S&P cuts NRG on non-payment

Standard & Poor's downgraded NRG Energy Inc. and its subsidiaries. Ratings lowered include NRG's corporate credit rating, cut to D from CCC; NRG Energy's $350 million 8.25% senior unsecured notes due Sept. 15, 2010 and NRG Energy passthrough trust 2001-1's $250 million 8.7% convertible securities due March 15, 2005 lowered to D from CCC; NRG South Central Generating LLC's $500 million 8.962% senior secured bonds series A due March 15, 2016 and NRG South Central Generating LLC's $300 million 9.479% senior secured bonds series B due Sept. 15, 2024, lowered to D from CCC; NRG Energy' s $125 million 7.625% senior unsecured notes due 2006, $250 million 7.5% senior notes due 2007, $300 million 7.5% senior unsecured notes due 2009, $240 million 8% senior unsecured remarketable or redeemable notes due 2013, $232.96 million 7.97% reset senior notes due 2020, $350 million 8.25% senior unsecured notes due 2010, $300 million 7.75% senior unsecured notes due 2011, $340 million 6.75% senior unsecured notes due 2006, $160 million 8.625% senior unsecured notes due 2031, $284.44 million 6.5% senior debentures due 2006 and $500 million 8.625% senior notes due 2031 cut to CC from CCC; and NRG Northeast Generating LLC's $320 million 8.065% senior secured bonds series A due 2004, $321 million 9.292% senior secured bonds series C due 2024 and $109 million 8.842% senior secured bonds series B due 2010, cut to CC from CCC.

S&P said the action follows NRG and NRG South Central's notification to the bond trustee that they would not make principal and interest payments due Sept. 16.

While NRG is still working toward accomplishing a restructuring outside of bankruptcy, the CC rating on issues not cut to D reflects the uncertainty of this resolution, S&P said.

S&P cuts Cablevision

Standard & Poor's downgraded Cablevision Systems Corp. and removed it from CreditWatch with negative implications. Ratings lowered include CSC Holdings Inc.'s senior subordinated notes and debentures, cut to B+ from BB-, senior notes and debentures, cut to BB- from BB+, and exchangeable preferred stock, cut to B from B+. The outlook is negative.

S&P said the action reflects the higher degree of uncertainty about Cablevisions' ability to grow operating cash flows from its cable services, which include analog cable, digital cable, cable modem, and telephony services.

Satellite competition has been exacerbated by the company's ongoing dispute with the YES network, S&P noted. Largely as a result of competitive factors, the company has lost 17,000 subscribers since the beginning of 2002, and projects that basic subscriber losses for the full year of 2002 will be roughly between 1.0% and 1.5%.

The company has encountered delays in rolling out its digital cable offering in 2002 and only began to market the service aggressively in May with the introduction of a new customer interface, S&P said. As a result, only 1.4% of subscribers are digital customers. This is well below the level of digital cable penetration of Cablevision's cable peers, and poses a challenge to company's management, given its strategic goal of significantly ramping up the digital subscriber base in the 2002 to 2003 time frame.

To counteract such disappointing performance and to preserve capital in tight financial markets, the company has announced a major restructuring effort aimed at reducing overall costs and accelerating advanced service capability throughout its network, S&P noted. These cost-cutting initiatives include significant headcount reductions. Such reductions largely reflect the closing of about 26 The Wiz consumer electronics stores and the sale of its 59 Clearview Cinema movie theatres.

Even with such initiatives Cablevision is expected to increase its borrowings at least through 2003 primarily from its existing bank facilities at CSC Holdings, Rainbow Media Group, and AMC/Bravo, which collectively provided availability of about $1.3 billion as of July 30, 2002, S&P said. Resultant debt to operating cash flow for 2002 is expected to be about 6.2 times, excluding $1.5 billion of preferred stock and $1.2 billion of collateralized debt, and including off-balance-sheet debt guarantees. This is comparable with the current 6.1x, based on six months' annualized performance through June 30, 2002.

While these initiatives hold the promise of reducing overall cash requirements in the 2002 and 2003 time frame, including lower capital expenditures for customer equipment, the company still faces the challenge of increasing overall cash flows from the cable businesses in light of its aggressive use of debt in the capital structure over the past few years, S&P said. Moreover, the company has undertaken numerous business ventures during the past few years that appear to be inconsistent with its current focus, including its investment in Northcoast PCS and a DBS project. Although management has indicated that Cablevision will not compromise its balance sheet for such ventures, such activities remain distractions that may impair management's ability to improve overall operating results.

