Moody's cuts Teco to junk

Moody's Investors Service downgraded Teco Energy to junk, including cutting its senior unsecured debt to Ba1 from Baa2, trust preferreds to Ba2 from Baa3 and Tampa Electric Co.'s senior secured rating to A3 from A1, senior unsecured rating to Baa1 from A2 and long-term pollution control revenue bonds to Baa1 from A2. The outlook for Teco is negative and stable for Tampa Electric.

Moody's said it cut Teco because of the higher risks associated with the company's large and concentrated exposure to the merchant generation markets, which will increase further following its announced buyout of partner Panda Energy's interests, and diminished asset value as evidenced by substantial writedowns being taken by the company related to power projects, turbine commitments, and the consolidation of Teco Panda Generating Co. debt pursuant to FASB FIN 46.

Moody's said it believes that additional writedowns are likely at its Teco Power Services subsidiary's remaining power projects, including the suspended Dell and McAdams plants and perhaps the nearly completed Union and Gila projects, which could pressure the debt to capital covenant under its revolving credit agreements.

Finally, continued poor merchant energy market conditions will continue to severely limit the cash flow generated by the Teco Power Services project portfolio in 2003 and 2004, making it increasingly difficult for Teco to meet parent company interest and dividend obligations without relying on additional asset sales or debt financings.

The negative outlook reflects the company's limited financial flexibility for the remainder of 2003, which Moody's believes will continue through 2004, and the possibility that Teco will have to execute additional asset sales or debt financings to offset the negative effects of poorly performing merchant plants.

Liquidity continues to be fairly tight in Moody's opinion, and Teco has large rating triggered obligations associated with this exposure.

In particular, Teco is required, within 15 days of this rating action, to collateralize or repay a $375 million equity bridge loan that would otherwise have been paid in increments through the remainder of the year.

S&P cuts DeCrane, still on watch

Standard & Poor's downgraded DeCrane Aircraft Holdings Inc. and kept it on CreditWatch with negative implications. Ratings lowered include DeCrane's $100 million 12% senior subordinated notes due 2008, cut to CCC+ from B-, and $130 million senior secured credit facility, cut to B from B+.

S&P said downgrade reflects DeCrane's deteriorating financial profile due to the weak commercial aerospace and corporate jet markets and tight financial covenants in its amended credit facility.

DeCrane is the largest independent provider of a full line of interior cabin products for high-end business jets. In the wake of the events of Sept. 11, 2001, civil aviation's intermediate-term business prospects deteriorated significantly in terms of orders for new planes and aftermarket demand for products and services. Initially, sales and deliveries of corporate jets held up relatively well, but have since declined significantly. A number of major business jet manufacturers have slowed or even stopped production of certain models. Recovery is not expected until 2005.

Expected weak results in 2003 would have likely resulted in violation of then existing financial covenants in the company's secured credit facility, S&P noted. In order to improve its capital structure and bolster near-term liquidity, DeCrane received an amendment to the covenants from its lenders and has signed a definitive agreement to sell its Specialty Avionics Group to Odyssey Investment Partners LLC, a private equity firm, for $140 million cash. The estimated $132 million proceeds are to be used to pay down the company's secured credit facility.

Although DeCrane's absolute level of debt will decline significantly, the loss of earnings and cash flow from SAG, in combination with expected weak performance at the remaining businesses, will likely result in weaker credit protection measures in 2003, S&P said.

S&P rates PolyOne notes BB-

Standard & Poor's assigned a BB- rating to PolyOne Corp.'s proposed $250 million senior unsecured notes due 2010, confirmed its existing ratings including its senior unsecured debt at BB- and kept it on CreditWatch with negative implications.

PolyOne was placed on CreditWatch on March 23 due to elevated refinancing risk. The proposed debt issue is part of a refinancing plan that will improve the company's liquidity and financial profile, S&P noted.

PolyOne was also downgraded on March 23 to reflect the ongoing challenging industry fundamentals that have weakened the financial profile and to reflect increasing pressure on the company's liquidity and financial profile.

S&P said the CreditWatch placement indicates that the ratings could be lowered again if the refinancing is unsuccessful. Nevertheless, the ratings incorporate the expectation that the refinancing effort will be successful. If completed, the ratings will be affirmed and removed from CreditWatch.

Moody's rates PolyOne notes B2

Moody's Investors Service assigned a provisional B2 rating to PolyOne Corp.'s new $250 million senior unsecured notes. The ratings remain on review for possible downgrade.

Moody's noted the notes are part of a comprehensive refinancing package for PolyOne.

If the company successfully completes the refinancing, and in the absence of any other additional negative information, its ratings would be confirmed, Moody's said.

If the company fails to complete the refinancing over the next two months, Moody's said it could lower the company's ratings further.

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