Moody's puts AMR, American on downgrade review

Moody's Investors Service put AMR Corp. and American Airlines, Inc. on review for possible downgrade, affecting $13 billion of debt. AMR's senior implied rating is B1.

Moody's said the review was prompted by the uncertain prospects for a meaningful recovery in the company's cash flow in light of a continued weak revenue environment and high unit cost that have, to date, been stubbornly resistant to meaningful reductions.

The review is also in response to the reduction in AMR's financial flexibility in light of increased use of secured financing and the probable need to renegotiate existing debt covenants, Moody's said.

Moody's added that its review will assess American's ability to positively impact cash flow through increased unit revenues and/or a meaningful and rapid reduction in unit costs without a disruption in operational efficiency.

In addition, Moody's will review the company's ability to husband its current liquidity including its ability to renegotiate covenants on its existing bank line of credit and to meet demands on existing cash from capital expenditure commitments, working capital changes and demands from at risk suppliers of goods and services. The review will also include an assessment of the impact of changes in the value of the aircraft supporting the company's secured equipment trust certificate and enhanced equipment trust certificate transactions.

Moody's confirms Cascade Boxboard, ends upgrade review

Moody's Investors Service confirmed Cascades Boxboard Group's ratings including its senior unsecured notes at B2 and removed it from review for possible upgrade. The outlook is stable.

Moody's said the action follows the decision of its parent, Cascades Inc., to terminate the previously announced exchange offer for the outstanding bonds of Boxboard. As a result Boxboard will retain its leveraged capital structure.

S&P rates Isle of Capri Black Hawk's loan B+

Standard & Poor's rated Isle of Capri Black Hawk LLC's proposed $210 million senior secured credit facility at B+. The outlook is stable.

The facility consists of a $40 million decreasing revolver due Nov. 16, 2005, a $28 million term loan A due Nov. 16, 2005, and a $142 million term loan B due Nov. 16, 2006. Proceeds from the loan will be used to fund the acquisition of two Colorado-based gaming properties from International Game Technology and for general purposes. The $84 million acquisition is expected to close in the next several months, subject to regulatory approval and financing. Security is a first priority interest in all of the capital stock and assets of the three casino properties.

Ratings reflect the company's somewhat more diversified cash flow base, relatively steady operating performance of the acquired properties, continued solid results from its existing property and solid credit measures for the rating, S&P said. Offsetting this is the company's single market concentration, potential construction risks and the increased near-term capital spending.

Pro forma EBITDA (before management fees) is more than $53 million, EBITDA (after management fees) coverage of interest expense is around 4.5 times and total debt to EBITDA under 4.0 times. Pro forma for the closing of the transaction, the company is expected to have about $19 million in excess cash on hand and full availability under its $40 million revolver, S&P said.

Fitch rates AES secured debt BB, off watch

Fitch Ratings assigned a BB rating to AES Corp.'s recently completed secured debt refinancing comprised of a multi-tranche $1.62 billion senior secured credit facility and $258 million of secured notes. Fitch also confirmed the existing ratings of AES and its subsidiaries, Ipalco Enterprises and Indianapolis Power and Light and removed them from Rating Watch Negative. The outlook is negative. Cilcorp and Central Illinois Light Co.'s ratings remain on Rating Watch Evolving pending completion of their committed sale to Ameren Corp. Ratings affected include AES' senior secured credit facility and senior secured notes at BB, senior unsecured debt at B, senior and junior subordinated debt at B-, trust preferred convertibles at CCC+, Ipalco's senior unsecured debt at BB, Indianapolis Power & Light's first mortgage bonds and secured pollution control revenue bonds at BBB-, senior unsecured debt and preferred stock at BB+, Cilcorp's senior unsecured debt at BBB- and Cilco's first mortgage bonds and secured pollution control revenue bonds at BBB and senior unsecured debt and preferred stock at BBB-.

Fitch said the ratings on AES's secured debt reflect the strong asset coverage, net of AES subsidiaries' individual debts, afforded by the security package and the stringent terms and conditions that govern the bank credit agreement and secured notes indenture.

All secured debtholders benefit from a fixed amortization schedule that requires AES to pay down 50% of the secured credit facility and 40% of the secured notes by November 2004. They are also advantaged by a cash sweep mechanism that requires AES to use a significant portion of proceeds from asset sales to pay down the secured debt.

AES' confirmed ratings already reflect the effective subordination of AES' senior unsecured debt and the explicit subordination of more junior debt and preferred classes as a result of the creation of a secured debt category, Fitch added. The ratings also consider the relatively thin residual asset coverage, afforded to the existing unsecured and subordinate debt classes after the expected repayment of the senior secured debt. The ratings are also influenced by the current high degree of debt leverage, as indicated by the ratio of parent debt to POCF ratio expected to be in the 7.5-8.0 times range and POCF to parent-interest ratio around 1.5x.

