S&P rates Vivendi Universal Entertainment loan BB+

Standard & Poor's assigned a BB+ rating to Vivendi Universal Entertainment LLLP's proposed $950 million senior secured term loan maturing in 2008. The loan amount may be increased to $1.45 billion. The outlook is stable.

S&P said the loan is rated one notch higher than Vivendi Universal Entertainment's corporate credit rating as the rating agency believes that the asset collateral is sufficient for lenders to reasonably expect full recovery in a default scenario.

The corporate credit rating primarily reflects Vivendi Universal Entertainment's majority ownership by Vivendi Universal.

On a stand-alone basis, Vivendi Universal Entertainment's solid business characteristics and sound financial profile suggest stronger credit quality than that reflected in the corporate credit rating, S&P said. However, the rating agency considers Vivendi Universal's current ownership of Vivendi Universal Entertainment and its increased access to Vivendi Universal Entertainment's cash flow and assets upon completion of the latter's debt refinancing to be major constraints on the rating, together with the uncertainties surrounding the planned sale of this subsidiary.

Vivendi Universal Entertainment's credit ratios are solid for the rating. Including the series A preferred stock (nominal value of $750 million), but excluding the series B preferred stock (nominal value of $1.75 billion) which bear significant equity characteristics, Vivendi Universal Entertainment's ratio of lease- and pension-adjusted net debt to EBITDA was 2.3x at year-end 2002, S&P said. The group's series A preferred stock covenants limit any additional indebtedness to a maximum of $800 million, which, if incurred, would still leave the credit metrics in line with the BB rating category. Barring any potential cash draw by Vivendi Universal, Vivendi Universal Entertainment's net debt is expected to decrease steadily over the coming years.

S&P confirms ConMed

Standard & Poor's confirmed ConMed Corp.'s senior secured credit facility at BB- in response to the company's proposed increase in size of the facility by adding a $165 million tranche B term loan. The outlook remains stable.

ConMed had approximately $285 million of debt outstanding as of March 31, 2003, which should not change materially as a result of the transaction - loan proceeds will be used to retire notes.

ConMed's ratings reflect S&P's concern that the company, although well established in its niche surgical markets, faces the ongoing challenge of competing against larger, better-financed companies in all of its markets.

ConMed competes with several strong companies that have broader offerings of medical products, and an increase in the size of its sales force and some recent new product disappointments contributed to a decline in operating margins to about 24%, from a 28% peak two years ago.

However, margins remain within the average range for the industry, and lease-adjusted EBITDA interest coverage of 4.1x supports the rating, S&P said. Moreover, debt has been reduced using a combination of proceeds from a $70 million equity offering in early 2002 and cash from operations, leading to a decline in debt to capital to 41% from 55% at the end of 2001.

S&P said it expects debt to capital to be further reduced by the end of 2003. Other credit measures are also well within the rating category, including the company's funds from operations to lease-adjusted debt, which is 26%, and its total debt to EBITDA, which is 2.6x.

Moody's lowers TNP, Texas-New Mexico Power outlook

Moody's Investors Service lowered its outlook on TNP Enterprises and its primary operating utility Texas-New Mexico Power Co. to negative from stable including TNP's senior unsecured debt at Ba2 and Texas-New Mexico Power's senior unsecured debt at Baa3.

Moody's said the outlook change reflects its concern about recent losses at Texas-New Mexico Power's affiliated retail electric provider First Choice Power and the medium-term risk that high natural gas prices could lead to an erosion of First Choice's competitive customer base.

The losses incurred during the first quarter of 2003 warrant attention not only due to the size of the loss relative to the overall TNP organization but also due to the manner in which they were incurred - weaknesses in internal risk controls, Moody's said.

In Texas-New Mexico Power's Texas service territory, deregulation efforts continue to evolve, which will cause lingering uncertainty for both retail electric providers and the incumbent T&D utilities, Moody's said.

With respect to First Choice, a portfolio of shorter-term supply obligations to customers, a heavy reliance on gas-fired generation supplies, the execution of both price-to-beat rate increases in the first quarter of 2003 and lower expected margins from competitive customers, results in a greater uncertainty of expected cash flows.

S&P takes Sequa off watch, rates notes BB-

Standard & Poor's removed Sequa Corp. from CreditWatch negative, confirmed its existing ratings including its $300 million 8.875% senior unsecured notes due 2008 and $500 million 9% senior notes due 2009 at BB- and assigned a BB- rating to its proposed $100 million 8 7/8% senior unsecured notes due 2008. The outlook is negative.

The confirmation is based on Sequa's adequate liquidity and expectations that the company's financial profile will gradually improve in the intermediate term to a level appropriate for the rating, S&P said.

Sequa's ratings reflect subpar credit protection measures, stemming from low profitability and fairly high debt levels, and exposure to the ailing airline industry, S&P said. Those factors are partly offset by the firm's adequate liquidity and major positions in several niche markets.

Sequa has undertaken several restructuring actions and other initiatives that reduced costs, improved working capital management, and increased productivity and efficiency. While those efforts have helped the firm to stabilize performance, difficult conditions in most markets will limit the degree of improvement, S&P said.

In the intermediate term, S&P expects gradual strengthening in Sequa's credit profile, including debt to EBITDA in the 4x-5x range, funds from operations to debt in the low- to mid-teens percent area, and EBITDA and EBIT interest coverage at 2.25x-3.0x and 1.25x-1.75x, respectively. Debt to capital in the low-60% area is appropriate for the rating. This ratio rises only slightly when adjusted for the underfunded postretirement obligations of $171 million (mostly pensions, at Dec. 31, 2002). Pension cash contributions were a manageable $28 million in 2002 and are expected to be about $30 million in 2003.

The negative outlook reflects a difficult operating environment coupled with a fairly heavy debt burden that will challenge management to improve subpar credit protection measures to a level consistent with current expectations.

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