Moody's puts Continental on review

Moody's Investors Service put Continental Airlines, Inc. on review for possible downgrade, affecting $14 billion of debt including its senior unsecured notes and industrial revenue bonds at B3, senior unsecured convertible notes at B2, senior secured loan certificates at Ba2, senior secured term loans tranche B at B1, preferred stock at Ca and all Enhanced Equipment Trust Certificates except for those rated Aaa that are supported by monoline insurance policies.

Moody's said the review was prompted by the negative implications for already weak cash flow and increasingly constrained liquidity as a result of the recent unexpected deterioration in passenger demand and increased pricing competitiveness in the U.S. airline industry.

It is increasingly clear that despite reductions, operating costs have not been reduced sufficiently to accommodate the current business environment and most carriers, including Continental, continue to experience significant operating losses and cash flow deficits, Moody's said. The deterioration in business conditions may further and meaningfully delay a recovery in debt metrics that are currently considered only marginally sufficient to support existing ratings that have anticipated a recovery in cash flow.

While the review will take into consideration the impact of a war in Iraq and any related geopolitical events, its primary focus will be on the intermediate-term implications on cash flow of reduced revenue generation and the ability of Continental to reduce costs. Ratings could be further affected by any significant negative impact on cash flow due to a war or act(s) of terrorism.

Moody's puts Delta Air Lines on review

Moody's Investors Service put Delta Air Lines, Inc. on review for possible downgrade, affecting $13 billion of debt including Delta's senior unsecured notes and senior unsecured debentures at Ba3, industrial revenue bonds at Ba1, Ba3 and B2, equipment trust certificates at Ba1 and all enhanced equipment trust certificates except for those rated Aaa supported by monoline insurance policies.

Moody's said the review was prompted by the increased likelihood that unexpected levels of deterioration in Delta's financial risk profile will occur due to weakening passenger demand created by a prolonged economic slowdown, passenger hesitancy to fly and negative yield trends caused by aggressive pricing strategies currently employed by many U.S. passenger airlines.

In addition, it has become increasingly clear that despite reductions, operating costs have not been reduced sufficiently to accommodate the current business environment and most carriers, including Delta, continue to experience significant operating losses and cash flow deficits, Moody's said. The deterioration in business conditions may further and meaningfully delay a recovery in current debt metrics that are currently considered only marginally sufficient to support existing ratings that have anticipated a recovery in cash flow.

While the review will take into consideration the impact of a war in Iraq and any related geopolitical events, its primary focus will be on the intermediate term implications on cash flow of reduced revenue generation and the ability of Delta to reduce costs, Moody's added. Ratings could be further affected by any significant negative impact on cash flow due to a war or act(s) of terrorism.

Moody's puts Northwest on review

Moody's Investors Service put of NWA Corp and Northwest Airlines, Inc. on review for possible downgrade, affecting $5.8 billion of debt including Northwest Airlines' senior unsecured debt at B2, secured revolving credit facility at Ba3, industrial revenue bond series 1997 at B2 and all enhanced equipment trust certificates except for those rated Aaa supported by monoline insurance policies.

Moody's said the review was prompted by the negative implications for already weak cash flow from the recent deterioration in passenger demand and increased pricing competitiveness in the U.S. airline industry.

In addition, it is increasingly clear that despite reductions, operating costs have not been reduced sufficiently to accommodate the current business environment and most carriers, including Northwest, continue to experience significant operating losses and cash flow deficits, Moody's said. The deterioration in business conditions may further and meaningfully delay a recovery in debt metrics that are currently considered only marginally sufficient to support existing ratings that have anticipated a recovery in cash flow.

While the review will take into consideration the impact of a war in Iraq and any related geopolitical events, its primary focus will be on the intermediate term implications on cash flow of reduced revenue generation and the ability of Northwest to reduce costs. Ratings could be further affected by any significant negative impact on cash flow due to a war or act(s) of terrorism.