The negative outlook indicates the continuing uncertainties AES faces, Fitch said. The company still encounters a difficult business environment in its key geographic regions such as the U.S., U.K. and Latin America.

Fitch said its current forecasts do not anticipate that AES will receive much of any contribution of POCF in the next two years from Brazil, Venezuela and the U.K.

S&P rates Therma-Tru's loan BB-

Standard & Poor's rated Therma-Tru Corp.'s $330 million senior secured credit facility at BB-. The facility consists of a $75 million five-year revolver and a $255 million seven-year term B, which amortizes by $637,500 quarterly during the first five years and $30.3 million quarterly during the final two years.

Security is a first-priority interest in all present and future assets of the borrower and its domestic subsidiaries. Proceeds will be used to refinance existing bank debt and subordinated debt totaling $40 million. The credit facility will include a "greenshoe option" permitting the size of the facility to be increased by up to $75 million at the lenders' discretion.

Ratings reflect the company's position as the largest North American manufacturer of residential entry doors, leading position in the fast-growing fiberglass sector and superior operating profitability. These factors are offset by limited product diversity, moderate-size operations, customer concentration, aggressive debt leverage and limited financial flexibility, S&P said.

In a default scenario, which assumes that EBITDA no longer covers interest expense, lenders are not likely to recover the full principal amount of the loan, according to S&P.

S&P rates Lamar loan BB-

Standard & Poor's assigned a BB- rating to Lamar Media Corp.'s new bank loan made up of a $250 million revolving credit facility due 2009, $350 million term loan A due 2009 and $650 million term loan B due 2010. S&P also confirmed Lamar Media's existing ratings including its senior secured debt at BB-, subordinated debt at B and Lamar Advertising Co.'s senior unsecured debt at B. The outlook is stable.

S&P said the ratings are based on the consolidated credit quality of Lamar Advertising and reflect the company's significant debt levels, attributable to growth through acquisition over the years.

Adjusted for operating leases, debt to EBITDA is in the high-5x area.

These factors are tempered by the company's strong and geographically diverse market positions and an emphasis on the better-margin and more stable local advertising revenues, S&P said. In addition, with very strong operating cash flow margins, manageable capital expenditures, and minimal cash taxes, Lamar generates healthy levels of free operating cash flow.

Recent results have been affected by the impact of the soft economy on advertising revenues, particularly on the general coverage bulletins and posters portions of the outdoor advertising segment, S&P added.

While the company has grown through acquisitions, Lamar has sold or used common equity in the past to help fund some of these purchases, S&P noted.

Lamar currently has a heavy bank debt amortization schedule but the new credit facility would push out these required debt payments.

Covenants in the credit facility are expected to include restrictions on debt, liens, dividends, investments, acquisitions and mergers. Covenants also are expected to include interest coverage, fixed charges, senior debt and total debt ratio tests.

The facilities will be secured by a perfected first priority security interest in all of the capital stock and other ownership interests of Lamar Media's direct and indirect subsidiaries, S&P noted.

Moody's rates Freeport-McMoRan notes B2

Moody's Investors Service assigned a B2 rating to Freeport-McMoRan Copper & Gold's $500 million senior unsecured notes due 2010. The outlook is stable.

Moody's said the rating reflects the strong production and operating fundamentals, low cost, and longevity of reserves at Freeport's 90.6% owned subsidiary PT Freeport Indonesia.

The rating considers the dividend stream available to Freeport from Freeport Indonesia but reflects the subordinated position of debt holders at the Freeport holding company level to creditors at the operating company, Moody's added.

The rating also incorporates the improving capital structure at Freeport as focus on debt reduction continues, as evidenced by improving coverage ratios and reducing leverage ratios.

The rating reflects improved stability within the Indonesian operating environment, but continues to incorporate the still challenging conditions and risk of political and economic uncertainty associated with Indonesia, Moody's said. Although the rating is no longer viewed as technically constrained by Indonesia's country ceiling, given Freeport dependence upon the dividend stream from its Indonesian operating subsidiary, the Indonesian economic and political issues remain critical factors in Freeport rating.

Moody's confirms Parker Drilling

Moody's Investors Service confirmed Parker Drilling, ending its review with uncertain direction. Ratings confirmed include Parker Drilling's $235 million 10.125% senior unsecured notes due 2009 and $215 million of 9.75% senior unsecured notes due 2006 at B1 and $125 million of 5.50% convertible subordinated notes due 2004 at B3.

Moody's said the confirmation reflects Parker's relatively sound cash liquidity; completion of capital spending programs that exceeded cash flow; a "key" assumption that the company's asset sale program will adequately augment the funding of $125 million of August 2004 convertible note maturities; and the resolution of a fiscal dispute between client TengizChevroil and the government of Kazakhstan.

But Moody's cautioned the outlook may turn negative if Parker does not complete asset sales by third quarter 2003; drilling market conditions weaken; fiscal terms in Kazakhstan or Colombia materially impact liquidity or the company's ability to operate profitably there; or if rig relocation costs become onerous.

