Moody's puts Riverwood's ratings on review

Moody's Investors Service placed the long-term debt ratings of Riverwood International Corp. on review for possible upgrade in response to the company's plans to raise up to $350 million in new equity through an initial public offering and refinance a portion of outstanding debt. The transactions are expected to allow the company to reduce debt by about $250 million and lower interest rates.

Ratings placed on review include, senior implied at B2, senior secured bank facilities and term loan at B1, senior unsecured notes at B3, senior subordinated notes at Caa1 and issuer rating at B3.

Moody's said its review will look at the impact of the new financing on Riverwood's credit metrics, changes in the structure of its capital obligations and the near-term outlook for its operations. In addition, potential changes to operating and financial strategies as a result of the IPO will also be considered, Moody's added.

Moody's cuts Better Minerals

Moody's Investors Service downgraded Better Minerals & Aggregates Co. The outlook is negative. Ratings lowered include Better Minerals' $150 million of senior subordinated notes due

2009, cut to Caa2 from B3, and its $50 million revolving credit facility, $30.1 million tranche A term loan due 2005 and $91 million tranche B term loan due 2007, to B2 from Ba3.

Moody's said the action is in response to weak cash flow, limited liquidity and concerns about the escalating number of silicosis claims being filed against the company.

Despite modest improvement in 2001 over 2000, Better Minerals' financial performance has been below the company's and Moody's expectations since it issued its senior subordinated notes in September 1999, the rating agency said. For the 12 months ended March 31, Better Minerals' EBIT covered interest 0.6x and EBITDA covered interest and capex 1.1x.

The company is in danger of breaching financial covenants in its revolving credit facility unless it improves its interest coverage and leverage ratios, which become more stringent in the third and fourth quarters, Moody's added.

While Better Minerals is reasonably well positioned to benefit from an economic recovery, especially at its industrial minerals segment, and seasonal improvements should boost cash flow in the June and September quarters, its prospective liquidity remains vulnerable to below-plan financial results, the rating agency continued. The company's liquidity, in the form of unused availability under its revolver, was $15 million at March 31, down from $29 million at year-end 2001. It must repay $10.6 million of senior long-term debt over the next year and pay approximately $13 million of interest in September 2002.

In addition, Moody's said there has been a rapid increase in the number of third-party silica-related product liability claims filed against the company's subsidiary, U.S. Silica Company. Many, but not all, of the claims against U.S. Silica are covered by an indemnification agreement with ITT Industries, Inc. and by liability insurance. Silica-related settlement and legal costs thus far have been modest. However, the increase in the number of claims and an adverse jury verdict against the company have increased the uncertainty associated with silicosis defense costs.

S&P takes McDermott off watch

Standard & Poor's removed McDermott International Inc. from CreditWatch with negative implications and confirmed its ratings. The outlook is negative. Debt affected include J. Ray McDermott SA's $200 million bank loan due 2003 at B and McDermott Inc.'s medium-term notes at B.

S&P said it originally put McDermott on CreditWatch on Feb. 22, 2000 after the bankruptcy filing of indirect subsidiary Babcock & Wilcox Co. because of rising asbestos claims.

So far no additional McDermott units have been brought into the bankruptcy, and the bankruptcy court's preliminary injunction prohibiting asbestos lawsuits against non-filing affiliates of the debtor's runs through July 15, 2002, S&P noted.

The ratings reflect McDermott's below-average business profile as a leading player in intensely competitive and volatile markets, and uncertainties surrounding the B&W bankruptcy, S&P said.

During the past few years, management has restructured operations, especially the marine construction business, by selling inefficient assets, reducing overhead, and implementing better controls over bidding and project management processes, the rating agency added.

Although McDermott's government operations are stable and profitable, intense competitive pressure at the firm's volatile marine construction services operation limit profit potential, S&P said.

Assuming that other units are not called into the bankruptcy, McDermott has sufficient liquidity to satisfy operating and funding needs, S&P said. In March 2002, McDermott repaid the outstanding $208.3 million, 9.375% notes, thereby eliminating near-term refinancing risk.

Moody's puts Alpharma Operating's ratings on review

Moody's Investors Service placed the ratings of Alpharma Operating Corp. on review for possible downgrade, including its senior implied at B1, $300 million guaranteed senior secured revolver due 2007, $141 million guaranteed senior secured term A due 2007 and $353 million guaranteed senior secured term B due 2008, all at B1, and issuer rating at B2.