Moody's cuts Atlas Air

Moody's Investors Service downgraded Atlas Air Inc., affecting $1.5 billion of debt including its series 2000-1 EETCs class A, cut to Ba1 from Baa3, class B, cut to B2 from Ba3, class C cut to Caa2 from B3, series 1999-1 EETCs class A, cut to Ba1 from Baa3, class B, cut to B2 from Ba3, class C, cut to Caa2 from B3, series 1998-1 EETCs class A, cut to Ba2 from Ba1, class B, cut to Caa1 from B2, class C, cut to Caa3 from Caa1, $51.0 million secured aircraft term loan due 2005, cut to Caa3 from Caa1 and $137.5 million 10¾% senior unsecured notes due 2005, $153.0 million 9¼% senior unsecured notes due 2008 and $147.0 million 9 3/8% senior unsecured notes due 2006, cut to Ca from Caa2. The outlook is negative.

Moody's said the downgrade reflects Atlas' recent announcement that it had elected not to make lease payments relating to four of its 747-200 one of its 747-300 freighter series, occurring only shortly after a similar event relating to a 747-200 operating lease.

Moody's said it continues to be concerned that such non-payment may be symptomatic of further liquidity concerns facing the company over the balance of the year in a continued difficult operating environment. Atlas currently has no revolving credit facility in place, essentially no assets available for additional liquidity, and high operating lease payments in the first and third quarter of 2003 (Q1 2003 payments made January 2003).

Moody's does note that the company's parent, Atlas Worldwide Holdings Inc., has a significant cash balance, announced by Atlas as $255 million on a consolidated basis at year-end 2002.

S&P puts Dan River on positive watch

Standard & Poor's put Dan River Inc. on CreditWatch with positive implications including its subordinated debt at CCC.

S&P said the watch placement is in response to Dan River's proposed refinancing, which would alleviate the company's near-term liquidity concerns and improve operating performance.

Upon completion of the refinancing, given current terms and conditions, S&P said it will raise its corporate credit rating on Dan River to B+ from B- and withdraw its existing rating on the $120 million subordinated notes due 2003. S&P will assign a B- unsecured rating to the senior notes due 2009. The notes will be rated two notches below the corporate credit rating, reflecting its junior position relative to the significant amount of secured bank debt.

The potential upgrade incorporates S&P's expectation that Dan River's improved financial performance in 2002 will be sustained.

The outlook on the company, upon completion of the transactions, will be stable, reflecting S&P's expectation that Dan River can maintain its current credit protection measures and operating performance in the intermediate term.

The company's credit ratios have improved, reflecting its improved inventory controls and asset utilization. EBITDA interest coverage was 2.9x for the year ended Dec. 28, 2002, compared with 1.3x in fiscal 2001, S&P said. Accordingly, leverage, as measured by total debt to EBITDA, also improved to 3.0x from 8.0x in 2001. Operating margin for the same period was about 13.7% versus 6.7% in the prior year.

Moody's cuts Amatek

Moody's Investors Service downgraded Amatek Industries Pty Ltd. including cutting its senior subordinated notes due 2008 to Caa1 from B3. Amatek's subordinated notes due 2009 were confirmed at Caa1. The action concludes a review begun on Sept. 27, 2002. The outlook is stable.

Moody's said the downgrade is due to the significant narrowing of Amatek's business profile following the sale of its Laminex business to Fletcher Building in December 2002.

Moody's said Amatek has significant risks associated with business and geographic concentration. It now has a high dependence on the relatively low margin Stramit pre-fabricated steel business following the sale of the Laminex business for A$645 million in December 2002. The company has a high exposure to the level of residential and commercial building activity on the eastern seaboard of Australia.

In addition, the company is exposed to foreign exchange risk given low level of U.S. dollar-denominated sales and high U.S. dollar debt.

Supporting the credit, Amatek has strong positions in its key markets, which are oligopolistic by nature, Moody's added. The company benefits from the sound track record of controlling owner, CVC, in asset trading.

Moody's cuts SK to junk

Moody's Investors Service downgraded SK Corp. and the guaranteed debt of Momenta (Cayman) Ltd. to Ba2 from Baa3, affecting $1.6 billion of debt. The ratings remain on review for possible downgrade.

Moody's said the downgrade reflects the increased operating and cash flow uncertainty facing SK Corp. following the problems at its 38.7% owned associate SK Global. Recently SK Global disclosed significant profit overstatement due to accounting irregularities, and this has substantially impacted the company's liquidity and financial viability.

As the trading arm of the SK group, SK Global maintains a significant trading relationship with SK Corp.

Moody's said it is concerned that creditor banks of SK Global may seek SK group companies, including SK Corp., to support obligations of SK Global. At the same time, Moody's is also concerned that as the future of SK Global becomes increasingly uncertain SK Corp. could not easily replicate the marketing arrangements that were being fulfilled by SK Global without any disruption to its operations and liquidity profile.

