S&P cuts Lyondell, Equistar

Standard & Poor's downgraded Lyondell Chemical Co. and Equistar Chemicals LP, cutting Lyondell's senior secured debt to BB- from BB and subordinated debt to B from B+ and Equistar's senior secured debt to BB from BB+ and senior unsecured debt to BB- from BB. The outlook is negative.

S&P said the downgrades followed Lyondell's announcement of disappointing second-quarter operating results and diminishing prospects for a meaningful recovery in the petrochemical sector this year.

The reported results, while improved overall from a subpar first quarter, reflected weaker-than-expected volumes across key product lines due to a still-weak economic recovery, lower margins in methyl tertiary butyl ether (MTBE) in the U.S., customer inventory management and the challenges faced by petrochemical companies to improve margins in the face of increasingly volatile feedstock costs, S&P added.

The modest downgrade reflects the increasing likelihood that operating conditions will delay the improvement of the financial profile factored into the previous ratings, but recognizes the prudent steps taken by management to extend debt maturities and to preserve liquidity in a difficult business environment.

S&P puts infoUSA on positive watch

Standard & Poor's put infoUSA Inc. on CreditWatch positive including its $100 million 9.5% senior subordinated notes due 2008 at B.

S&P said the CreditWatch placement reflects infoUSA's stronger financial profile.

Despite a very challenging operating climate, the company has generated significant levels of free operating cash flow during the past two years, S&P noted. These funds have been used primarily for debt reduction.

In addition, infoUSA has refinanced a significant portion of its 9.5% subordinated notes with lower-cost credit facilities. Adjusted for operating leases, debt to EBITDA is in the low-2x area and EBITDA to interest is in the mid-5x area.

S&P rates Amsted Industries' loan BB-, notes B

Standard & Poor's rated Amsted Industries Inc.'s $525 million bank facility at BB- and $275 million senior unsecured notes due 2011 at B. The outlook is stable.

The credit facility consists of a $125 million revolver due 2008 and a $400 million term loan B due 2010. Security is a first-priority perfected interest in all assets owned by Amsted, the capital stock and assets of its domestic subsidiaries and 65% of the capital stock of its foreign subsidiaries.

Proceeds from the notes issue will be used to repay existing bank debt and for working capital and general corporate purposes.

The ratings reflect good niche positions in very cyclical markets and a weak financial profile, characterized by high debt leverage and thin cash flow protection, Moody's said.

In the medium term, the expectation is for operating margins to average in the low-teens percent area, funds from operations to total debt to be in the 15%-20% range and EBITDA interest coverage to be 2.5x to 3x. Total debt to EBITDA is expected to have peaked at the end of 2002 at around 4.8x and should diminish to levels acceptable for the rating at the 3.5x-4x range over the intermediate term as excess cash is applied toward debt reduction, S&P said.

Moody's rates Amsted notes B3, loan B1

Moody's Investors Service assigned a B3 rating to Amsted Industries, Inc.'s planned $275 million senior unsecured notes due 2011 and a B1 rating to its planned $125 million revolving credit facility due 2008 and $400 million term loan B due 2011. The outlook is stable.

Moody's said the ratings reflect Amsted's high debt levels against relatively thin cash flow coverage, its exposure to OEM manufacturing levels in relatively cyclical sectors, particularly rail car and automotive (heavy duty truck) production, and uncertainty surrounding potential cash payments owing to future ESOP expenses.

The ratings also consider the company's leadership position as producer of a number of components in both the rail car and vehicular sectors, a large and diverse revenue stream and a business model that positions the company favorably for recovery in both the rail and truck manufacturing sectors.

The stable rating outlook reflects Moody's expectations of a recovery in the rail car sector to more normalized levels, as well as stability or even modest growth in demand for components in the truck and construction markets.

After the financing is completed, the company will carry a relatively high amount of debt, Moody's said. Estimated total debt of $743 million (approximately 80% of total capital) represents about 4.8x pro forma EBITDA for the 12 months to June 2003. For the same period, EBITDA less capital expenditures covers pro forma interest 1.6x. However, Moody's notes that the company has significantly under-spent depreciation, with capital expenditures of $20 million and $24 million in the last two years, versus an average of approximately $60 million in annual depreciation over that period.

S&P says Avista unchanged

Standard & Poor's said Avista Corp.'s ratings are unchanged including its corporate credit at BB+ with a stable outlook after a FERC judge's ruling that certifies an agreement between the FERC staff and Avista on the investigation of improprieties related to Avista's trading practices.

While this is a positive development for credit quality, current ratings do not incorporate the prospect of any penalties resulting from this investigation, S&P said.

Moody's rates Insight loan Ba3

Moody's Investors Service assigned a Ba3 rating to Insight Midwest Holdings, LLC's proposed new $1.125 billion senior secured bank credit facility and confirmed the existing ratings of parent Insight Midwest, LP including Insight Communications Co., Inc.'s $360 million 12¼% senior unsecured discount notes due 2011 at Caa1, Insight Midwest, LP's $500 million 10½% senior unsecured notes due 2010 and $385 million 9¾% senior unsecured notes due 2009 at B2 and Insight Midwest Holdings, LLC's $425 million senior secured revolver due 2009 and $425 million senior secured term loan A due 2009 at Ba3. The outlook remains negative.

