Fitch raises Ryland outlook

Fitch Ratings raised its outlook on Ryland Group, Inc. to positive from stable and confirmed its ratings including its senior notes and revolving credit agreement at BB+ and senior subordinated notes at BB-.

Fitch said the outlook change reflects Ryland's solid, consistent, internally generated profit performance in recent years (as well as over the past decade), the successful execution of its business model, moderate financial policies and geographic and product line diversity.

Over recent years the company has improved its capital structure, pursued conservative capitalization policies and has positioned itself to withstand a meaningful housing downturn. Risk factors include the inherent cyclical nature of the homebuilding industry.

The company has demonstrated solid margin improvement since the mid-1990s, with EBITDA margins expanding from 4.2% in 1995 to 8.6% in 2000 and then 11.9% in 2003, Fitch said.

Although Ryland has certainly benefited from strong economic conditions, a degree of margin enhancement is also attributed to purchasing, design and engineering, access to capital and other scale economies that have been captured by the large national public homebuilders in relation to second-tier, private builders, Fitch added. The company's significant ranking (within the top five or top ten) in most of its markets, which are among the stronger housing growth locations in the country, enables it to more easily access prime land and labor to the advantage of margins.

Debt-to-capital steadily decreased from 56.8% at the end of 1995 to 46.6% in 2001. The ratio slipped to 41.9% at the close of 2002 and was 41.2% at March 31, 2003, Fitch said. Over the longer term debt-to-capital is expected to be maintained within the company's targeted range of 45-50%. The strong state of the housing sector and Ryland's measured pace of reinvestment have led to substantial cash accumulation that totaled approximately $161.4 million as of March 31, 2003. Net debt-to-capital was 32.0% as of the end of the first quarter of 2003, a level considered very strong for the rating.

S&P rates Owens-Brockway loan BB

Standard & Poor's assigned a BB rating to Owens-Brockway Glass Container Inc.'s $1.9 billion senior secured bank facility and confirmed its ratings on Owens-Illinois Inc. and related entities including its senior unsecured debt at B+, senior secured debt at B+, preferred stock at B and Owens-Brockway's senior secured debt at BB. The outlook is negative.

The $1.9 billion bank facility is rated the same as the corporate credit rating, S&P said. In its simulated default scenario, acknowledging Owens' above-average business profile, S&P assumed a default would be driven by an adverse trend in the company's asbestos litigation settlements that would lead it to seek bankruptcy protection. In such a scenario, although the security of these assets and the collateral sharing agreement would provide significant protection to lenders, the reorganization of the company and repayment to the secured lenders would likely take longer than the 18 to 24 months S&P usually factors into its ultimate recovery analysis, due to the uncertainties in resolving asbestos claims through the bankruptcy process.

S&P said Owens-Illinois' ratings entities reflect the company's aggressive financial profile and meaningful concerns regarding its asbestos liability, somewhat offset by an above-average business position and strong EBITDA generation.

Owens-Illinois' above-average business risk profile incorporates the company's preeminent market positions (which are bolstered by superior production technology), operating efficiency, and the relatively recession-resistant nature of many of its packaging products.

Owens-Illinois has had to make sizable payouts for asbestos-related claims, with the highest amount coming in 2001 at $245 million, S&P said. Net payouts in 2001 were reduced by proceeds from insurance settlements, however, nearly all of Owens-Illinois' insurance coverage has now been utilized. The company took a charge of $475 million in the first quarter of 2002 to increase the reserve for estimated future asbestos-related costs. As of December 2002, that reserve totaled $552 million and additional charges to increase its reserves would likely be required if the expected decline in its asbestos settlements does not occur.

The increased reserve raises concern because the liability has exceeded earlier estimates and suggests that Owens-Illinois' obligations relative to asbestos is declining more slowly than previously expected, S&P said. Moreover, the cash drain of asbestos-related outlays has diverted substantial cash from debt reduction over the years. Owens-Illinois' estimate of a 10% decline in its asbestos-related cash payments in 2002 was valid, however, as it totaled $221 million. Additional moderate declines are expected to continue.

The negative outlook is because the company is currently facing very challenging conditions that are negatively affecting its financial performance, S&P said.

Moody's rates CSK Auto's loan Ba3, raises outlook

Moody's Investors Service assigned a Ba3 rating to CSK Auto Inc.'s proposed $325 million secured credit facility consisting of a $100 million revolver due December 2008 and a $225 million term loan due December 2009. Furthermore, Moody's revised the rating outlook to positive from stable in recognition of a potential rating upgrade if the company can reduce leverage by increasing operating cash flow or debt reduction.