The Ba2 rating remains on review for possible downgrade, pending further clarification of the ramifications on its operating cash flow of the current problems surrounding SK Global, Moody's added. Any steps to provide support for SK Global could result in further rating downgrade.

S&P keeps Gala Group on watch

Standard & Poor's said Gala Group Holdings plc remains on CreditWatch with negative implications including its corporate credit at BB-.

S&P said the continuing watch follows completion of the tender offer for Gala's £155 million senior unsecured bonds. The B rating on the bonds was withdrawn.

The ratings were placed on CreditWatch on Feb. 10 following the announcement that Gala would be acquired by Cinven Ltd. and Candover Investments plc for £1.24 billion.

S&P rates FairPoint loan BB-

Standard & Poor's assigned a BB- rating to FairPoint Communications Inc.'s $129 million term C loan due 2007, $30 million term A loan due 2007 and $60 million revolving credit facility due 2007 and confirmed its existing ratings including its $225 million 11.875% notes due 2010 at B. The outlook was raised to stable from negative.

S&P said the outlook revision is in response to the improvement in FairPoint's liquidity resulting from less restrictive covenants under its new bank agreement and refinancing of maturing bank debt with proceeds from the recent issuance of $225 million in senior notes due in 2010. Relative to the previous bank agreement, the new bank agreement contains interest coverage and leverage covenants that provide for more, but still limited, headroom against execution risks.

By refinancing bank debt that matures over the next three years with the recently issued notes, FairPoint no longer has significant debt maturities until after 2006, S&P noted. With moderate free cash flow prospect and availability under its new revolving facility, financial flexibility is not likely to be an issue over the next several years in the absence of major execution missteps and unfavorable regulatory changes.

The rating on the bank credit facility is one notch above the corporate credit rating. The new facility is guaranteed by intermediate subsidiaries that are above various RLEC operating companies and is collateralized by the capital stocks of these same subsidiaries. The prior bank loan was rated at the same level as the corporate credit rating due to its substantially larger size. The much smaller current bank facility is rated higher because, based on a conservative discounted cash flow analysis, S&P estimated that the value of the company's approximately 243,000 access lines would provide for strong likelihood of full recovery of principal in the event of default or bankruptcy on a fully drawn basis.

S&P rates Sistema notes B-

Standard & Poor's assigned a B- rating to the planned five-year senior secured notes of Sistema Finance SA, a fully guaranteed subsidiary of AFK Sistema. The outlook is stable.

The issue rating is based on the assumption that proceeds from the proposed bond issue will be used to finance the acquisition of increased equity interests in Sistema's core telecommunications asset, S&P noted.

Sistema's financial profile will weaken due to the expected increase in total consolidated debt and restrictive covenants of the bond issue. At Sept. 30, 2002, debt was $149 million. The increased leverage should, however, be partially offset by the increased value of Sistema's listed investment portfolio following the planned acquisition of 10% of T-Mobile International AG's equity interest in Mobile TeleSystems OJSC.

If Sistema does not complete the planned acquisition of the stake in MTS, and instead uses the proceeds for other purposes, it may reduce the asset coverage of Sistema's debt and could have negative credit rating implications, S&P added.

Nevertheless, the stable outlook and ratings on Sistema assume that total debt will remain sufficiently covered by the market value and strong performance of the company's listed interests in MTS and other telecoms assets, including Moscow-based fixed-line operator JSC Moscow City Telephone Network.

S&P says Advanced Accessory unchanged

Standard & Poor's said Advanced Accessory Systems LLC's ratings are unchanged including its corporate credit at B with a stable outlook.

S&P's comment came in response to news that Advanced Accessory is to be acquired by Castle Harlan Inc.

All ratings will be withdrawn if the transaction is consummated as currently contemplated, with the rated debt being repaid in full, S&P said.

S&P rates Universal City notes B-

Standard & Poor's assigned a B- rating to Universal City Development Partners Ltd.'s and co-issuer Universal City Development Partners Finance Inc.'s planned $500 million senior unsecured notes due in 2010. The outlook is stable.

S&P said the notes are rated two notches below the corporate credit rating due to the relatively large amount of secured debt and priority obligations as a percentage of total assets.

