Moody's cuts Encompass

Moody's Investors Service downgraded Encompass Services Corp. and kept it on review for possible further downgrade. Ratings affected include Encompass' $130 million senior secured term loan A due 2006, $170 million senior secured term loan B due 2006 and $300 million senior secured revolving credit facility due 2005, lowered to B1 from Ba3, its $335 million 10.5% senior subordinated notes due 2009, lowered to B3 from B2, and its $295.0 million 7.25% mandatorily redeemable convertible preferred stock, lowered to Caa1 from B3.

Moody's said the action was prompted by pressures on Encompass' profitability from a prolonged slow down in non-residential construction, continuing challenges in integrating its numerous acquired entities, the likelihood that it will violate its bank debt covenants by mid-year 2002 unless it obtains further modifications of its bank credit facility and the large asset impairment charge taken in the quarter just ended.

Encompass lowered its guidance for 2002 revenues to a range of $3.5 to $3.8 billion, which Moody's said was below its previous expectations.

Similarly, EBITDA guidance was reduced to a range of $155 to $195 million, and the goodwill charge of $452 million reduced book net worth to $221 million.

As a result, Encompass' credit profile, weakened by the poor 2001 operating results, will be further stressed during the coming year and this will prevent the company from complying with its current bank covenants, Moody's said. The company has begun discussions with its bank group to modify the covenants.

Although the company is not expecting difficulty in obtaining bank consent, this will be the second such modification in less than one year, and the amount of additional room to maneuver that the banks will permit the company is unclear at this time, Moody's commented.

S&P upgrades Mary Kay

Standard & Poor's upgraded Mary Kay Inc. Ratings affected include Mary Kay's $100 million revolver due 2006, $265 million tranche B bank loan due 2007 and $55 million asset sale facility due 2005, all raised to BB- from B+. The outlook is stable.

S&P said the upgrade reflects Mary Kay's improved operating performance stemming from continued sales volume growth, ongoing cost-saving initiatives and reduced debt levels, which have resulted in a strengthening of the company's financial ratios.

Although Mary Kay relies on the mature and highly competitive U.S. cosmetics market, faces challenges with international operations, and is exposed to the industry risk of direct sales distribution, the negatives are partially offset by its solid position within the cosmetics industry and improved operating performance.

S&P cuts SpectraSite

Standard & Poor's downgraded SpectraSite Holdings Inc. and put most ratings on CreditWatch with negative implications. Ratings affected include SpectraSite's notes and convertibles, cut to C from CCC+, and its bank loans, cut to CC from B+.

S&P said its action follows the company's tender offer to repurchase portions of five of its senior unsecured note issues at an average discount to current accreted value of about 65%.

The corporate credit rating and the five senior unsecured note issues affected under the tender offer were placed on watch with negative implications, and the senior secured bank loan and the rating on the convertibles were placed on watch with developing implications.

The maximum principal amount SpectraSite is seeking under its tender offer, assuming investors sell at the low end of the price range offered by the company, is about $960 million at the current accreted value, representing 66% of total accreted value of these issues.

S&P views the debt transaction as a distressed exchange because of the magnitude of the targeted debt tender combined with the company's highly leveraged capital structure and uncertain business prospects in its tower and network services businesses.

Therefore, the corporate credit rating will be lowered to SD and the affected senior unsecured debt issues will be lowered to D on completion of the transaction, S&P said

S&P rates Wyndham notes B-

Standard & Poor's assigned a B- rating to Wyndham International, Inc.'s new offering of $750 million senior secured notes due 2008 and a B- rating to its $600 million 5 year revolving credit facility and $1 billion 7 year term loan. The outlook is stable.

S&P said the ratings reflect Wyndham's very high debt leverage for its rating and expectations for limited discretionary cash flows available to reduce debt in the intermediate term.

Also incorporated in S&P's assessment is the company's geographically diverse and good quality portfolio of upscale hotels and resorts.

Wyndham's hotels compete in the upscale and upper-upscale price segment of the lodging market which have been hardest hit by the decline in lodging demand following the Sept. 11 terrorist attacks and the soft economy, S&P noted.

The company is also smaller and less recognized than many of its competing brands in the upper-upscale price segment, S&P said. Wyndham also has less brand and price-segment diversity than many of its peers such as Marriott, Hilton and Starwood.

