S&P rates AES notes B+

Standard & Poor's assigned a B+ rating to AES Corp.'s proposed $1.0 billion second priority senior secured notes due 2013.

S&P said that on closing there will be $1.2 billion in senior secured debt with priority over these notes, approximately $175 million of which will be retired shortly with the proceeds of announced asset sales.

S&P said that the magnitude of senior secured debt is not large enough to warrant a notching of the second lien debt down from AES' B+ corporate credit rating. However, if additional senior lien debt is issued ahead of the second lien, there is a risk that the second lien could be notched down.

S&P added that given the potential for additional debt to dilute or further subordinate the second lien notes, the 10-year tenor of the proposed notes and its view of the potential value of the collateral in a distress situation, S&P said it believes that the likelihood of 100% recovery for the second lien note holders in a bankruptcy scenario is not high enough to warrant a rating higher than the B+ corporate credit rating.

The outlook remains negative due to declining distributions from AES' subsidiaries and the need to continue to reduce debt and stabilize these distributions in order to improve credit measures.

AES' measure of parent operating cash flow, which it defines as distributions from subsidiaries less corporate overhead, was $1.154 billion in 2001, $1.095 billion in 2002, and forecast to be $1.0 billion in 2003, although S&P said it believes it will be closer to $900 million in 2003.

S&P said its measure of cash flow to interest coverage was 2.2x in 2001, 1.9x in 2002, and is forecast to be 1.6x in 2003 based on $900 million of parent operating cash flow. AES will need to stabilize this trend by reducing debt or stabilizing cash flow in order to for the outlook to be changed.

Any significant negative deviation from S&P's projected cash flows (without exceeding debt paydown goals) or delay in executing asset sales and paying down debt (without exceeding cash flow projections) will likely lead to a downgrade.

S&P rates FastenTech notes B-, loan BB

Standard & Poor's assigned a B- rating to FastenTech Inc.'s proposed $175 million senior subordinated notes due 2011 and a BB to its proposed $40 million revolving credit facility due 2008. The B+ corporate credit rating was confirmed. The outlook is stable.

S&P said FastenTech's ratings reflect its niche market positions in specialty fasteners with a diverse array of customers, offset by a weak financial profile.

FastenTech has recently improved its operating margins, notwithstanding difficult economic conditions, S&P said. Productivity improvements, in addition to labor reductions, totaled $10 million in the September 2001 fiscal year and $5 million in fiscal 2002.

The company generates good operating margins, which averaged about 20% in the past three years, S&P said. EBITDA interest coverage at 2.2x in the past 12 months is in line with the 2.5x expected for the rating. Total debt to EBITDA at about 4x (adjusted for operating leases, excluding pro forma EBITDA of a recent acquisition) at March 31, 2003, is within the 3.5x-4x area that is expected. In addition, funds from operations to total debt (adjusted for operating leases) is at 18%, somewhat better than the 10%-15% expected for the rating, assuming no major acquisitions.

The company is expected to generate modest free cash flow that could help fund acquisitions. Still, the company is highly levered, with total debt to capital at about 90%, S&P said.

S&P rates Jafra notes B-, loan B+

Standard & Poor's assigned a B- rating to Jafra Cosmetics International Inc.'s proposed $175 million senior subordinated notes due 2011 and a B+ rating to its proposed $100 million bank facility. The outlook was cut to stable from positive.

S&P said the outlook revision reflects the incremental debt resulting from the recapitalization and the expectation that related credit measures will weaken somewhat due to the additional debt service.

In line with expectations, Jafra reported sales and operating profit growth for full-year 2002. Given the risks associated with the direct-selling business and the highly competitive cosmetics industry, Jafra's credit measures need to be stronger than the median to support the ratings, S&P commented.

Pro forma for the recapitalization, S&P said it expects debt to EBITDA to be in the 4.0x area, and EBITDA interest coverage to be about 2.5x, adjusted for operating leases and unrealized foreign exchange gains and losses.

Ratings on Jafra reflect the industry risk of direct-sales distribution, the highly competitive cosmetics business, and exposure to foreign exchange risk, S&P said. These factors are partially offset by Jafra's solid position in certain niche markets of the cosmetics industry.

S&P says Terra unchanged

Standard & Poor's said Terra Industries Inc.'s ratings are unchanged including its corporate credit at BB- with a negative outlook. after the company announced a first-quarter loss from operations of $14 million, larger than the $9 million loss from operations in the same period the year before.

