Moody's raises Rite Aid outlook

Moody's Investors Service raised its outlook on Rite Aid Corp. to stable from negative and confirmed its ratings including its $1.9 billion secured bank facility at B2, $2.0 billion of senior notes at Caa3 and $20 million of 7% redeemable preferred stock at C.

Moody's said increasing cash flow and more efficient asset management have improved the company's ability to cover fixed charges and necessary investment over the next year.

But the rating agency added that an upgrade is premature unless the company makes concrete arrangements for refinancing the bank loan and two note issues due in 2005.

The stable outlook reflects Moody's revised opinion that the company likely will have sufficient liquidity to meet minimal obligations over at least the next 12 months, including payment of cash interest expense, support of seasonal working capital needs, repayment of debt principal, and a small level of capital expenditures.

Given current trends of operating improvement, Moody's said it also believes that the company will remain in compliance with its bank agreement covenants.

Moody's upgrades Western Digital

Moody's Investors Service upgraded Western Digital Corp. including its $161 million 5¼% zero-coupon convertible subordinated debentures due 2018, raised to B3 from Caa1, and its speculative-grade liquidity rating to SGL-1 from SGL-2. The outlook is stable.

Moody's said the upgrade is in recognition of the company's increasing share of the hard disk drive market, its deft execution during a period of industry consolidation, and its return to profitability in

fiscal 2002.

In addition, Moody's expects Western Digital will comfortably transition to the 80GB per platter drive platform in early 2003, and that the company's prospective cash flow from operations would support additional capital formation, if necessary, to enhance the company's manufacturing capacity, and potentially diversify its business model.

The ratings upgrades take into account Western Digital's 4.9 times free cash flow coverage of last 12 months fixed charges, including the pro forma annual accretion on the zero coupon convertibles outstanding; the company's modest debt to last 12 months EBITDA of 0.6 times, a fraction of the 6.2 times recorded at the end of fiscal 2001; the company's moderately leveraged 36% debt to capitalization; and the prospect for some deceleration in the continually declining average selling prices for hard disk drives.

The ratings are mitigated by Western Digital's current concentration on the desktop segment of the personal computer market, which accounted for 89% of shipments in fiscal 2002; the fierce competition to attain time-to-market, time-to-volume and time-to-quality manufacturing that continues to characterized the hard disk drive industry; and some risk associated with the company's virtual elimination of vertical integration in its business structure, Moody's added.

Moody's puts XM Satellite on review

Moody's Investors Service put XM Satellite Radio Holdings Inc.'s on review for possible downgrade including its $325 million 14% senior secured discount notes due 2010 at Caa1, $79 million convertible subordinated notes due 2006 at Caa3 and $43 million 8.25% convertible redeemable preferred stock due 2012 at Ca.

Moody's said the review was prompted by the recently announced plan to recapitalize the company.

Moody's said it is concerned that the plan, which includes additional indebtedness at the senior secured level, will further strain the company's balance sheet and further subordinate existing subordinated noteholders and preferred stockholders.

Moreover, XM's liquidity position has been weak. Without the closing of this or some other liquidity event, it is unlikely that the company will be able to operate beyond the first quarter of 2003.

Moody's review will focus on the uncertainty regarding the ability of the company to support the proposed capital structure. In addition, the review will consider the adequacy of the new financing relative to the company's expected need through the rating horizon and the likelihood of additional financial support from XM's strategic partners.

However, as a consequence of the high level of uncertainty regarding both the company and the sector in which it operates, the severity of the possible downgrade is unclear.

Moody's cuts Texas Industries

Moody's Investors Service downgraded Texas Industries, Inc., affecting $1.1 billion of debt. Ratings lowered include Texas Industries' senior unsecured debt, cut to Ba2 from Ba1, and TXI Capital Trust I's preferred stock, cut to B1 from Ba2. The outlook is stable.

Moody's said it lowered Texas Industries because despite substantial expansionary capital investment in recent years, the company's operating performance has not demonstrated a commensurate improvement, resulting in weakened financial metrics.

Continued soft economic trends affecting its structural steel and concrete, aggregates and cement segments could result in continued operating pressures.

Borrowings incurred to fund these expansion initiatives elevated Texas Industries' total debt burden (including convertible preferreds and receivables securitization), and while Moody's noted that some debt reduction has taken place, future debt reduction may be more prolonged than originally anticipated.

S&P raises Benchmark outlook

Standard & Poor's raised its outlook on Benchmark Electronics Inc. to positive from stable. Ratings affected include its senior secured bank loan at B+ and convertible subordinated note at B-.

S&P said the outlook revision is based on improving credit measures and solid operating performance over the past year.

Challenging industry conditions in 2002 caused a modest deterioration in sales and profitability in the 12 months ended September 2002 from the year-earlier period, S&P said. However, credit measures meaningfully improved throughout 2002, largely because of a $110 million equity issue in April, as well as good cash flow generation throughout 2002, leading to modest debt reduction.

Benchmark's operating performance compares favorably to other EMS providers, S&P added.

Operating margins for the 12 months ended September 2002 fell to 5.5%, from 6.6% in the year-earlier period, but are still well within the 5%-8% norms for leading EMS providers, S&P said. EBITDA interest coverage is solid for the rating at more than 5x. Total debt to EBITDA is about 1.5x.

S&P takes SCOR off watch

Standard & Poor's confirmed SCOR's ratings and removed it from CreditWatch with negative implications including its €203 million convertible bonds at BBB. The outlook is negative.

S&P said the action reflects the beneficial impact of a recently completed €381 million rights issue on the group's capital adequacy, as well as SCOR's strong business position and the potential for substantial improvement in group earnings during 2003.

Negatives include the potential impact of recent financial difficulties on the group's business position and concerns over SCOR's ability to control and monitor certain underwriting risks.

Fitch takes SCOR off watch

Fitch Ratings confirmed SCOR Group including its long-term debt at BBB- and removed it from Rating Watch Negative. The outlook is now stable.

Fitch said it believes that SCOR's successful raising of €381 million of equity financing will support the group's financial profile, which had been substantially affected by unexpected losses posted in the third quarter of 2002.

The group's capital adequacy is considered adequate, based on the expected reduction of risk assumed for 2003, Fitch added. In addition, the more conservative investment policy implemented by the group has also contributed to a lower risk profile.

The success of the equity raising process also reflects the support provided by shareholders for the "back on track" recovery plans and the confidence expressed in the ability of the group's new management team to reach financial targets set in the plan, Fitch said.

But the rating agency added that the group faces significant execution risk in the achievement of these objectives and that a return to adequate profitability may be a slow process.

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