S&P puts Frontier Oil on positive watch

Standard & Poor's put Frontier Oil Corp. on CreditWatch with positive implications including its $190 million 11.75% senior notes due 2009 and $70 million 9.125% senior notes due 2006 at B.

S&P said the positive watch follows the announcement that Frontier intends to merge with Holly Corp. in a transaction valued at about $450 million dollars, of which the cash component is $172.5 million.

The transaction improves Frontier's credit quality by broadening its refining business while strengthening its balance sheet, S&P said. Through the transaction, Frontier will increase its refining capacity by about 92,000 barrels per day to about 260,000 bpd total post-merger across various markets in the Rocky Mountains and the Four Corners region, including the pending acquisition of the Woods Cross refinery in Utah (25,000 bpd) from ConocoPhillips Co.

In addition to broadening Frontier's markets, the transaction will also result in an improvement to cash flow measures, S&P said. Based on pro forma year-end December 2002 results for the combined entity, including new debt from the merger, debt coverage improves nearly 20% for free operating cash flow and roughly 17% for funds from operations. Frontier's balance sheet will also strengthen, with improved debt leverage of around 50% versus year-end 2002 leverage of 61%.

Fitch puts Frontier on positive watch

Fitch Ratings put Frontier Oil Corp. on Rating Watch Positive including its senior unsecured debt at B+ and secured credit facility at BB-.

Fitch said the watch placement follows Frontier's announcement that it has agreed to merge with Holly Corp.

To finance the transaction, Frontier will issue approximately 15.5 million shares of Frontier common stock to Holly shareholders plus a total cash payment of $172.5 million ($11.11 per share of Holly stock). The purchase price represents a premium of approximately 31%.

The positive watch reflects the conservative acquisition financing planned for the transaction, the low debt at Holly, the niche markets served by both Frontier and Holly and the continued benefits of being a small refiner, Fitch said. Although Frontier could pay the cash portion of the transaction through cash on hand and borrowings under the company's credit facilities, Fitch expects Frontier to issue new senior unsecured notes to help finance the transaction.

With the addition of Holly, Frontier's refining capacity will increase from 156,000 barrels per day to more than 260,000-bpd, Fitch said. The additional capacity includes the Artesia, N.M. refinery (60,000-bpd being expanded to 75,000-bpd), the 7,500-bpd Great Falls, Mont. refinery and the 25,000-bpd Woods Cross refinery near Salt Lake City which Holly is acquiring from ConocoPhillips.

Moody's ups Amkor outlook, rates loan Ba3

Moody's Investors Service revised the outlook to stable from negative for Amkor Technology Inc., and assigned a Ba3 rating to its new bank credit facilities. Ratings on outstanding debt were affirmed, including the senior notes at B1, subordinated notes at B3

Moody's said the confirmation is based on the improved tone of business during and since mid-2002, enhanced liquidity and Moody's expectation that there will be a significant reduction in its public debt outstanding over the next 18 to 24 months based on a relaxation of debt repayment restrictions in the bank facilities.

Amkor's liquidity has been ameliorated by more favorable cash flow from operations, and proceeds from transactions involving the sale of a portion of its ownership interest in Anam Semiconductor, Inc. and the marketing rights associated with Anam's operations, Moody's said.

Additionally, the company's new bank covenants are better aligned with the current operating environment, and will eliminate the uncertainty posed by the continual need to address the more restrictive covenants that have been in place since the original bank facility was arranged.

S&P confirms Doane Pet

Standard & Poor's confirmed Doane Pet Care Co. and removed it from CreditWatch with negative implications including its $100 million revolving credit facility due 2005, $123.9 million term loan due 2005, $123.9 million term loan due 2006, $62.5 million term loan due 2005 and €75 million term loan due 2005 at B+ and $150 million 9.75% senior subordinated notes due 2007 at B-. The outlook is negative.

S&P said the confirmation reflects Doane's improved liquidity position after the company's partial debt refinancing, which reduced near-term annual bank debt amortization requirements and provided relief under tight bank covenants. The confirmation also reflects expectations that Doane's improved financial performance will be sustainable.

The ratings reflect Doane's heavy debt burden stemming from its LBO and aggressive acquisition strategy, S&P added. These factors are somewhat mitigated by the company's strong business position in the stable but mature pet food industry.

The company's financial flexibility remains constrained by its heavy debt burden and weak financial performance, S&P said. The debt was incurred in connection with the company's 1995 buyout as well as to fund its aggressive acquisition strategy. While several acquisitions completed since 1998 enhanced Doane's product portfolio and geographic diversity, the pet food industry remains highly competitive. Doane vies with national branded companies and other private-label manufacturers, competing for shelf space on the basis of quality and price. Moreover, given limited pricing flexibility, Doane's inability to pass along higher raw material and energy costs, issues that hurt financial performance in 2001, will likely continue to challenge the company.

In response, management implemented a program to improve the company's operating efficiency and reduce costs, S&P noted. Thus, in 2002, while net sales (adjusted for divested businesses) were flat primarily due to management's decision to eliminate lower margin business, Doane's lease-adjusted operating margins and cash flows improved.