The earnings decline is primarily the result of elevated natural gas costs and lower nitrogen production volumes, offset somewhat by higher selling prices for both nitrogen and methanol products, S&P said. Looking ahead, the company highlights a favorable demand and pricing environment for nitrogen, which could lead to much better second-quarter results.

The ratings are supported by Terra's position as a leading North American producer of nitrogen fertilizer and the expectation of better earnings, S&P added. The company's credit protection measures improved in 2002 compared with 2001, but are still weak for the rating. Consequently, a downturn in business conditions and deterioration in the company's financial profile could lead to a downward rating action.

S&P says IMC Global unchanged

Standard & Poor's said IMC Global Inc.'s ratings are unchanged including its corporate credit at BB with a negative outlook after the company's announcement of an almost $37 million first-quarter net loss, compared with net earnings of $5 million in the first-quarter of 2002.

S&P said earnings weakness primarily reflects significantly higher sulphur and ammonia input costs, offset somewhat by higher DAP prices.

Although fourth-quarter 2002 and first-quarter 2003 results were softer than originally expected, the company remains optimistic about the important spring planting season given higher crop prices and expectations of strong fertilizer demand, S&P said. Earnings and cash flow should benefit from strong DAP prices and lower ammonia costs.

Ratings are supported by leading global market shares and expectations of better earnings, S&P added. Still, the ratings could be lowered if an expected improvement in the fertilizer sector fails to materialize or other strategic actions impair the firm's ability to restore credit protection measures to targeted levels.

S&P rates Owens Brockway notes BB, B+

Standard & Poor's assigned a BB rating to Owens-Brockway Glass Container Inc.'s $450 million senior secured notes due 2011 and a B+ rating to its $350 million senior unsecured notes due 2013. S&P also confirmed all ratings on Owens-Illinois Inc. and related entities including Owens-Illinois' senior unsecured debt and senior secured debt at B+, preferred stock at B and Owens Brockway Glass Container's senior secured bank loan and senior secured debt at BB.

S&P said the ratings on Owens-Illinois and related entities reflect the company's aggressive financial profile and meaningful concerns regarding its asbestos liability, offset by an above-average business position and strong EBITDA generation.

Owens-Illinois' above-average business risk profile incorporates the company's preeminent market positions (which are bolstered by superior production technology), operating efficiency, and the relatively recession-resistant nature of many of its packaging products, S&P added.

Owens-Illinois' leading cost position is demonstrated by strong EBITDA margins averaging about 25%, a level that soundly tops its peer group.

Owens-Illinois has had to make sizable payouts for asbestos-related claims, with 2001 being the peak payout at $245 million, S&P noted. Net payouts in 2001 were reduced by proceeds from insurance settlements, however, nearly all of Owens-Illinois' insurance coverage has now been utilized. The company took a charge of $475 million in the first quarter of 2002 to increase the reserve for estimated future asbestos-related costs. As of December 2002, that reserve totaled $552 million and could require additional charges to increase its reserves in the next couple of years if a more profound decline in its asbestos settlements does not occur.

The increase raises concern because the liability has exceeded earlier estimates and suggests that Owens-Illinois' obligations relative to asbestos is declining more slowly than previously expected, S&P said. Owens-Illinois' estimate of a 10% decline in its asbestos-related cash payments in 2002 was valid, as it totaled $221 million. Additional moderate declines are expected to continue.

Moody's confirms Russel

Moody's Investors Service confirmed Russel Metals Inc. including its C$254 million senior secured revolving credit facility maturing 2005 at Ba2, $125 million 10% guaranteed senior unsecured notes due 2009 and C$30 million 8% subordinated debentures due 2006 at B1 and C$30 million 7.5% cumulative redeemable preferred shares at B3. The outlook remains stable.

Moody's confirmation follows Russel's announcement that it had made an offer to acquire Leroux Steel Inc. for C$185 million. The acquisition will be financed primarily by debt, initially raising Russel's debt to approximately C$400 million.

Moody's rating confirmation reflects the strategic fit and attractive cash flow potential of the acquisition and Russel's track record in integrating acquired assets and reducing debt to reasonable levels.

Moody's rating confirmation was supported by Russel's relatively modest leverage prior to the acquisition. It ended 2002 with debt of C$234 million, or 2.7x EBITDA of C$85.6 million.

