Moody's downgrades Williams Communications two notches

Moody's Investors Service downgraded Williams Communications Group, Inc. two notches, affecting $6.7 billion of debt securities. Ratings affected include Williams' senior unsecured rating, lowered to Caa3 from Caa1, its senior secured bank facility, lowered to Caa1 from B2, and its preferred stock rating, lowered to Ca from Caa3. Williams Communications Group Note Trust's senior secured notes are not affected. The outlook is negative.

Moody's said it cut Williams' ratings because of "heightened concern" over the company's financial performance "which continues to fall substantially short of our expectations and our view that the protracted softness facing the whole broadband fiber sector will persist in constraining WCG's revenue growth."

Noting the outlook remains negative, Moody's said the ratings could be lowered further if Williams Communications' management "is unable to significantly improve the company's financial performance and liquidity position."

Although management said Williams Communications' financial performance is accelerating, Moody's said it considers that the recent results, revised guidance and work force reductions "provide a signal that the company is experiencing many of the challenges faced by other broadband fiber operators."

At the end of September 2001, Williams Communications had liquidity of $1.9 billion, made up of cash equivalents and short-term investments of $1.4 billion plus $525 million undrawn under its bank credit facility. These resources were available to fund capital expenditures of $820 million and cash interest expense of $690 million estimated by Moody's through the end of 2002. Actual interest expense may be lower, given debt repurchases and interest rate changes.

Moody's said available liquidity is adequate to sustain near-term operations only if Williams Communications can deliver on its substantially reduced capex program.

Insufficient scaling-back of operating or capital expenditures in the face of more modest sales growth would likely result in nearer-term covenant tightness and place further pressure on a financial model that management currently represents to be fully funded, Moody's added.

S&P cuts Equistar notes to junk, on negative watch, confirms Lyondell

Standard & Poor's downgraded Equistar Chemicals LP, including lowering its notes to junk, and placed the ratings on CreditWatch with negative implications. Ratings affected Equistar Chemicals' $100 million notes due 2002, $150 million 6.5% notes due 2006, $150 million 7.55% debentures due 2026, $600 million 8.75% notes due 2009 and $500 million senior notes due 2008, all lowered to BB+ from BBB-, and its $500 million revolving credit facility due 2006 and $300 million term loan due 2007, both cut to BBB- from BBB.

S&P said the downgrade was in response to "still challenging conditions in Equistar's key product lines that are likely to further delay restoration of the financial profile, the announcement of a $1.1 billion charge to earnings to write down goodwill, and the possibility that near-term financial flexibility could be diminished through the use of the company's revolving credit facility.

The placement on CreditWatch reflects Lyondell Chemical Co.'s announcement it will acquire Occidental Petroleum Corp.'s 29.5% stake in Equistar.

Completion of this transaction would increase Lyondell's ownership interest to 70.5% and remove the strongest owner from a financial profile standpoint, thereby diminishing financial flexibility at Equistar, S&P said.

S&P said the move also raises intermediate-term concerns about Lyondell's increasing influence on the governance of Equistar, particularly as it "strongly suggests" Lyondell may move to gain full control of the venture sooner than previously anticipated.

As a result, S&P said it will likely lower Equistar's corporate credit and senior unsecured debt to BB senior secured debt to BB+ on completion of the transaction.

S&P also confirmed Lyondell Chemical Co.'s ratings, saying the company will benefit from a greater proportionate share of Equistar's future distributions, potentially accelerating the debt reduction necessary to preserve current ratings.

Lyondell Chemical's high debt levels continue to overshadow the firm's average business profile as a leading North American petrochemical producer, S&P said.

Lyondell's senior secured debt is rated BB and is subordinated debt B+.

Covanta says agents recommend waiver extension on bank facility

Covanta Energy Corp. said the co-agents for its bank group have recommended an amendment that would extend covenant waivers but that the larger lending group has still to approve the terms.

The Fairfield, N.J. energy company said it is "reasonably confident" of obtaining approval and meeting the required conditions but that it does not expect a final response until some time next week, given the number of bank involved.

Covanta said the proposed amendment would extend the covenant waivers through March 31, 2002 subject to the company achieving cash maintenance goals on Feb. 28, 2002. The waivers currently expire on Jan. 31, 2002.

The company also said it has sufficient liquidity for immediate operations and is considering options to supplement its operating cash.

Because of downgrades by the rating agencies, Covanta is required to post more than $100 million in performance and other letters of credit. At the moment, the company said it does not have commitments under its credit facility to post those letters of credit and it is working with counterparties to modify the agreements.

NTL hires CSFB, JP Morgan, Morgan Stanley to advise on alternatives

NTL Inc. said it hired Credit Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic and recapitalization alternatives to strengthen its balance sheet and reduce debt.