The downgrade review is prompted by the recently announced SEC investigation of the company's revenue recognition practices and by lower than anticipated operating earnings at the time of the original rating in Aug. 2001, according to Moody's. "Our review will focus on evaluating the impact of these factors on creditor protections," Moody's said.

At March 31, the company had $10 million of cash, $285 million available under its revolver and $38 million available in short-term lines of credit.

Moody's rates Buffets' loan B1; notes B3

Moody's Investors Service assigned a B1 rating to Buffets Inc.'s $255 million secured bank loan and a B3 to its $260 million eight-year senior subordinated notes. In addition, Moody's lowered the $242 million "old" secured bank loan to B1 form Ba3, the senior implied rating to B1 from Ba3 and the long-term issuer rating to B2 from B1. The outlook is stable.

Proceeds from the new debt will be used to completely pay down the old bank loan, to retire mezzanine debt and to make a $150 million distribution for the redemption of preferred stock and relate accrued dividends and to pay a cash shareholder dividend. The rating on the old bank loan will be withdrawn upon completion of the pay down.

Ratings reflect leverage, increase in total debt, sector competition, seasonality, inability to grow customer traffic count and the company's strategy to directly operate all newly developed restaurants as opposed to finding franchisees that invest their own capital, Moody's said.

Positive factors influencing the ratings include, leading market share, modern condition of the store base, nationwide geographic distribution of restaurants, ability to modulate volatile food commodity costs by emphasizing different menu offerings and the company's history of successfully weathering the 1991 and 2001 economic downturns, Moody's said.

The stable outlook reflects the expectation that the company has developed a business model that steadily generates excess cash.

For the twelve months ending April 24, 2002, adjusted debt was 3.9 times and fixed charge coverage was 2.5 times.

Moody's rates Riviera notes B2

Moody's Investors Service assigned a B2 rating to Riviera Holdings Corp.'s proposed $210 million senior secured notes due 2010 and confirmed the company's existing ratings. The outlook remains stable. Ratings confirmed include Riviera's 10¼% first mortgage notes due 2004 at B2 and Riviera Black Hawk Inc.'s 13% first mortgage notes due 2005 at B3.

Moody's said Riviera's ratings reflect high pro forma consolidated leverage of about 6.5x, the near-term negative impact on the Las Vegas gaming market resulting from the Sept. 11 tragedy, and the expectation of additional debt financing related to possible future development.

In addition to allowing for a $30 million secured working capital line that will rank senior to the new secured notes, the new note indenture allows for up to $30 million of permitted investments. In effect, any restricted group revolver can be used towards development of future unrestricted subsidiaries.

Currently, the company has submitted a $150 million proposal related to casino development in Jefferson, Mo. and is also pursuing a racetrack development project in Hobbs, N.M., Moody's said.

The ratings also recognize that the proposed new note indenture includes other carve-outs in addition to the one for a $30 million secured working capital line. These carve-outs include $7.5 million for capital lease obligations and $10 million for other debt. None of the carve-outs will be subject to the 2.0x fixed charge debt incurrence test, Moody's added.

Positive ratings factors include the secured nature of the notes, the strength of the Black Hawk, Colo. gaming market, the company's good near-term liquidity profile, and the favorable long-term prospects of the Las Vegas gaming market, Moody's added.

Moody's rates Fleming's loan Ba2, notes Ba3, lowers outlook

Moody's Investors Service assigned a Ba2 rating to Fleming Cos. Inc.'s $950 million "new" secured credit facility at Ba2 and a Ba3 rating to its new $200 million eight-year senior notes. In addition, Moody's lowered Fleming's outlook to negative from stable and confirmed its $699 million "old" secured credit facility at Ba2, $355 million 10 1/8% senior notes at Ba3, $400 million 10 5/8% senior subordinated notes at B2, $150 million 5¼% convertible senior subordinated notes at B2, $260 million 9 7/8% senior subordinated notes at B2, senior implied at Ba3 and long-term issuer at B1.

Proceeds from the new loan combined with $200 million in new equity will be used to refinance the existing credit facility and to fund the $390 million acquisition of Core-Mark. The rating on the old loan will be removed once it has been repaid.

Moody's said it lowered the outlook to negative because it believes Fleming's ratings will be constrained until the status of Kmart becomes clearer and Fleming proves that the acquisition strategy provides acceptable returns.

Ratings reflect leverage, increase of funded debt by about $230 million, uncertainty related to the resolution of the Kmart bankruptcy, sector competition, challenges in integrating future distribution acquisitions and the necessity to replace clients lost in the consolidating supermarket industry, Moody's said.