Russel's financial results were fairly strong in 2002 despite weakness in steel and energy markets.

The cost savings and inventory reduction associated with the integration of Leroux's and Russel's steel service centers should facilitate growth in cash flow and timely debt reduction, even in the midst of a weak outlook for steel, Moody's said. By the end of 2003, Moody's expects Russel's ratio of debt to EBITDA to be under 4 times.

Moody's rates FastenTech notes B3, bank loan Ba3

Moody's Investors Service assigned a B3 rating to FastenTech, Inc.'s new $175 million senior subordinated notes due 2011 and a Ba3 rating to its new $40 million senior secured credit facility due 2008. The outlook is stable.

Moody's said the ratings reflect FastenTech's significant financial leverage (which is likely to be maintained to fund its acquisitive growth strategy), exposure to highly cyclical industrial end-markets, high customer concentration, limited pricing power, and exposure to volatile steel prices.

These risks are moderated by the company's strong position in a number of niche specialty fastener end-markets, a track record of good cash flow generation and profit margins, substantial cost savings from restructuring and working capital management initiatives, and established relationship with major customers.

The company's established brands, product innovation, and long-term relationship with major customers have enabled it to build a strong position in a number of small niche markets and to generate solid margins.

Operating margins for the 12 months to March 2003 and fiscal 2002 ended September 2002 were about 15.4% and 15.2%, respectively, a large increase from the 11.3% in 2000, due mainly to the cost-cutting initiatives implemented by the new management team, Moody's said.

However, Moody's notes that barriers to entry in the industrial fastener market are not high and a number of larger and more financially resourceful competitors, such as Textron, Illinois Tool Works, Black & Decker, and SPS Technologies, pose a threat to the company.

Subsequent to this transaction, funded debt will total approximately $182 million, or 3.8 times pro forma last 12 months EBITDA, or about 89% of last 12 months total sales, Moody's said.

Moody's puts Crompton on review

Moody's Investors Service put Crompton Corp. on review for possible downgrade including its $738 million of senior unsecured notes and $235 million of senior unsecured debentures at Ba1.

Moody's said the review was prompted by Crompton's announced definitive agreement to sell its organosilicones business to the GE Specialty Materials division of General Electric Co. in a transaction valued at about $1 billion.

Crompton anticipates gross cash proceeds of $645 million from the transaction (of which $525 million is intended for debt reduction), and will also receive GE's Specialty Chemicals business, with an agreed upon value of $160 million. In addition, Crompton will receive future earn-out payments of between $105 million and $250 million.

Moody's said its review will consider Crompton's pro forma leverage and debt maturity profile, its refinancing plans for the revolving credit facility, the competitive implications of the transaction, as well as the quality and contribution of the acquired assets.

Despite the positive affect on Crompton's financial metrics and liquidity, Moody's notes that even if the transaction does occur, weak industrial end-market demand, government investigations, and moderately high leverage could still pressure the ratings (the ratings outlook before this action was negative). However, the transaction does address Moody's concerns regarding Crompton's significant near-term refinancing requirements.

Fitch cuts AmeriCredit

Fitch Ratings downgraded AmeriCredit Corp.'s senior unsecured rating to B from B+ and maintained a negative outlook.

Fitch said its action reflects heightened concern about the trend in net charge-offs and continued macro economic pressures on asset quality and used car prices. Unabated, these factors will continue to erode the remaining cushion in charge-off related covenants in the company's warehouse facilities.

AmeriCredit's warehouse covenants require the annualized managed net charge-off ratio to be below an average of 8.0% for two consecutive quarters. Annualized managed net charge-offs to average managed receivables have risen in consecutive quarters from 3.6% for the second quarter ended Dec. 31, 2000 to 7.6% for the most recent quarter ended March 31, 2003, albeit some of the increase is attributed to management's more proactive handling of delinquent accounts which has contributed to the rise, Fitch said.

The negative outlook reflects continued liquidity constraints due to weakened asset quality measures of securitizations and increased enhancement requirements for new transactions, Fitch added. As expected, some securitization transactions executed in the 2000 time frame began to hit cumulative loss triggers during March 2003, trapping excess cash in those trusts.

Fitch said it remains concerned that additional and more recent pools may also hit cumulative net loss triggers as well. In Fitch's view, access to the term asset-backed securitization market is potentially more difficult and costly to obtain.

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