Moody's cuts Furukawa

Moody's Investors Service downgraded Furukawa Co., Ltd.'s senior unsecured debt to B1 from Ba3. The outlook is negative.

Moody's said the action reflects the continuing deterioration in Furukawa's financial profile and Moody's view that Furukawa's cash flow and operating performance will remain under pressure despite its ongoing restructuring efforts.

The negative outlook reflects the rating agency's concern over the company's ability to stabilize earnings and improve its capital structures.

Furukawa's operating performance remained under pressure over the last several years, mainly due to ongoing operational problems at Port Kembla Copper, Pty. Ltd., its Australian copper smelting and refining facility.

As a result of weak performances, the company's capital structure has substantially deteriorated, Moody's said. To avoid further losses, in July Furukawa announced it will suspend operations at Port Kembla.

While the exact amount of losses relating to Port Kembla has not yet determined, it is expected that Furukawa will incur a considerable amount of extraordinary losses. This would severely damage Furukawa's limited equity base, Moody's said.

S&P confirms Quality Distribution

Standard & Poor's confirmed Quality Distribution Inc. including its corporate credit at B- and withdrew its B- senior secured ratings after the company decided not to go ahead with the notes offering.

S&P said Quality Distribution's ratings reflect its participation in a low-margin, fragmented industry, combined with a weak financial profile.

Although the company benefits from a strong market share in an industry with high barriers to entry, its customers have some transportation alternatives (rail, barge) depending on the nature of the shipment.

From the late 1990s through 2002, a weakening of the economy reduced demand for chemicals and hence revenues for Quality Distribution, S&P said. During this time, some customers shifted from truck transportation to rail (which is less expensive for longer hauls) and insurance premiums rose by more than 100%.

However, the company's operating margins after depreciation have remained in the 5.0% to 5.5% range despite reduced revenues as a result of management's efforts to reduce operating costs.

Quality Distribution's earnings and cash flow suffer from its significant debt and interest burdens; at June 30, 2003, lease-adjusted debt to capital was 138%, funds from operations to debt was 11.4%, EBIT interest coverage was 1.8x, and debt to EBITDA was 4x, S&P said. As the chemical industry recovers and the company's affiliate network is further developed, the company's financial ratios should improve with funds from operations to debt expected to be at least 10%, EBIT interest coverage maintained above 1.0x, and debt to EBITDA kept under 5.0x over the next few years.

Moody's upgrades Tanger

Moody's Investors Service upgraded Tanger Factory Outlet Centers, Inc. including raising its senior debt to Ba1 from Ba2. The outlook is stable.

Moody's said the action reflects Tanger's success in improving the quality of its retail outlet center portfolio and of its tenant mix, and marked improvement in debt protection measures. In addition, the rating upgrade reflects Moody's expectation that the REIT's fixed charge coverage will continue to improve, and that secured debt will fall over time.

The REIT's refinancing risk is low, reflecting the staggering of debt maturities and Moody's expects it to remain low. Tanger's operating performance has been healthy despite the weak economy. Its successful portfolio rebalancing strategy has included sales of weakly performing assets, construction of new outlet centers, and refurbishment and expansion of other centers. These efforts have helped to drive earnings, and high occupancies (96% at June 30, 2003).

Tanger also has been successful in upgrading the quality of its tenant mix by, for example, including a greater share of upscale and fashion-oriented brand name manufacturers and retailers. This stronger tenant mix has helped to boost traffic and sales at its centers by improving the shopping experience.

Leverage and fixed charge coverage statistics have strengthened as well, partly as a result of a more productive property portfolio and partly due to the REIT's deleveraging activities which have included equity-financed acquisition, and the conversion of preferred stock to common equity.

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