Fitch cuts Tenet to junk

Fitch Ratings downgraded Tenet Healthcare Corp. to junk including cutting its senior unsecured debt and bank facility ratings to BB+ from BBB-. The ratings remain on Rating Watch Negative.

Fitch said the change in ratings is in response to the company's announcement that expected operational performance will suffer from a host of issues impacting the company's top and bottom line.

The Negative Rating Watch is in deference to still outstanding issues related to investigations regarding the company's previous pricing practices, investigations at individual facilities stemming from allegations of physician and management misconduct as well as outstanding shareholder suits.

Tenet announced the results of a bottom-up budgeting process and provided related guidance for 2003. While Tenet management had not previously discussed operational 2003 guidance, the announced results are below Fitch expectations.

A current driving force for Tenet's top-line concerns is difficulty in achieving market-level price increases with some managed care payors, Fitch said.

For its part, Tenet management is accepting lower revenues in the current year while positioning for 2004. In addition, Tenet, like the rest of the companies in its sector is also addressing industry-wide pressures including an acceleration in nursing wages, an expected decline in Medicaid revenues in states with budget difficulties, rising malpractice insurance expenses and rising technology costs, Fitch said. Some mitigants include apparently stable Medicare pricing and patient volumes which have held fairly-strong for Tenet, while soft industry-wide.

While Tenet's coverage will remain sufficient and leverage modest based on 2003 expectations, cash flow will be poor. Fitch anticipates that for 2003 Tenet's coverage (EBITDA/interest) will likely be between 5.0 times and 6.0x and leverage (total debt/EBITDA) will be between 2.0x and 2.2x. Tenet's total debt at March 31, 2003 was approximately $4 billion. The company, however, is likely to generate only minimal free cash flow for 2003 given its capital expenditure commitments, Fitch said.

S&P puts Tenet on watch

Standard & Poor's put Tenet Healthcare Corp. on CreditWatch Negative including its senior unsecured debt at BBB-.

S&P said the action follows Tenet's announcement that it has lowered its earnings guidance and reflects the potential effect of this on Tenet's credit profile.

Two key factors contributing to the profitability revision are the company's managed care pricing, which is significantly below expectations, and ongoing cost pressures, which may be more severe than previously anticipated.

Other items expected to affect future profitability are weak Medicaid reimbursement and some softening of patient volumes, S&P said. In addition, Tenet expects to incur restructuring and impairment charges. The effect of the reduced level of outlier payments on the company's financial performance is fully considered in the rating.

Although some of these issues are already considered in the rating, the growing list of concerns and their uncertain magnitude creates the possibility that the credit profile may be more risky than indicated by the current investment-grade rating, S&P said.

Moody's rates Iron Mountain liquidity SGL-2

Moody's Investors Service assigned an SGL-2 speculative-grade liquidity rating to Iron Mountain Inc.

Moody's said the rating reflects that Iron Mountain has good liquid resources to cover its obligations over the next 12 months. The rating reflects Moody's expectation that operating cash flow, combined with existing cash balances and approximately $342 million of expected availability under committed multi-year unsecured revolving credit facilities should be sufficient to cover capital needs over the next 12 months.

Moody's rates Merisant notes B2, loan Ba3

Moody's Investors Service assigned a provisional B2 rating to Merisant Co.'s new senior subordinated notes, a provisional Ba3 to its new $320 million senior secured credit facilities and confirmed the Ba3 senior implied rating. The outlook is stable.

Moody's said the ratings take into account the re-leveraging of the company to pay a large dividend to shareholders. However, the ratings also recognize Merisant's relatively wide and stable margins, good cash flow generation and the significant market presence enjoyed by its leading brands.

The stable outlook anticipates that Merisant will use free cash flow to de-leverage.

The ratings are limited by Merisant's significantly re-leveraged balance sheet, with $181 million in incremental debt resulting in high pro forma debt to capitalization and negative book equity, Moody's said. Merisant will be somewhat more highly levered than it was following the original 2000 leveraged buyout of the business from Monsanto. The ratings also recognize Merisant's largely intangible asset base (64% of total assets), as well as significant exposure to foreign currency volatility, which can affect reported dollar results and the ability to service largely US dollar debt.