Moody's said it views the proposed refinancing of the Coaxial securities with new bank debt being raised at Midwest Holdings as largely credit neutral on balance, but notes the company's slightly diminished liquidity and higher net leverage, as well as a reversion once again to a somewhat more top-heavy capitalization.

The financing will benefit the company in terms of providing some simplification of its capital structure by removing the overhang related to the Coaxial notes (which had formerly been backed by a preferred claim on, and contingent guarantee from Ohio, a wholly-owned operating subsidiary of Holdings) and subsequently formalizing the roll-up of Ohio into the Midwest and Midwest Holdings restricted groups.

While the assets of Ohio and the related Coaxial obligations had initially been treated as largely distinct from Insight, they have been increasingly linked over the last year as Ohio's own operating profile has notably improved and capital injections by Midwest Holdings in support of Ohio's liquidity needs continued to be made, and the broader strategic importance of Ohio to Insight has been increasingly evidenced, Moody's said.

Insight's ratings continue to broadly reflect growing business risk, including expectations of heightened competition from both DBS service providers and the RBOCs; already high and lingering financial risk, with very high leverage and only modest coverage levels; and a complex corporate organization and capitalization structure, which is somewhat improved pro forma for the proposed transactions but still entails multiple holding-company layers, securities of varying rank and terms, and joint-venture considerations with respect to the ultimate parent company in particular, Moody's said.

The ratings are sustainable, nonetheless, given the company's large subscriber base and well-clustered, technologically-advanced cable systems; good prospects for accelerated EBITDA and, importantly, free cash flow growth and improved economic returns now that plant upgrades are substantially complete; and good underlying asset value in support of the company's rated obligations.

The negative outlook incorporates concerns that the company may again fail to achieve targeted performance objectives, and may not realize growth sufficient to significantly delever its balance sheet, Moody's said.

Moody's rates Alderwoods loan B1

Moody's Investors Service assigned a B1 rating to Alderwoods Group, Inc.'s proposed $50 million senior secured revolving credit facility and $275 million senior secured term loan B, both due 2008. The outlook is stable.

Moody's said the ratings reflect the company's high leverage, short post-bankruptcy operating history and low interest coverage. The ratings also take into account the company's tangible real estate collateral, stable business, reasonable predictability for cash flow generation and relatively low capital expenditures.

The ratings recognize the company's business slowdown caused by lower than "normal" death rates and the impact of more cremations as a percent of the total number of events, Moody's said. The negative cash flow impact from increased cremations is due to their lower dollar value, although they have higher margins.

The ratings also reflect the company's high leverage and relative newness post the bankruptcy that it entered into under its previous corporate name, Loewen Group.

Although the company's debt levels are still relatively high, the ratings reflect recent years' improvement and the expectation that the company's leverage will continue to decline. Primarily as a result of bankruptcy proceedings, Alderwoods lowered its total debt to $840 million from $2.3 billion with subsequent further reductions to approximately $750 million by the end of 2002. The debt level is expected to continue to decrease to approximately $655 million by the end of 2003.

For the 12 months ended June 14, 2003, total debt to EBITDA was 4.7x. For the same period, EBITDA coverage of interest was 2.4x and EBITDA less capital expenditures coverage of interest was 2.0x.

S&P rates Tempur-Pedic notes B-, loan B+

Standard & Poor's assigned a B- rating to the proposed $150 million notes due 2010 of Tempur Production USA Inc. and co-issuer Tempur-Pedic Inc. and a B+ rating to their $270 million senior secured credit facilities. The outlook is stable.

The bank loan is rated the same as the corporate credit rating because in a stressed scenario, S&P believes senior lenders could expect meaningful but less than full recovery of principal.

S&P said the ratings on Tempur-Pedic parent TWI Holdings are based on its aggressive capital structure, short track record and limited brand recognition in the highly competitive mattress industry.

Somewhat mitigating these concerns is the company's impressive growth rate, strong operating margins and credit ratios that are above average for the rating category.

Tempur has achieved its growth by positioning its brands as premium products in an expanding segment of the mattress market, earning high margins with differentiated technology, S&P said. With differentiated technology, the company has earned about a 3.5% domestic market share in the last few years, offering customers an alternative to traditional mattresses based on innersprings.

S&P said it expects Tempur to face challenges from the more established mattress manufacturers over time.

Sales for the fiscal year ended Dec. 31, 2002 grew 35% over the previous year, while EBITDA rose over 50%. Results were driven by volume gains in its core mattress products and the company's profitable accessories such as pillows, with modest price increases.

Pro forma for the recapitalization, Tempur will be highly leveraged, with debt rising to $389.4 million from $176.1 million, negative owners' equity, and goodwill and other intangible assets representing over 50% of total assets. S&P said it expects total debt to EBITDA, adjusted for operating leases, to be about 4.1x, and EBITDA to interest to be above 3.5x. The company's capital structure includes $154.2 million in preferred stock.

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