Universal City is a joint venture of the Blackstone Group and Vivendi Universal Entertainment. The company is analyzed on a stand-alone basis because S&P does not expect material credit support from Vivendi Universal.

The ratings reflect the company's geographic concentration of earnings, cyclical operating performance, and high financial risk, S&P said. Nearly all of the company's profits are derived from two theme parks, Universal Studios Florida and Islands of Adventure. Tempering this is the competitive position Universal Studios has developed in Orlando against incumbent Walt Disney World.

Universal Studios is attempting to transform itself into a multi-day destination resort, with its CityWalk shopping, dining and entertainment complex, as well as three adjacent themed hotels, which are not company-owned, S&P noted. However, attractions are generally not extensive enough to support longer than two-day passes. Revenue from sales of one-day and two-day passes accounted for 55% and 30%, respectively, of total pass sales.

Pro forma financial risk is high, with adjusted EBITDA (adding back the deferred portion of the management fees payable to Vivendi Universal), coverage of interest expense at 1.75x in 2002, S&P said. Pro forma gross debt to adjusted EBITDA as of Dec. 28, 2002, was 6.2x. Issue proceeds are being used in part to pay about $45.0 million in deferred special fees payable to Vivendi Universal relating to Universal Studios. Management fees are calculated at 5% of revenue. Under the terms of the bank agreement, additional current management fees may be paid in cash if the ratio of debt over EBITDA is less than 5x and deferred management fees may be paid in cash if it less than 4x.

Moody's cuts Thomas & Betts to junk

Moody's Investors Service downgraded Thomas & Betts Corp. to junk including cutting its $550 million senior unsecured notes to Ba1 from Baa2. The outlook is negative.

Moody's Investors Service said the downgrade reflects: weak cash flow to debt for the past two years, Moody's concern that the weak economy will continue to pressure revenues, making it difficult to improve cash flow despite considerable progress in cutting costs; and the nearing refinancing for a $125 million debt maturity in January 2004.

Moody's also noted the company's undrawn bank facility is secured, so that any outstandings under the secured credit facility would be senior to the company's unsecured debt.

The negative outlook reflects:continued pressure on revenue, profitability, and cash flow due to ongoing weakness within construction and electrical components markets; a slowdown of the steel structures market; and ongoing competition from other electric component manufacturers. A material reduction in future revenues could result in further downward rating pressure.

While Thomas & Betts has fixed the systems and organizational problems that negatively impacted the company until 2001 and has addressed end market weakness with its manufacturing restructuring program completed on time and under budget in 2002, cash flow to debt (as measured by debt to pre charge EBITDA less capital expenditure of nearly 6x at fiscal year end 2002) and return on assets (as measured by pre charge segment earnings from continuing operations to total operating segment assets of 4.1% at fiscal year end 2002) are weak, Moody's said.

Fitch rates Sistema notes B

Fitch Ratings assigned a B rating to Sistema Finance SA's planned guaranteed senior secured notes due 2008. The outlook is stable.

The notes are to be guaranteed by JSFC Sistema and the notes and the guarantee are to be secured by a lien over shares of Mobile Telesystems.

Fitch understands the documentation will provide that Sistema Finance will be required to pledge sufficient shares to ensure that the issue is 1.2 times covered by the market value of MTS shares at the time of issue. The documentation will not incorporate provisions for the security to be topped up if the value of MTS shares changes, after issuance of the notes. The documentation will also incorporate provisions in respect of change of control, cross default, a negative pledge and consolidated total debt to be maintained at less than 3.5x consolidated EBITDA, calculated according to a formula described in detail in the Offering Memorandum.

S&P cuts Anthony Crane

Standard & Poor's downgraded Anthony Crane Rental LP and kept it on CreditWatch with negative implications. Ratings lowered include Anthony Crane's $155 million 10.375% senior notes due 2008, cut to C from CCC- and $200 million term B loan due 2006, $475 million revolving credit facility due 2004 and $50 million second priority term loan due 2006, cut to CC from CCC.

S&P said the downgrade follows Anthony Crane's filing of an exchange offer for these issues with the Securities and Exchange Commission.

S&P said it views the exchange as coercive since the interest due on these notes will not be paid in cash but will accrete as additional principal for one year and thereafter the interest rate will be lowered below the original coupon rate.