Merisant's historical cash generation has been good, allowing significant debt reduction since its leveraged acquisition in 2000, Moody's said. The EBITDA margin from 2000 through 2002 averaged 30%, and combined with low capex needs, little consumption of working capital, and favorable tax position, provided ample cash available to pay down debt. Pro forma for the recapitalization transaction, leverage measures will be somewhat higher than at the company's March 2000 initiation as a stand-alone entity. For the 12 months to March 31, 2003 total debt/EBITDA is 4.2x, shareholders' book equity is negative, and total debt/capitalization is 104%.

Moody's rates HeidelbergCement notes, loan Ba1, cuts existing senior debt

Moody's Investors Service assigned a provisional Ba1 rating to HeidelbergCement Finance BV's planned €600 million guaranteed notes and to parent company HeidelbergCement AG's €1.4 billion syndicated loan and revolving loan facility. Moody's also downgraded HeidelbergCement's existing medium-term note program to Ba3 from Ba1. The outlook is negative.

Moody's said the ratings reflect HeidelbergCement's geographically diversified revenue base, the inherently cash-flow-generative nature of the cement business and the expectation of a material near-term debt reduction from free cash flow, a €400 million equity issue as well as from disposal proceeds.

The ratings also recognize the intense price competition in selected local markets, particularly Germany; HeidelbergCement's reliance on continued bank support to complete the refinancing of maturing debt; execution risk related to the extent and timing of HeidelbergCement's de-leveraging strategy; and possible cash calls from the cartel office fine over alleged quota-fixing and installments for the acquisitions of Anneliese Zementwerke AG and Indocement.

With the issuance of the new debt, the existing senior debt was downgraded by two notches. Because the new instruments benefit from upstream guarantees from key subsidiaries which grant more direct access to the cash and assets generated by these subsidiaries, existing non-guaranteed creditors have become structurally subordinated. The guarantees for the notes, however, will be released upon an upgrade of HeidelbergCement's senior debt ratings to investment grade and, in case of the bonds, following a refinancing of the syndicated loan.

The negative rating outlook reflects execution and refinancing risk. Should management proceed quickly with its debt reduction steps and complete the refinancing package, the rating would likely stabilize at the current level, Moody's said.

S&P rates Orbital Sciences notes B+

Standard & Poor's assigned a B+ rating to Orbital Sciences Corp's proposed $135 million senior unsecured notes due 2011 and confirmed its existing ratings including its corporate credit rating at B+. The outlook is stable.

S&P said Orbital Sciences' ratings reflect its modest size and somewhat high debt leverage, offset by leading positions in market niches and increased military spending, especially for national missile defense.

The launch vehicle segment has been bolstered by a contract with Boeing, which could be worth up to $1 billion with options over the next seven years, to develop the booster for one segment of the U.S. national missile defense program, S&P said. Orbital's Pegasus and Taurus small launch vehicles have been affected by weakness in the overall launch services market.

The GEO satellite program had been operating at a loss due to development costs, but is now profitable. Demand for communications satellites has been weak due to overcapacity, but the company's small GEO satellites could benefit from their lower capital costs and ability to add incremental capacity.

Earlier this year Orbital reached an agreement with bankrupt affiliate Orbimage where upon the launch of the OrbView-3 imagery satellite Orbital will pay Orbimage $2.5 million and will be released from all claims by Orbimage and its creditors. In addition, daily penalties (up to a total of $5 million in aggregate) will apply if the satellite is not launched by April 30, 2003, or checked out by Aug. 1, 2003. The satellite is scheduled to be launched by the end of June 2003.

Profitability improved significantly in 2002, reversing net losses the past two years, due to the turnaround in the company's satellite operations and the elimination of the exposure to Orbimage, S&P said.

Operating margins were over 11% in 2002. Cash generation also improved, with funds from operations to debt a respectable 27%. However, free cash flow was negative, due largely to the payment of around $50 million in vendor financing as well as modest capital expenditures, S&P said. Further increases in profitability and positive free cash flow are expected in 2003.

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