"Although we continue to perform well, we believe we need to proactively seek ways to strengthen our balance sheet and reduce our debt," said Barclay Knapp, chief executive officer of the UK broadband services company, in a news release.

NTL said it has "sufficient liquidity to approach the recapitalization process in a considered manner."

Moody's rates Hanger Orthopedic new notes B2

Moody's Investors Service assigned a B2 rating to the proposed senior notes of Hanger Orthopedic Group, Inc. and withdrew the B1 ratings for the existing bank credit facilities which are being refinanced. Moody's confirmed Hanger's remaining outstanding ratings for Hanger including its $150 million senior subordinated notes due 2009 at B3 and its $71.0 (accreted value) 7% redeemable preferred stock due 2010 at Caa1. The outlook is stable.

Moody's said its assessment reflects Hanger's "high leverage and weak coverage, weak cash flow generation and the operational and financial problems encountered following the acquisition of NovaCare Orthotics and Prosthetics, Inc."

Positives include the company's shift away from growth and acquisitions to operational improvement, its leading market position and its improved financial flexibility following the refinancing, Moody's added.

Moody's gave the company a stable outlook because the rating agency expects Hanger's credit profile to show a gradual improvement in coming years through modest revenue growth, higher margins and stronger cash flow generation.

"However, we expect debt repayment to be minimal, since Hanger will likely renew acquisition activities once current operational issues have been corrected," Moody's added.

Moody's rates CSG planned bank loan Ba2

Moody's Investors Service assigned a Ba2 rating to CSG Systems, Inc.'s proposed secured bank loan. The outlook is stable.

Proceeds from the loan together with $75 million of cash on hand will be used to finance the purchase of Lucent Technologies' wireless and wireline telephony billing software division, to provide operating capital for the acquired division, and to refinance an outstanding bank loan, Moody's said.

The ratings incorporate the relative size of the company compared to customers and competitors and its concentrated customer base - especially reliance on AT&T Broadband - for a significant proportion of revenue and operating profit.

Also limiting the ratings are the expected fair market value of the company's tangible and intangible assets relative to the bank loan commitment, the significant turn-around program required to restore profitability to Kenan, and uncertainty regarding the combination of AT&T Broadband and Comcast, Moody's said.

But the rating agency also said it recognized CSG's importance in its customers' billing process, the high barriers to switching once a billing system has been adapted, and the significant investment made in development of sophisticated billing software.

Historically strong cash flow generation and Moody's expectation that a substantial portion of future cash flow will be used for prudent purposes such as amortizing bank debt also benefits the ratings.

S&P confirms Beazer Homes

Standard & Poor's confirmed its ratings on Beazer Homes USA including its corporate credit at BB- and kept the outlook at positive.

S&P said its action follows the announcement of a merger with Crossman Communities Inc.

The combination is a good strategic fit, S&P said, adding that the merger will be "largely credit neutral."

The combination will be the sixth largest U.S. homebuilder.

"Crossman also adds significant scope to Beazer's operations as it expands to 40 markets in 16 states, from 35 markets in 14 states, and provides a sizable land supply (roughly six years) through a combination of lots owned (58%) and optioned," S&P said.

S&P downgrades ITC DeltaCom two notches

Standard & Poor's downgraded ITC DeltaCom, Inc. two notches and kept the outlook at negative.

Ratings affected include ITC's $200 million 11% senior notes due 2007, $160 million 8.875% senior notes due 2008, $100 million 4.5% convertible subordinated notes due 2006 and its $125 million 9.75% senior notes due 2008, all lowered to CCC- from CCC+, and Interstate FiberNet Inc.'s $160 million revolving credit facility, lowered to CCC+ from B.

S&P rates Klöckner Pentaplast new notes B

Standard & Poor's assigned a B rating to Klöckner Pentaplast SA's planned offering of €180 million notes due 2012 at B. The outlook is stable.

Moody's rates Klöckner-Pentaplast new notes B2

Moody's Investors Service assigned a B2 rating to Klöckner-Pentaplast SA's planned offering of €180 million senior unsecured notes due 2012 and a Ba3 rating to its €633 million senior secured credit facilities. The outlook is stable.

Moody's said the ratings reflect Klöckner-Pentaplast's leading market position in rigid film manufacturing as well as strong end-market and geographic diversity.

The ratings also reflect the company's "historical track record of internal cash flow generation, the adequate liquidity currently afforded to the company by internal cash flows and other liquidity sources, as well as management's significant experience in the industry and track record of integrating acquired businesses," Moody's said.

However Klöckner-Pentaplast has high debt leverage and management needs to grow internal cash flows to meet rapidly growing debt service obligations, Moody's said.