The ratings on the issues being exchanged will be lowered to D following completion of the exchange offer, which is anticipated to be April 11.

Anthony Crane has been experiencing financial difficulties due to the weakness in the industrial and nonresidential construction markets while struggling with a significant debt burden, S&P said.

Moody's cuts Brown Jordan

Moody's Investors Service downgraded Brown Jordan International, Inc. including cutting its $105 million senior subordinated notes due 2007 to Caa2 from B3 and $60 million senior secured revolving credit facility due 2006 and $165 million senior secured term loan due 2006 to B3 from B1. The ratings remain on review for further possible downgrade.

Moody's said the action reflects Brown Jordan's recently missed interest payment and continued concerns regarding its sustainable cash flow generation and borrowing availability, given challenging demand conditions during its most important sales and sell-through periods and ongoing competitive threats.

Moody's said its review will focus on Brown Jordan's debt service capacity and available liquidity as the company manages through a difficult near-term operating environment and positions its business for longer-term growth. The company's performance in recent quarters has been negatively impacted by margin pressures from soft economic conditions, increasing sales concentrations with mass merchandisers versus dealers, and low-cost international competitors.

The ratings continue to be restrained by the company's high leverage, moderate interest coverage, and modest cash flows relative to debt; its participation in a highly fragmented and competitive industry segment; its sensitivity to economic trends given the moderately high price point and delayable nature of its products; its historically acquisitive nature; and its significant working capital needs due to a high degree of seasonality, Moody' ssaid.

Somewhat mitigating these risks is Brown Jordan's leading market share in the casual outdoor furniture market, as well as the diversity of its product and customer base, including both the mass merchandisers with promotional products and independent dealers selling higher-end lines. Additional support for the ratings exists in the company's reputation for product quality and its strong customer relationships.

S&P cuts New World Restaurant

Standard & Poor's downgraded New World Restaurant Group Inc. and kept it on CreditWatch with negative implications. Ratings lowered include New World's $140 million senior secured notes due 2003, cut to CCC- from CCC+.

S&P said the downgrade is based on increased refinancing risk facing the company, as its $140 million senior secured notes mature on June 15, 2003.

New World has not filed financial statements since the first quarter of 2002 and has yet to complete the reaudit of its financial statements for the fiscal years ended Dec. 31, 2000, and Jan. 1, 2002, S&P noted. Moreover, the company is challenged to refinance amid an informal investigation by the SEC, and a Department of Justice inquiry pertaining to the previous management.

S&P rates Swift notes B

Standard & Poor's assigned a B rating to Swift & Co.'s $150 million senior subordinated notes due 2010, originally issued to ConAgra Foods Inc. on Sept. 19, 2002 as partial payment for its acquisition of ConAgra's beef and pork business. ConAgra will be the selling noteholder. S&P also confirmed Swift's BB senior secured bank loan and B+ senior unsecured debt. The outlook is stable.

The ratings reflect Swift's debt levels, which are relatively high for a commodity-oriented protein processor with low margins operating in a very challenging environment, S&P said. However, these concerns are somewhat mitigated by Swift's strong No. 3 positions in both the U.S. beef and pork processing industries, by a diverse customer base, and by high barriers to entry.

Swift's strength is derived from its scale and leading position in the U.S. beef and pork market. Swift is also the largest beef processor in Australia, which provides an important platform for export, S&P added.

The company has successfully used risk management practices to limit its exposure to the cattle and hog cycle. Still, pricing flexibility is affected largely by external forces, including worldwide supply and demand conditions for other sources of protein, regional disease outbreaks, and dramatic swings in commodity prices, S&P said. The company expects to increase incremental sales by improving its value-added product line and by concentrating on the expansion of its international sales channels and food service.

However, S&P said it believes that the company could face long-term challenges from larger and financially stronger competitors such as Tyson Foods Inc. (BBB/negative), Smithfield Foods Inc. (BBB-/Watch Neg) and Cargill Inc. (A+/negative).

The company's credit measures are appropriate for the rating. Following the transaction, Swift is highly leveraged with a rolling 12-month lease-adjusted total debt to EBITDA at 3.2x as of Nov. 24, 2002; EBITDA coverage of interest expense (including pay-in-kind notes) was 2.9x. S&P said it expects that EBITDA margins on a blended basis for pork and cattle should average in the range of 2%-3% (on a normalized basis), which is within the industry range.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.