S&P says Terex ratings unchanged

Standard & Poor's said Terex Corp.'s ratings, including its corporate credit at BB-, and its stable outlook remain unchanged following the announcement that it will acquire Demag Mobile Cranes GmbH & Co. KG for $150 million.

The acquisition will be funded with cash on hand.

S&P said it expects the company to operate total debt to EBITDA within the 3 times to 4x range.

This acquisition fits well into Terex's existing product offerings of rough terrain and truck cranes, S&P noted.

S&P puts Pacer on positive watch

Standard & Poor's put Pacer International Inc. on CreditWatch with positive implications. Ratings affected include Pacer's $150 million 11.75% senior subordinated notes due 2007 at B- and its $100 million revolving credit agreement and $135 million term loan at B+.

S&P said its action is in response to Pacer's filing for an initial public stock offering.

There is potential for a modest upgrade if the stock offering is successfully completed, S&P said.

Pacer has stated that it expects $135 million in net proceeds, assuming an initial public offering price of $16 a share, and that it will use proceeds to repay debt, S&P noted.

S&P rates Calpine loans BBB-

Standard & Poor's asigned a BBB- rating to Calpine Corp.'s $1 billion senior secured term B credit facility due 2004 and its $1 billion senior secured revolving credit facility due 2003.

S&P raises Hollywood Casino outlook

Standard & Poor's raised its outlook on Hollywood Casino Corp. to positive from stable. Its senior secured and corporate credit ratings are B.

S&P said the outlook revision reflects the improved performance at the company's Aurora, Ill. and Shreveport, La. facilities, the steady operations in Tunica, Miss. and the rating agency's expectation that the positive momentum will continue in the near term.

Hollywood Casino has a narrow business focus, high debt levels and faces competitive market conditions, S&P said.

Offsetting positives are the continued solid performance at each of the company's properties, improving credit measures and the expectation that this trend will continue in the near term, S&P said.

Moody's raises Premcor USA

Moody's Investors Service upgraded Premcor USA, Inc.'s notes to B1 from B3 and Premcor Refining Group's bank debt to Ba3 from Ba3. It also confirmed Port Arthur Finance Corp.'s Ba3 senior secured rating and Premcor Refining Group's senior unsecured notes at Ba3 and subordinated notes at B2. Premcor USA's senior subordinated notes, created by an exchange of its preferred stock, were rated B2.

Moody's said the upgrades anticipate Port Arthur Finance will have a successful consent solicitation on its $255 million of 12.5% notes to permit, among other amendments, the restructuring of the ownership of Port Arthur Finance and Port Arthur Coker to become a wholly-owned subsidiary of Premcor Refining.

The transactions prompting the current action follow on from the Premcor's recent IPO, raising $463 million.

S&P cuts BGF

Standard & Poor's downgraded BGF Industries Inc. and put the company on CreditWatch with negative implications. Ratings affected include BGF's $50 million revolving credit facility, cut to CCC+ from B, and its $100 million 10.25% senior subordinated notes due 2009, cut to CCC- from CCC+.

S&P said it cut BGF because of extreme market weakness, delays in arranging a new credit facility, somewhat higher than expected debt levels, and potential covenant violations under the company's existing bank credit facility.

S&P said BGF has been severely affected by the dramatic downturn in the electronics industry, its largest end market.

Despite a modest recent pick-up in sales and EBITDA from very low levels, demand and earnings prospects remain uncertain, and EBITDA is not currently covering interest expense, S&P said.

S&P upgrades Alfa Laval

Standard & Poor's upgraded Alfa Laval AB and kept the company on CreditWatch with positive implications.

Ratings affected include Alfa Laval Credit Finance AB's €161 million term loan A due 2007, €329.6 million term loan B due 2008 and €351 million bank loan due 2008, all raised to BB+ from BB, and Alfa Laval Special Finance AB's €220 million 12.125% notes due 2010, raised to BB- from B+.

Fitch cuts Aguas Argentinas loan to DD

Fitch Ratings downgraded the IDB B loan participation certificates of Aguas Argentinas SA to DD from C.

Fitch said the downgrade reflects the non-payment of $10.2 million of interest due May 15.

Aguas is not prohibited from transferring dollars under the IDB loan due to its preferred creditor status but its ability to convert and transfer dollars abroad is limited by strained operating cash flow since cash balances and new bank lines of credit are nonexistent, Fitch noted.

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