Moody's cuts NRG

Moody's Investors Service downgraded NRG Energy, Inc., affecting $7.4 billion of debt. Ratings lowered include NRG's senior unsecured debt, cut to Ca from Caa1, and NRG Energy passthrough 2000-1 remarketable or redeemable securities, cut to Ca from Caa1. The outlook is negative.

Moody's said it believes that there is an increasing probability that NRG will default on debt service obligations.

The downgrade and the negative outlook reflect weak operating cash flows at NRG and at a number of its operating projects, weak liquidity that is highly dependent upon asset sales, and significant collateral requirements that remain unsatisfied requiring additional forbearance from creditors, the rating agency said. The current waiver with the bank group expired on Sept. 13.

Asset sales, which are intended to improve liquidity and help meet collateral requirements, remain challenging given the number of properties that are on the market, Moody's noted. NRG announced last week the sale of some of its eastern European properties, which if completed, would provide nearly $200 million to NRG by year-end. Other asset sales announcements are expected shortly.

Still, the process is likely to take months to execute and does little, in the near term, to bolster liquidity, Moody's said.

Fitch cuts Georgia Pacific

Fitch Ratings downgraded Georgia-Pacific's senior unsecured long-term debt to BB+ from BBB- and its unsecured short-term ratings to B from F3. The outlook is negative.

Fitch said its action follows Georgia-Pacific's announcement that it has delayed its planned separation into an investment-grade consumer products business and a non-investment grade building products business. The delay is being driven by sullen equity and high-yield markets which were to have raised fresh capital to repay debt and refinance near short-term maturities.

Although the consumer products end of Georgia-Pacific is performing and is expected to continue to perform well into next year, the markets for building products, save for the gypsum and resins businesses, have been underperforming, Fitch said. Prices for plywood, OSB and lumber continue in a slump amidst overcapacity in the industry and a poor commercial construction market but despite an otherwise good year for new housing.

On a consolidated level Georgia-Pacific should show improving results for the balance of this year and into 2003; however, the cash generated by the businesses will fail to make significant inroads into debt reduction, Fitch said.

Moody's cuts Magellan

Moody's Investors Service downgraded Magellan Health Services, affecting $1 billion of debt. Ratings lowered include Magellan's senior secured bank facility, cut to B3 from B2, senior unsecured notes, cut to Caa1 from B3, and senior subordinated notes, cut to Caa2 from Caa1.

Moody's said the downgraded reflects heightened liquidity concerns related to Magellan's ability to successfully complete the refinancing of its bank facility which would enable the firm to avoid a Sept. 30, 2002 covenant breach under its existing agreement.

While the company is in discussions with several private lenders, Moody's said it believes the increasingly tight time frame between potential completion of this refinancing and a covenant breach provides concern.

In addition, Moody's said it expects very limited near-term cash flow levels and is concerned about the uncertainties related to the renewal of Magellan's contract with Aetna, its largest customer.

Moody's upgrades AutoNation implied rating

Moody's Investors Service upgraded the senior implied rating of AutoNation, Inc. to Ba1 from Ba2 and confirmed its $200 million revolver due 2003, $300 million revolver due 2006 at Ba2 and $450 million senior unsecured 9% notes due 2008 at Ba2. The outlook is stable.

Moody's said the change reflects its expectations that AutoNation can continue to improve operating performance and debt protection measures; a reduction in integration risk from prior acquisitions as the company matures; a slowdown in acquisition activity, which has allowed better visibility into normalized operations; an expectation that management will maintain prudent financial policies; and Moody's belief that the company can maintain or improve leverage measures.

S&P takes Choice One off watch

Standard & Poor's confirmed Choice One Communications Inc. and removed the ratings from CreditWatch with negative implications. The outlook is negative. Ratings affected include Choice One's senior secured bank loan at CCC-.

S&P said it confirmed Choice One after the company was able to obtain about $49 million in new term loans, defer principal payments on its existing bank loan scheduled for the fourth quarter of 2003 and the first quarter of 2004 to final maturity date in 2009, and suspend most bank covenants until the third quarter of 2004.

Based on the company's recent trend of declining quarterly cash usage, S&P said it believes the company's estimated liquidity of less than $57 million as of Sept. 13, 2002, comprised of the new term loans and less than $8 million in accessible cash, should be able to fund operations through at least the early part of 2003.

Nonetheless, such level of liquidity provides limited cushion against execution risks and does not eliminate the possibility of insolvency, S&P said.

