S&P keeps Shaw on watch

Standard & Poor's said The Shaw Group Inc. remains on CreditWatch Negative including its corporate credit at BB.

But S&P said it will remove the watch listing if Shaw successfully executes its planned issue of $200 million in common equity, with proceeds to be used to help fund the likely put of $268 million of LYONs debt securities in May 2004.

Although total debt (including the present value of operating leases) to EBITDA (excluding noncash reserves) was about 5x at the fiscal year-end, Aug. 30, 2003, debt reduction from the LYONs put and modest free cash flow from operations and asset sales should bring that ratio down to the 2.5x-3x range by the end of fiscal 2004, S&P said. That range of leverage is appropriate for the potential BB rating, given the industry and operational risks inherent in Shaw's business units, S&P added.

S&P puts Tower Automotive on watch

Standard & Poor's put Tower Automotive Inc. on CreditWatch negative including its $200 million 5% convertible subordinated notes due 2004 at B and R.J. Tower Corp.'s €200 million 9.25% notes due 2010 and $258 million 12% notes due 2013 at B and $240 million term loan due 2006 and $360 million multi-currency revolving credit facility due 2006 at BB-.

S&P said the watch listing follows Tower Automotive's announcement that it will report that third-quarter revenues, earnings and EBITDA fell short of previous expectations.

Tower's operating results during the third quarter were negatively affected by a number of factors, including: labor disruptions at the company's main customers in South Korea, expenses totaling $4.4 million associated with executive leadership changes, production interruptions resulting from an equipment failure, which increased costs by $3.3 million, non-cash asset-impairment charges totaling $122.7 million and cash restructuring charges totaling $1.9 million, primarily related to the company's Milwaukee facility and other facilities supporting the Ford Motor Co.'s Explorer program.

The third-quarter earnings shortfall followed several years of disappointing operating performance, S&P added. Tower has suffered from a decline in industry demand, intense pricing pressures, high program management and launch costs, production inefficiencies and increased employee benefit and insurance and raw material costs.

Although cost-saving initiatives have helped to partially offset the impact of these challenges, Tower's earnings are expected to remain poor in the near term. Weak earnings, heavy capital spending to support new product launches, and restructuring costs will make Tower a user of cash (before financing activities) this year.

Credit protection measures are weak, with total debt to EBITDA of about 4.5x and funds from operations to debt less than 15%. S&P said it is concerned that ongoing industry challenges and the potential for additional restructuring will prevent the company from improving its credit profile in the near-to-intermediate term.

S&P says J.C. Penney unchanged

Stand said J.C. Penney Co. Inc.'s ratings are unchanged including its corporate credit at BB+ with a negative outlook following the company's confirmation that it has hired Credit Suisse First Boston as a financial advisor for the possible disposal of its Eckerd drugstore business.

Disposal could take several different forms, including sale or spin-off. If Eckerd were sold, the overriding factors for Penney's credit quality would be the amount and use of proceeds, S&P said. The remaining department store business is not currently viewed as investment grade.

Even if much of the proceeds were used to repay debt, the likely best scenario for the outlook would be an outlook change to stable, S&P added.

However, if proceeds were distributed to shareholders in the form of a cash dividend or share repurchase, this could negatively affect the rating.

S&P cuts LaBranche, on watch

Standard & Poor's downgraded LaBranche & Co. Inc. and put it on CreditWatch negative including cutting its $100 million 9.5% senior notes due 2004 to BB from BB+ and $250 million 12% senior subordinated notes due 2007 to B+ from BB-.

S&P said the action reflects the weak earnings performance of LaBranche for 2003, the announcement that the NYSE has widened the scope of its investigation into the firm's trading practices and increasing pressure on the specialist business model.

While the NYSE has not yet concluded its investigation, S&P said it is concerned that the investigation may lead to the implementation of stricter regulations, which could negatively affect the specialists' ability to conduct principal trading. Principal trading represented 68% of the firm's total revenues in the first six months of 2003.

The possibility of continued weak profitability for the foreseeable future could hinder LaBranche's ability to refinance maturing debt under reasonable terms, S&P added.

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