Moody's rates new Solectron notes at Ba1

Moody's Investors Service assigned a Ba1 rating with a negative outlook to the planned issuance by Solectron Corp. of $500 million in senior unsecured seven year notes as well as credit facilities totaling $500 million, which will be secured by a pledge of stock of certain subsidiaries. The rating and outlook reflects a downgrade in December 2001 and the company's weak operating performance in terms of sales and margin deterioration as well as an ongoing erosion of returns on capital and assets in excess of what has been typical among its electronic manufacturing services peers.

S&P rates new Six Flags notes B

Standard & Poor's assigned a B rating to Six Flags Inc.'s new $480 million notes due 2010. The outlook is stable.

S&P said its assessment reflects Six Flags' increasing geographic and cash flow diversity, relatively stable operating performance, and the rating agency's expectation that interest coverage will improve modestly despite management's active acquisition orientation.

"Management has successfully pursued a strategy of acquiring underperforming parks and improving their profitability through aggressive capital spending on new rides and attractions, as well as enhanced marketing," S&P commented.

The Six Flags theme park chain has seen substantial EBITDA growth through new marketing strategies and cost reductions.

S&P said it changed Six Flags' outlook to stable on expectations that operating performance will remain relatively stable in 2002 as consumers look for close-to-home entertainment alternatives.

Moody's downgrades Salta Hydrocarbon, still on review

Moody's Investors Service downgraded Salta Hydrocarbon Royalty Trust's $234 million of 11.55% targeted amortization notes due 2015 to Ba3 from Ba1 and kept them on review for possible further downgrade.

Moody's said it lowered Salta's ratings because of the "increased uncertainty of key elements of the transaction that results from the deteriorating economic and financial conditions in Argentina, and the economic measures that the new government is likely to take."

Specifically, Moody's said it is uncertain whether domestic natural gas prices will be regulated and, if so, whether and to what extent the government will allow a pass-through of the peso devaluation to natural gas prices. Natural gas is currently quoted in US dollars and determined by market forces.

Moody's upgrades Thornburg preferreds to Ba3

Moody's Investors Service upgraded Thornburg Mortgage, Inc.'s $206.6 million of preferred stock to Ba3 from B1. The outlook is stable.

Moody's said it raised the ratings in response to the strong and profitable growth of the REIT, and its record of supporting growth with increasing capital.

Thornburg continues to develop its own direct origination of mortgages through a number of channels, including related investment management companies and the internet, Moody's said, adding that this is the company's potentially most significant franchise and is growing rapidly though Thornburg has only a very small share given the size, fragmentation, and competitiveness of the mortgage market.

Many of Thornburg's financial risks are modest, Moody's added. It focuses on floating-rate mortgage investments, with its minimal fixed-rate product being swapped into floating. Floating-rate assets are matched by short-term funding. There is a deep and developed market for its high quality assets.

Moody's cuts The Pantry outlook to negative

Moody's Investors Service cut The Pantry Inc.'s outlook to negative from stable and confirmed the company's ratings including its $370 million secured bank loan at B1 and its $200 million 10¼% senior subordinated notes due 2007 at B3.

Moody's said it revised the outlook because of weakening debt protection measures over the last several quarters. Moody's expects bank loan covenant compliance will be tight in 2002, even after the November 2001 amendment.

"Volatile retail gasoline prices have pinched gross margins, and the declining equity price is evidence of a reduced cushion for creditors," Moody's said.

It added that the ratings are unlikely to move up unless prospects for significant debt reduction become apparent.

Moody's downgrades Glasstech

Moody's Investors Service downgraded Glasstech, Inc. after the company filed for Chapter 11. The outlook remains negative. Ratings affected include Glasstech's $70 million of 12.75% guaranteed senior notes Series B due July 2004, cut to Ca from B3. Moody's does not rate Glasstech's $13 million senior secured bank revolving credit facility.

Moody's said the ratings and negative outlook reflect its estimation of the level of debt recovery that can be anticipated by noteholders, particularly given the currently unfavorable economic conditions.

Moody's said there will likely be a substantial loss on the bonds, given that more than 75% of Glasstech's assets are intangible and the gross amount of its current assets is below $10 million.

S&P cuts McLeodUSA to D

Standard & Poor's downgraded McLeodUSA Inc. to D.

Ratings affected include McLeodUSA's $500 million 10.5% senior discount notes due 2007, $300 million 8.375% senior notes due 2008, $300 million 9.5% senior notes due 2008, $500 million 8.5% notes due 2009, $210 million 11.5% senior notes due 2009, $400 million senior notes due 2009, $287.5 million series A cumulative convertible preferred stock and $1.3 billion secured bank loan due 2008, all previously rated C and on CreditWatch with negative implications.

S&P downgrades Elizabeth Arden, on negative watch

Standard & Poor's downgraded Elizabeth Arden Inc. and put it on CreditWatch with negative implications. Ratings affected include Elizabeth Arden's $155 million in two series of 10.375% senior notes due 2007, lowered to B- from B, and its $160 million 11.75% notes due 2011, lowered to B from B+.