S&P cuts Quebecor

Standard & Poor's downgraded Quebecor Media Inc. and its subsidiaries, including Videotron Ltée and Sun Media Corp. and put them on CreditWatch with negative implications. Ratings affected include Sun Media's $53.5 million 9.5% notes due 2007 and $97.5 million 9.5% notes due 2007, both cut to B- from B+, and C$75 million revolving credit facility due 2006 and C$405 million term loan A-1 due 2006, both cut to B+ from BB, and Videotron's C$150 million senior secured revolving credit facility due 2005, C$737 million senior secured term A loan due 2008 and C$400 million senior secured term B loan due 2009, all cut to BB from BBB-.

S&P said the action reflects its increased concerns over tight leverage covenants at Sun Media and Videotron, particularly at the end of 2002 and in light of dividend upstream requirements at the holding company level.

Financial market conditions have not supported Quebecor Media's refinancing plans year-to-date, and S&P said it remains concerned over the number of financial market transactions the company has to complete by the end of 2003 to alleviate covenant pressures and cash flow restrictions in the long term.

In addition to these refinancings at the operating company levels, Quebecor Media also will need to address its non-recourse C$429 million credit facility due April 2003, which is secured by Videotron Telecom and other investments, and supported by undertakings from Quebecor Inc. and CDP Capital, a subsidiary of the Caisse de depot et placement du Quebec.

S&P cuts AT&T Canada, some notes at D

Standard & Poor's downgraded AT&T Canada Inc. including cutting its corporate credit rating to D from CC. It also cut the company's $250 million 7.625% senior notes due March 15, 2005 and $1 billion 7.65% senior notes due Sept. 15, 2006 to D from CC and its $250 million 12% notes due 2007, $170 million 10.75% senior discount notes due 2007, $225 million 10.625% notes due 2008 and C$150 million 7.15% senior unsecured notes due 2004 to C from CC and its C$600 million bank facility to CC from CCC+. The bank facility was put on CreditWatch with negative implications.

S&P said the action follows AT&T Canada's missed interest payment on the notes cut to D.

Although the company is allowed a grace period to make the payments, S&P said it believes it is unlikely the company will make them.

S&P said the Creditwatch on the bank debt is because if the proposed recapitalization of AT&T Canada's public debt is rejected the company would have to turn to some other form of restructuring that could impact the full recovery of the bank debt.

S&P rates Terex loan BB-

Standard & Poor's assigned a BB- rating to Terex Corp.'s proposed $210 million new term loan C maturing December 2009 and confirmed the company's existing ratings including its senior secured notes at BB- and subordinated debt at B. The outlook is stable.

Proceeds from the new term loan C and about $60 million in Terex common stock will be used to finance the acquisition of Genie Holdings Inc. for $270 million.

Terex's ratings reflect the company's leading global positions as a low-cost provider of construction and mining equipment with good geographic and product diversity, offset by highly cyclical and competitive end markets and an aggressive financial profile, S&P said.

The pending acquisition of Genie Holdings diversifies the company's product offering into the aerial work platform segment with a leading brand and market position, S&P added. This acquisition follows the company's recent purchase for Demag Mobile Cranes, a leading German producer of lattice boom cranes and telescopic mobile cranes. The addition of Genie's $575 million revenue and DeMag will help Terex become one of the largest construction equipment companies. Terex has funded these acquisitions with a combination of debt and equity.

Terex has a highly leveraged capital structure due to its aggressive growth strategy, S&P noted. However, the company's free cash flow generation and sizable cash balances, along with its use of equity as currency for acquisitions, should permit Terex to continue to make moderate-size acquisitions without material deterioration in its financial profile. Over time, S&P said it expects Terex to operate with total debt to EBITDA in the 3.0 times to 4.0x range, and funds from operations to total debt in the 10%-20% range.

S&P rates Plains All American notes BB

Standard & Poor's assigned a BB rating to Plains All American Pipeline LP's planned $150 million senior unsecured notes due 2012 and kept its ratings on CreditWatch with positive implications.

S&P said the new notes are rated one notch lower than Plains All American's corporate credit rating because of the substantial amount of secured bank debt the partnership has outstanding.

The positive watch was begun on June 27 after the announcement by its 29% owner Plains Resources Inc. of its plans to restructure.

S&P said the historically it has viewed Plains Resources as having effective control of Plains All American and so Plains All American's ratings were constrained to a level no higher than one notch above the ratings on Plains Resources due to concern that Plains Resources could voluntarily file Plains All American into bankruptcy if needed.

Following the spin-off, the constraint on Plains All American's ratings will be lifted because it will no longer be effectively controlled by the surviving, lower-rated oil and gas E&P entity. Once freed of this limitation, ratings on Plains All American will likely be raised to investment-grade, S&P said

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