Moody's said it estimates that Parker's year-end 2002 cash exceeded $50 million, cash has since risen to roughly $60 million, and that its asset sales plan will yield substantial proceeds to meet 2004 debt maturities.

However, to retain the ratings, Parker will need to demonstrate that pro forma for the lost earnings power expected cash flow cover of debt would be compatible with the ratings. To accomplish this, it is likely that improvement in 2003 results is necessary from either the Gulf of Mexico and/or international land drilling segments.

S&P cuts UbiquiTel, still on watch

Standard & Poor's downgraded UbiquiTel Inc. and kept it on CreditWatch with negative implications. Ratings lowered include UbiquiTel Operating Co.'s $120 million term A loan due 2007, $125 million term B loan due 2008 and $55 million revolving credit facility due 2007, cut to CC from CCC+, and $150 million senior subordinated discount notes due 2010, cut to C from CCC-.

S&P said the downgrade follows UbiquiTel Operating's announced debt exchange offer for up to $225 million of its 14% senior subordinated discount notes due April 15, 2010. The company is offering to exchange the notes for up to $56.25 million aggregate principal amount of its new 14% senior discount notes due May 15, 2010.

The proposed transaction is viewed as a distressed exchange, given the company's limited liquidity position and the discount to accreted value of the offer, S&P said. On completion of the exchange offer, the corporate credit rating of UbiquiTel and UbiquiTel Operating will be lowered to SD as a selective default and the rating of the existing 14% senior subordinated discount notes will be lowered to D.

Moody's rates Allbritton add on B3

Moody's Investors Service assigned a B3 rating to the $180 million add-on to Allbritton Communications Co.'s 7.75% senior subordinated notes due 2012 and confirmed its existing ratings including its $275 million 7.75% senior subordinated notes due 2012 at B3. The outlook is stable.

Moody's said the confirmation reflects Allbritton's high leverage balanced by the value associated with the company's assets.

Allbritton's ratings reflect the risks posed by its high financial leverage and thin cash flow coverage; the high concentration of revenue and cash flow in the Washington D.C. market; the lack of network diversity in the company's television station portfolio (100% ABC); the expectation that shareholders will continue to avail themselves of substantial cash distributions, making material debt reduction highly unlikely; and exposure to the cyclical advertising environment, Moody's said.

However, the ratings are supported by the substantial asset value of the company's station portfolio, particularly the Washington D.C. station; the presence of some number one and number two ranked stations both overall and as it relates to its news product more specifically; a degree of geographic diversity; and adequate liquidity to execute the company's business plan, Moody's added.

The stable outlook incorporates the expectation that Allbritton will continue to distribute free cash flow available for debt repayment to its parent rather than reduce its debt burden, balanced by the likelihood that operating results will improve consistent with the improvement in ratings for the ABC network, Moody's said.

The rating agency added that it is likely to consider a negative outlook if leverage increases and the company continues to make substantial distributions to its parent. Given the lack of station diversity and the distribution policy a positive outlook is unlikely.

Moody's raises Allied Holdings outlook

Moody's Investors Service raised its outlook on Allied Holdings, Inc. to stable from negative and confirmed its existing ratings including its $150 million 8.625% guaranteed senior unsecured notes due October 2007 at Caa1.

Moody's said it believes that Allied's credit protection measures stabilized during 2002 but that the company's risk profile still remains consistent with the existing ratings.

During 2002 Allied was successful with various initiatives to upgrade performance, including a refinancing of the company's bank credit facilities; achievement of significant debt reduction; realization of material customer price increases; and steady progress with regard to enhanced management of the company's cost structure, working capital, and capital expenditures, Moody's noted.

The stable rating outlook reflects Allied's achievement for the 12 months ended Sept. 30, 2002 of $87 million in debt reduction, realized through a combination of higher-than-expected OEM production rates, operating margin improvement, net working asset reduction (most notably with regard to receivables), highly controlled capital spending levels, and net proceeds from asset divestitures, Moody's said.

Allied notably generated organic growth of its revenue base and increased market share through a combination of more assertive marketing programs and elevated service levels, along with the imposition of significant price increases on essentially all of Allied's customers.

The company's liquidity position was greatly enhanced following the February 2002 refinancing of its bank credit facilities and the prepayment of the company's $40 million of senior subordinated notes which would have otherwise matured in February 2003, Moody's said.

Allied's ratings remain constrained by the company's persistent weak credit protection measures. While Allied's debt/EBITDA leverage improved appreciably during the past year, the company's EBIT interest coverage and return on assets remained extremely poor, Moody's said. For the 12 months ended Sept. 30, 2003, Allied's total debt/EBITDA leverage (including off-balance sheet leases) improved to 4.5x, from 11.5x for the year ended Dec. 31, 2001. Twelve-month EBIT interest coverage was unsatisfactory at 0.4x but improved from the negative coverage level posted for the prior year end.

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