Security for the loan is all of CSK's assets and capital stock. Proceeds will be used to redeem the remainder of the company's subordinated notes and a portion of its senior unsecured notes.

Ratings are supported by: the company's ability to reduce debt through operating cash flow and equity issuance, which along with margin improvements has helped the company improve coverage and leverage measures; ability to regain its market position and improve traffic levels, which has led to top line improvements and has helped to leverage fixed expenses; an extensive systems and distribution network that is able to effectively service the current and planned store and SKU count; its strong market position; and improving demographics of vehicles in service, Moody's said.

Constraining the ratings is the company's leverage levels, high geographic concentration, increased fashion risk from the introduction of performance and other fashion products, possibility that CSK will need to increase spending in order to maintain its market position as competitors continue to consolidate and expand and the need to refinance the company's senior notes before the 2006 maturity, Moody's added.

Moody's rates TransMontaigne notes B3

Moody's Investors Service assigned a B3 rating to TransMontaigne Inc.'s planned $200 million senior subordinated notes. The outlook is stable.

Moody's said positive factors for TransMontaigne are very large natural flows of U.S. refined product, moving from the Gulf Coast north to consuming regions, upon which TransMontaigne's portfolio of terminal assets, marketing, distribution, and trading skills generate middleman and sales to end-user margins; a substantial core of steady higher margin contract supply business with national end-users and fee-based terminal businesses; talented executive and financial management now running TransMontaigne and exposure management; predominantly short-dated commodity exposures in inventory turning an average of roughly every 20 days; the use of exchange-traded Nymex contracts for all hedging rather than over-the-counter hedging, facilitating oversight and control; manageable cash margin calls to date, though this remains a swing variable; and pivotal access to common carrier refined product pipelines, gained by prior and ongoing active shipping history of scale through those lines (219,000 barrels per day).

Negatives are substantial leverage; a need for constant high precision in exposure management, basis arbitrage, and hedging; inherent exposure to basis risk, though an important part of TransMontaigne's business is exploiting location differentials to maximize the location value of refined product; ongoing acquisition risk; earnings volatility (though hedged cash flow is less volatile); a substantial proportion of margins generated by bulk sales; the service and working capital intensity of the business; wide swings in working capital investment at current levels of activity if oil prices rise considerably; and environmental risk of petroleum product terminaling businesses, Moody's said.

Moody's estimates $25 million to $30 million in pro-forma annual interest, $6 million in dividends on the current level of preferred stock, and roughly $5 million in annual maintenance capital spending. Additional maintenance cost is expensed rather than capitalized. Under bank-defined EBITDA tests, Moody's believes that pro-forma EBITDA, adjusted for hedging and inventory gains and losses, operating results for debt covenant compliance would have been in the range of $79 million for fiscal 2002, after $6 million of corporate relocation charges.

Moody's believes that pro-forma adjusted EBITDA for the four quarters ending June 30, 2003 will be in the range of $70 million to $80 million. Moody's estimates annual pro-forma interest expense to be in the range of $25 million to $30 million. Pro-forma debt/capital (at current bank borrowings and including $24 million of soon callable preferred stock as debt) would approximate 53%, pro-forma Debt/EBITDA would approximate 4x, and pro-forma EBITDA/Interest would be somewhat under 3 times. Annual maintenance capital spending appears to be in the range of $5 million, with other maintenance costs expensed from revenue.

Moody's rates Nova notes Ba2

Moody's Investors Service assigned a Ba2 rating to Nova Chemicals Corp.'s planned $200 million senior unsecured notes due 2011 and confirmed its existing ratings including its $1 billion senior unsecured notes and debentures due from 2005 through 2028 at Ba2 and $210 million Canadian Originated Preferred

Securities due 2047 and $150 million Canadian Originated Preferred Securities due 2048 at Ba3. The outlook is stable.

Moody's said the ratings reflect Nova's weak, albeit trough level, credit metrics - with debt, adjusted for preferred securities and securitized receivables, to last 12 months EBITDA of 7.2 times - and the company's thin last 12 months operating margins of 0.5%.

Operating margins remain subject to elevated volatility stemming from Nova's highly cyclical, commodity products and narrow product range, Moody's said.

The ratings also reflect continued weak global conditions, uncertainty over the timing of a sustained recovery in the company's margins, on-going raw material pricing pressure due to their exposure to natural gas, and continued operating losses in the styrenics business. Furthermore, the ratings also reflect Moody's anticipation that a recovery in margins will be slower than the company currently estimates.

The ratings, however, also reflect the positive implications of a $300 million debt reduction in 2002 and improved liquidity due to Nova's monetization of its 37.4% stake in Methanex for estimated proceeds of $462 million. The ratings are also supported by Nova's large-scale, world-class plants supported by leading technology, and leading market positions in ethylene, polyethylene, and styrenics.