Ratings also recognize the company's position as the nation's largest food distributor, the economies of scale relative to smaller competitors, the company's position as the only national grocery distributor, efforts to diversify its wholesale customer base and ongoing operating improvements, Moody's said.

For the twelve months ending April 20, 2002 adjusted debt to EBIDTAR was 5.7 times and fixed charge coverage was 1.5 times.

S&P rates Kennametal notes BBB

Standard & Poor's assigned a BBB rating to Kennametal Inc.'s proposed $300 million senior unsecured notes due 2012 and confirmed its existing ratings.

S&P said its assessment of Kennametal reflects the company's solid competitive positions in cyclical markets and moderately aggressive financial risk.

The acquisition of Widia Group from Milacron Inc. will improve the company's already solid global competitive position in consumable tungsten carbide metalworking tools, while the announced financing plan adds equity and long-term public debt, improving the company's capital mix, S&P said.

Fitch cuts Tyco to junk

Fitch Ratings downgraded Tyco International Ltd. to junk, cutting its senior unsecured debt and the unconditionally guaranteed debt of its Tyco International Group SA subsidiary to BB from BBB. Fitch also lowered Tyco's commercial paper to B from F3. The ratings remain on Rating Watch Negative.

Fitch said the downgrade reflects concerns about Tyco's liquidity and near-term maturity schedule, repeated changes in strategic direction, the impact of the company's recent troubles on operating cash flow and shortcomings in corporate governance.

The departure of CEO Dennis Kozlowski last week evidences the uncertainties and risks surrounding Tyco's ability to execute its most recent strategic plan, Fitch said.

The company has affirmed its intention to sell CIT through an IPO in early July, an essential step in addressing the company's near-term debt maturities, the rating agency added.

Although Fitch said it believes that the sale of CIT will occur, final proceeds are still open to question.

The significant and unexpected changes in Tyco's strategy and management during the past several months, however, have damaged Tyco's credibility, and its ability to raise funds in the capital markets is extremely limited, Fitch said.

Although Tyco is expected to have nearly $2.9 billion of cash on hand at the end of June 2002, the company is reliant on completing asset sales to meet its maturing debt obligations. Roughly half of Tyco's $27 billion of debt matures by the end of calendar 2003 with the largest portions due in February 2003 ($4.0 billion of bank debt and $2.3 billion of convertible debt) and in November 2003 ($3.6 billion of convertible debt). By the end of March 2003, Tyco expects to have a refinancing requirement of approximately $5.7 billion. This figure assumes a $2 billion operating cash balance requirement, no asset sales and the February 2003 putable convertibles are repaid in cash, Fitch said.

The successful IPO of CIT will still leave Tyco reliant on external capital to meet maturing obligations. The shortfall includes the effect of free cash flow, estimated by the company to be $3.8 billion (before an estimated $1.9 billion of acquisition spending) for the next four quarters ending June 30, 2003 and assumes that roughly $700 million of securitizations and liabilities related to rating triggers are refunded or paid, Fitch added.

S&P rates Vertis notes B-

Standard & Poor's assigned a B0 rating to Vertis Inc.'s proposed proposed $250 million senior unsecured notes due 2009 and confirmed the ratings of Vertis Inc. and Vertis Holdings Inc. including Vertis Inc.'s senior unsecured debt at B- and Vertis Holdings' senior secured debt at B+.

S&P said the proposed notes are rated two notches below Vertis' corporate credit rating due to the significant amount of secured debt in the consolidated capital structure. Pro forma for the offering, Vertis expects to have about $550 million in outstanding bank debt, which is secured and senior to the proposed notes.

Given that the level of secured debt is greater than 30% of total tangible assets, S&P said its notching criteria warrants a two-notch rating distinction.

The ratings reflect Vertis' high debt levels and competitive market conditions offset by the company's leading market positions, long-standing customer relationships, experienced management team, and strong equity sponsorship from Thomas H. Lee & Co.

Long-term contracts account for more than 50% of revenues. While this segment accounts for more than 70% of consolidated cash flow, the company's entry into the higher-margin direct marketing and digital services segments has helped to diversify the cash flow base and provides good growth prospects in the intermediate term, S&P said.

However, the weak economy and lower advertising spending during 2001 significantly affected retailers, which lowered volumes and sales for Vertis.

Still, in an effort to mitigate this impact, Vertis has simplified its corporate structure, realigned its sales force to focus on cross-selling all its products and services, and reduced the company's overall cost structure, S&P said. These initiatives, coupled with employee layoffs, yielded more than $40 million in cost savings in 2001 and, on an annualized basis, are expected to yield about $80 million.