S&P said its action is in response to Elizabeth Arden's weakened operating and financial performance for fiscal 2002 that was below the rating agency's expectations.

Elizabeth Arden has been affected by the challenging conditions in the retail cosmetics industry, which was especially hard hit after the Sept. 11 terrorist attacks.

"Revenues and operating profits were affected by the soft 2001 holiday selling season, intense competition, destocking by retailers, and reduced store traffic, especially at department stores and travel outlets," S&P said. "Furthermore, the January 2001 acquisition of Unilever's Elizabeth Arden business posed additional challenges for management because of the need to integrate the business."

The acquisition also added a significant amount of debt to the balance sheet, further contributing to weak credit protection measures.

S&P also said Elizabeth Arden is in discussions with its bank group to loosen financial covenants as it does not expect to be in compliance for the quarter ending Jan. 31, 2002.

S&P downgrades Foster Wheeler, still on negative watch

Standard & Poor's downgraded Foster Wheeler Ltd. and kept it on CreditWatch with negative implications. Ratings affected include Foster Wheeler's $200 million 6.75% notes due 2005 and $270 million revolving credit facility due 2003, both lowered to B+ from BB-, and its $200 million convertible subordinated notes due 2007, lowered to B- from B.

S&P said it expects credit protection measures and financial flexibility will not strengthen to a level consistent with the previous ratings in the near to intermediate term.

At the former level, S&P had expected EBITDA to interest coverage in the 3 times to 4 times range and total debt (including operating leases, the receivable securitization but excluding nonrecourse project debt) to EBITDA around 3.5 times.

The rating agency said "it will be a formidable challenge for the company to effect meaningful and lasting change within the context of a highly cyclical industry."

S&P lifts WHX outlook to stable

Standard & Poor's raised its outlook on WHX Corp. to stable from negative and confirmed the company's ratings. The corporate credit rating is B.

S&P said the revision reflects the improvement in WHX's financial flexibility following the sale of its interest in Wheeling Downs Racetrack for $105 million. Proceeds from the transaction are expected to be used for either debt reduction or to service its future cash obligations related to its Wheeling-Pittsburgh Corp. subsidiary, which filed for Chapter 11 bankruptcy protection on Nov. 16, 2000.

S&P said the bankrupcty did not trigger any cross-default provisions and Wheeling-Pittsburgh's creditors have apparently not made any effort to drag WHX into the proceedings.

"Still, WHX could be required to fund significant pension obligations should WPC close its operations," S&P said. A partial shutdown could result in WHX having a liability for early retirement pension benefits of $80 million to $100 million; that figure could be significantly greater if there were to be a complete shutdown, S&P added.

Moody's puts Phelps Dodge on review for downgrade to junk

Moody's Investors Service placed Phelps Dodge's senior unsecured debt Baa3, convertible preferred stock, (P)Ba2 and Prime-3 short-term ratings on review for possible downgrade. The review results from concerns as to the ongoing impact of higher costs and weak copper market fundamentals on Phelps Dodges' performance. Although the company's "Quest for Zero" and other cost containment measurements are delivering cost improvement, Moody's said implied unit costs are expected to continue high as production curtailments take hold in 2002. An additional factor in the review is the continued high leverage of the company which increased to 51% at year end as measured by the debt to capitalization ratio.

While Phelps Dodge's cash position remained strong at $387 million, with a portion earmarked to meet the $150 million debenture maturing on April 1, continued high interest costs associated with the debt levels and earnings pressure are likely to result in weak coverage ratios. The company indicates that operating cash flow will be $100 million for the first quarter of 2002. Moody's review will focus on the company's cost position, anticipated improvement from programs in effect and the timing by which these improvements could be accomplished.

Moody's cuts Covanta senior rating to Caa1

Moody's Investors Service downgraded Covanta Energy Corp.'s senior unsecured rating to Caa1 from B3 and subordinated rating to Caa2 from Caa1, saying the ratings remain under review for possible further downgrade pending the company's immediate actions to obtain sufficient liquidity to maintain ongoing operations and to announce and execute a credible plan to insure its long-term financial viability.

Moody's said it took the action as a result of the expiration Thursday of covenant waivers under Covanta's bank credit facility, putting the company in technical default under the agreement and raising the level of uncertainty regarding its operations going forward. Moody's understands that the company is working closely with its bank group to obtain an extension of these waivers and has indicated that the co-agents are recommending approval to the larger bank group. However, the inability of the company to obtain covenant waiver extensions before their expiration today demonstrates the increasing difficulties facing the company. If the banks do not agree to continue to waive these covenant defaults, it will eliminate a critical source of letter of credit capacity for the company that it will be unable to replace. In addition, Moody's is growing increasingly concerned with the company's tight liquidity and its lack of access to the capital markets.

© 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.