Standard & Poor's revised the outlook on Arch Coal Inc. to negative from stable but affirmed its rating, including the convertible at B+.

The revision reflects concern over rising unit production costs, coal demand and upcoming contract negotiations for uncommitted 2004 production.

The ratings reflect a diversified base of reserves and a high percentage of low-sulfur and compliance coal deposits as well as high costs of production in the eastern U.S.

Following a very difficult 2002, coal prices have stabilized but S&P had expected spot coal prices to be somewhat higher than current levels. Arch currently has 50% of its expected 2004 production uncommitted and this strategy could prove highly beneficial to operating performance if coal demand and prices improve.

Arch remains exposed to continuing operating challenges, especially at its Appalachian locations, where the average cost per ton has trended upward over the past two years. Furthermore, the regulatory operating environment in Appalachia is burdensome.

The debt to capital ratio has improved to 52% in first quarter of 2003 from 58% in fourth quarter of 2002 because of the recently issued convertible. The debt to capital ratio and the total debt to last 12-month EBITDA ratio were fairly aggressive at 60% and 4.1x, respectively.

Ratings are supported by fair liquidity of $349 million at March 31, consisting of $66 million in cash and $283 million available under its $350 million revolving credit facility due in 2007.

While nothing specific has been announced, liquidity could decline in an acquisition scenario.

If coal prices do not improve and costs remain at existing levels, operating performance and credit protection measures will likely be adversely affected, which would result in a downgrade.

Fitch cuts Ace ratings

Fitch Ratings downgraded the ratings of ACE Ltd. and its subsidiary ACE INA Holdings Inc. by one notch, including senior debt to A- from A. Fitch also downgraded the insurer financial strength ratings of the insurance subsidiaries of Brandywine Holdings by four notches to B+ from BBB-.

Fitch assigned a BBB+ rating to the preferred securities issue planned under ACE's recent shelf registration, while downgrading the rating on existing preferred securities to BBB+ from A-.

The outlook on the ratings is stable.

The downgrade reflects ACE's high exposure to reinsurance recoverables, moderate financial leverage and the low ratio of tangible equity to total equity, Fitch said.

Positively, Fitch noted strong underwriting earnings, excluding the asbestos charge, and adequate overall reserve level. Fitch believes ACE has benefited from current hard market conditions and will continue to benefit from those conditions at least through 2003.

© 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.