Consolidated EBITDA for the three months ended March 31, 2002, totaled $47 million, up approximately 14% year-over-year, attributable to effective cost-cutting measures, stable performance in the retail and newspaper segment, and improved performance in the direct marketing segment. Based on current operating trends and the sale of the proposed note issue, total debt to EBITDA (including the holding company notes) is expected to be more than 5 times for 2002. EBITDA coverage of total interest is expected to be less than 2x, with cash interest coverage around 2x (the holding company notes are pay-in-kind through 2005), S&P said.

The company's pro forma liquidity is expected to be adequate, with about $75 million in revolving credit facility availability and manageable capital spending requirements.

S&P upgrades US Industries

Standard & Poor's upgraded U.S. Industries Inc. including raising its $125 million 7.25% senior notes due 2006 and $250 million 7.125% senior notes due 2003 to B from CCC+. The outlook is stable.

S&P said it raised U.S. Industries because of the company's continuing efforts to successfully address its heavy quarterly debt maturities as a result of asset sales.

U.S. Industries met the June 2002 amortization with proceeds of completed asset sales. Moreover, anticipated proceeds from further business divestitures during the next few months should enable the company to satisfy most of the October 2002 amortization, S&P said.

Consequently, USI appears reasonably positioned to refinance its credit facilities, which mature in November 2002, prior to the October amortization.

U.S. Industries credit quality incorporates its leading positions in bath and plumbing products, offset by lackluster operating margins, aggressive debt leverage measures, and the near-term maturity of its bank credit facilities, S&P said.

S&P cuts Alpharma outlook

Standard & Poor's lowered its outlook on Alpharma Inc. to negative from stable. Ratings affected include Alpharma's senior secured debt and senior unsecured debt at BB-, convertible subordinated debt at B and Alpharma Corp.'s senior secured bank loan at BB-.

S&P said it revised Alpharma's outlook because of the deterioration in the company's financial performance over the past three quarters.

The company's generic drug and animal health businesses have suffered continuing difficult conditions. The generic drug business was hurt by two product recalls and a resultant slow down at its Baltimore facility and mandated price decreases that went into effect in some major European markets.

Meanwhile, the animal health business saw a revision of credit terms by Alpharma, resulting in a decrease in wholesaler inventories of swine and cattle products.

EBITDA margins for the first quarter 2002 declined to 14.7%, from 22% the same quarter 2001, S&P said.

The deterioration in financial performance also comes at a time when the company is more highly levered, having completed the $660 million debt-funded purchase of Faulding in December 2001, S&P added.

Although Alpharma has successfully delevered after each past acquisition and has retired over $245 million of debt in the past two quarters, EBITDA interest coverage of 1.9 times is weak for its rating category, S&P said.

Moody's rates Terex Corp.'s loan Ba3

Moody's Investors Service assigned a Ba3 rating to Terex Corp.'s proposed new and amended credit facility, which consists of a $375 million senior secured term B due 2009 and a $300 million amended senior secured revolver due 2007. Proceeds from the new term B will be used to fund the acquisition of Demag Mobile Cranes GmbH & Co. KG and to refinance the existing term B and term C. The Ba3 ratings on the company's existing term B, term C and revolver were withdrawn. The rating outlook is negative.

In addition, Moody's confirmed the following ratings: $300 million of 10.375% senior subordinated notes due 2011 at B2, $200 million of 9.25% senior subordinates notes due 2011 at B2, $100 million of 8.875% senior subordinated notes due 2008 at B2, $150 million of 8.875% senior subordinated notes due 2008 at B2, senior implied rating at Ba3 and senior unsecured issuer rating at B1.

The ratings reflect Terex's significant debt leverage, highly cyclical nature of its business, sensitivity to corporate capital spending cycles, deteriorating operating performance, acquisitive growth strategy and significant integration challenges associated with its recent acquisitions, Moody's said. On the other hand, the ratings are supported by the company's strong market position in a number of its key end-markets, the management's track record in turning around under-performing businesses, the company's lower-than-average cost structure, and its ability to opportunistically access the equity markets.

The negative outlook reflects the anticipation of continued challenges in the company's end-markets, which could result in deterioration of financial performance and credit profile.

For the LTM period ended March 2002, pro-forma debt would total about $1.2 billion, or 7.1 times reported LTM EBITDA of $168 million, 6 times reported LTM EBITDA adjusted for full year contribution from acquired companies of about $197 million, or 4.5 times reported LTM EBITDA adjusted for full year contribution and related cost savings of about $268 million, Moody's said.

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