The stable outlook reflects uncertainty over Nova's peak operating margins in the intermediate to long-term as well as uncertainty over target debt levels.

S&P takes RailAmerica off watch

Standard & Poor's removed RailAmerica Inc. from CreditWatch negative and confirmed its ratings including its $100 million revolving credit facility, $50 million revolving credit facility, $125 million term loan A due 2006, $205 million term loan B due 2007 and $375 million term loan B at BB and

$130 million senior subordinated notes due 2010 at B. The outlook is stable.

S&P said the action follows RailAmerica's announcement that it has decided not to proceed with a tender offer for New Zealand-based Tranz Rail Holdings Ltd.

S&P rates CBD Media loan B+, notes B-

Standard & Poor's assigned a B+ rating to CBD Media LLC's planned $5 million 6-year revolving credit facility and $160 million 6.5-year term loan B and a B- rating to its planned $150 million senior subordinated notes due 2011. The outlook is stable.

Revenues and EBITDA total about $85 million and $50 million, respectively, S&P noted. In March 2002, Spectrum Equity Investors acquired CBD from Broadwing Inc. for $343 million. Including fees and expenses, the $354 million transaction was financed with $220 million of senior bank financing and an equity contribution from Spectrum of about $134 million. Spectrum owns 95% of the company, with the balance held by Broadwing and CBD management and employees.

The ratings reflect CBD's substantial pro forma debt levels with debt to EBITDA of more than 6x, the business concentration in a single market, and a relatively small EBITDA base, S&P said. These factors are tempered by the company's fairly stable revenues and cash flow throughout the advertising revenue cycle; healthy EBITDA margins and minimal capital expenditures, resulting in meaningful free operating cash flow generation; and virtually no required debt amortization until the last year of the term loan.

CBD has a very strong market position because it is the incumbent directory publisher, S&P said. In addition, the company has long standing relationships with a large and diversified base of small- and medium-size businesses, many of which rely on the directories as their sole form of advertising. Customer retention rates are high, and the demographics of the Cincinnati market are favorable.

For the bank loan, S&P said elements of a default scenario could be a severe reduction in advertising revenue in the Cincinnati market due to prolonged economic weakness and/or a substantial increase in interest rates. The company has very little tangible assets but, considering the essential nature of the directories business, it is anticipated that the intangible assets would retain value as a business enterprise in the event of a bankruptcy. Based on its simulated default scenario, S&P said the distressed enterprise value would not be sufficient to fully cover the facilities.

S&P raises Nova outlook

Standard & Poor's raised its outlook on Nova Chemicals Corp. to positive from stable and confirmed its ratings including its corporate credit at BB+.

S&P said the outlook revision reflects expectations of an improved liquidity position and better-than-expected prospects for debt reduction.

Nova recently has taken steps to materially improve their cash position and access to committed lines of credit, giving the company greater flexibility to manage the volatile operating conditions that characterize the petrochemicals industry, S&P said.

Nova recently announced that it would be selling its 37% stake in Methanex Corp. for proceeds of about $460 million. In April, the company also renegotiated its bank facility, extending its term to three years and significantly relaxing financial covenants. Nova also has announced its intention to issue debt in capital markets to refinance a possible put on a $150 million bond issue.

These measures, and the possibility of further asset sales, are expected to greatly increase the company's cash position, relieve prior concerns related to near-term debt maturities and improve availability under its committed credit lines, S&P said.

Moody's rates Iasis notes B3

Moody's Investors Service assigned a B3 rating to Iasis Healthcare Corp.'s new $100 million senior subordinated notes and confirmed the company's existing ratings including its $125 million 5-year senior secured revolver and $350 million 6-year senior secured term loan B at B1 and $230 million 13% senior subordinated notes due 2009 at B3. The outlook is stable.

Moody's said the ratings recognize its concern about the increase in leverage which will result from the new issuance. The recent positive operating momentum at the company, however, partly mitigates the concern. Given the improving revenue, admissions, EBITDA and cash flow trends in recent periods, Moody's believes that Iasis will be able to support the increase in debt without materially changing its risk profile.

The ratings reflect additional issues of concern including the high level of competition in Iasis' markets, the escalating cost for medical malpractice insurance and labor, particularly for contract nurses, and the company's substantial cash requirements for funding growth.

Furthermore, although Iasis has recently managed to negotiate significant rate increases from managed care payors, Moody's believes that future rate increases will moderate. Over the intermediate term, renewed pricing and reimbursement pressure, coupled with the continued rise in expenses, may inhibit the company's ability to achieve its targeted margin improvement and may even lead to a decline in margins.

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