Moreover, S&P said it expects EBITDA coverage of cash interest to be about 2x in 2003, with funds from operations to lease-adjusted debt at least 10%. Nevertheless, total debt (adjusted for leases) to EBITDA remained high at about 5x in 2002, but down from about 7x in 2001. Furthermore, the company has a large layer of preferred stock that accretes at 14.25%, which creates a growing liability on Doane's balance sheet.

S&P says Nuevo unchanged

Standard & Poor's said Nuevo Energy Co.'s ratings are unchanged including its corporate credit at BB- with a stable outlook following the announcement that it closed on the sale of the non-core Union Island Field to American Energy Operations Inc. for $10.5 million effective Jan. 1, 2003.

To date in 2003, Nuevo has eliminated bank debt and has received cash proceeds of almost $70 million from this sale and the previously announced sale of the Brea-Olinda Field on March 3, S&P noted.

S&P added that the asset sales are consistent with its expectations and management's strategy to sell non-core assets and to use proceeds to further reduce debt and/or to prudently acquire higher margin oil and gas assets.

S&P says Pioneer Natural unchanged

Standard & Poor's said Pioneer Natural Resources Co.'s ratings are unchanged including its corporate credit at BB+ with a stable outlook on news the company will acquire the remaining interest in 32 blocks in the Falcon area, including the Falcon field, the Harrier field, and related satellite prospects, from Mariner Energy for a net cash payment of approximately $113 million.

As a result of the transaction and likely capital expenditures that are associated with the acquired properties, S&P said it believes that Pioneer's expected debt reduction in 2003 may fall short of the company's target of $100 million unless oil and natural gas prices were to rise from those implied by the current futures strip.

S&P said it is not taking any ratings action because the magnitude of the potential shortfall is likely to be small (less than $30 million in 2003) unless hydrocarbon pricing collapses.

The increased Falcon interest should improve Pioneer's ability to reduce debt in 2004, S&P added.

S&P rates CanWest notes B-

Standard & Poor's assigned a B- rating to CanWest Media Inc.'s new $200 million notes due 2013.

Moody's rates CanWest notes B1

Moody's Investors Service assigned a B1 rating to CanWest Media Inc.'s new $200 million notes and confirmed its existing ratings including its senior secured debt at Ba3 and senior subordinated debt at B1. The outlook remains stable.

Moody's said the assignment and confirmation reflects its view that the new debt issue is neutral in its impact on the company's overall creditworthiness, CanWest's operating results are improving modestly, debt has been reduced in the last year through successful asset sales and the company remains highly levered, unable to reduce debt from operating cash flow in any meaningful way in the next few years.

CanWest is therefore dependent upon capital market access to refinance debt as it matures and the financial flexibility inherent in their ability to sell other non-core assets in the intermediate-term, Moody's said.

The stable outlook is because of expected modest future improvement in free cash flow (cash from operations less capital expenditures and dividend/capital distributions), although this is largely offset by the accretion of debt at CanWest's parent, Moody's said. This parent debt will become cash pay in November 2005 and will then be included in CanWest's covenants, which may then be under pressure. However this is still 2½ years away, CanWest has asset sale flexibility, and CanWest's banks have already accommodated several covenant relaxations to date.

CanWest's free cash flow in fiscal 2002 was $90 million, although this was fully offset by the $106 million accretion in the parent's debt. Moody's said it expects modest revenue growth coupled with small improvements in CanWest's 22% fiscal 2002 EBITDA margin going forward.

S&P lowers Tower Automotive outlook

Standard & Poor's lowered its outlook on Tower Automotive Inc. to negative from stable and confirmed its ratings including its senior unsecured debt at BB, subordinated debt at B+ and trust preferreds at B.

S&P said the outlook change is because it expects difficult industry conditions will delay improvement in Tower's financial profile.

Tower's heavy debt load has resulted from numerous acquisitions during the past six years, S&P noted. Although the company has improved its credit statistics during the past year, following the $225 million sale of common stock and an increase in EBITDA, they remain subpar for the rating. Total debt (adjusted for operating leases and off-balance-sheet accounts receivable programs) to EBITDA was about 3.9x, and funds from operations to total debt was about 18% at the end of 2002.

The company's ability to reduce debt leverage during 2003 will be hindered by the expected decline in automotive production, S&P said. Ford Motor Co., which accounts for 38% of Tower's sales, has announced that it expects to decrease vehicle production 17% during the second quarter of 2003 compared with last year, because of reduced auto sales. If demand does not increase, additional production cuts may be necessary. Reduced demand, combined with heavy capital spending to support new product launches, are expected to result in continued weak credit measures in 2003.

Tower has a healthy net new business backlog, totaling $900 million, which should result in stronger sales and earnings beginning in 2004, S&P said. Nevertheless, the anticipated reduction in vehicle production and Tower's new product launch costs during 2003 are expected to result in lower operating earnings and reduced cash flow generation during the next year. Capital spending is currently high, at about $200 million per year to support new programs, but it should taper off in 2004. Stronger cash flow beginning in 2004 should result in reduced debt leverage over the next few years. Over the course of the business cycle, funds from operations to total debt is expected to average about 20%, and debt to EBITDA is expected to average about 3x.

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