Moody's puts Texas Gas on upgrade review

Moody's Investors Service put Texas Gas Transmission Corp. on review for possible upgrade including its senior unsecured debt at B3. Previously the outlook had been negative.

Moody's said the review follows the announcement that a unit of Loews Corp. (A3 senior

unsecured/negative outlook) has signed a definitive agreement to purchase Texas Gas Transmission from The Williams Cos., Inc. for $795 million of cash plus the assumption of $250 million of debt.

Moody's said the review reflects the potential for ownership by a financially stronger company.

S&P puts Texas Gas on positive watch

Standard & Poor's put Texas Gas Transmission Corp. on CreditWatch with positive implications, changing the watch from negative. Ratings affected include Texas Gas Transmission's $100 million 7.25% debentures due 2027 and $150 million 8.625% notes due 2004 at B+.

S&P said the action follows Loews Corp.'s announcement that it intends to purchase Texas Gas Transmission from The Williams Cos. Inc. for about $1.05 billion, including the assumption of debt.

The listing also reflects Texas Gas Transmission's existing strong business profile, S&P said. Resolution of the CreditWatch listing will involve an analysis of Texas Gas Transmission as a separate entity from Williams and consideration of its ratings link to Loews.

Loews has indicated that it will not guarantee Texas Gas Transmission debt, S&P noted. However, because of Loews' substantial investment in Texas Gas Transmission and because of the new entity's importance to Loews' future growth and profitability, S&P said it will consider the likelihood that Loews will support or refinance Texas Gas Transmission's obligations.

Fitch puts Texas Gas on positive watch

Fitch Ratings put Texas Gas Transmission Corp. on Positive Watch, changed from Evolving Watch, including its senior unsecured debt at BB-.

Fitch said the action follows the announcement that Loews Corp. (senior unsecured: A+ outlook negative) has entered into an agreement to acquire Texas Gas Transmission from The Williams Companies, Inc. (senior unsecured B-) in a transaction valued at approximately $1.045 billion, including the assumption of $250 million outstanding Texas Gas Transmission debt.

The positive watch for Texas Gas Transmission reflects the higher rating of Loews as compared with that of current 100% owner Williams. It also incorporates Fitch's understanding that Loews' proposed acquisition financing strategy will not result in significant over-leveraging at Texas Gas Transmission.

Loews' plan contemplates funding a portion of the approximate $795 million cash portion with $275 million of new senior notes issued at Texas Gas Transmission or at an intermediate holding company.

Fitch said it anticipates Texas Gas Transmission standalone credit profile will be consistent with a mid to high BBB rating even after factoring in the proposed debt issuance.

S&P cuts J. Crew, on watch

Standard & Poor's downgraded J. Crew Corp. including cutting its $150 million 10.375% senior subordinated notes due 2007 and $75.254 million 13 1/8% senior discount debentures due 2008 to CC from CCC and put it on CreditWatch with negative implications.

S&P said the actions follow J. Crew's announcement of an exchange offer for its outstanding 13 1/8% senior discount debentures for new 16.0% senior discount contingent principal notes due 2008.

S&P said it believes the offer is coercive and so is tantamount to a default.

On completion of the tender offer, the corporate credit rating on J. Crew will be lowered to SD and the notes to D.

S&P upgrades NVR

Standard & Poor's upgraded NVR Inc. including raising its $145 million 8% senior unsecured notes due 2005 to BB+ from BB. The outlook is stable.

S&P said the upgrade is driven by NVR's very strong debt protection and profitability measures and a solid market position in key mid-Atlantic markets. These strengths are offset by NVR's demonstrated appetite for share repurchases and a unique business model that essentially pushes land investment and model homes off balance sheet, requiring analytical adjustments to derive comparatively meaningful financial ratios.

During the prior year, the company's top-line growth was driven by increases in both deliveries (9.6%) and average selling price (9.2%), with the average selling price increase benefiting from a change in mix away from generally lower priced attached product and toward higher priced detached product, S&P said.

NVR is the leading builder in its existing Washington, D.C. and Baltimore, Md. markets, which accounted for 31% and 14% of 2002 home settlements, respectively, a reduced concentration from recent levels (35% and 17% in 2000). This improved diversification has been driven primarily by growth within the company's North market segment (Delaware, New Jersey, New York, Ohio, and Pennsylvania), which experienced a 25% increase in settlements during 2002. Geographic concentration is expected to continue to decline modestly, driven by higher rates of growth in the company's existing North and South (North Carolina, South Carolina, Tennessee, and Richmond, Va.) markets.

NVR's prudent inventory management helps to offset this concentration risk and should also provide the company with some stability during a housing slowdown.

Coverage measures are industry leading, with earnings before interest and taxes (EBIT) to interest incurred at greater than 38x overall currently and a very strong 31x and 23x average over the prior three and five years, S&P said. The company experienced above-average gross margins of 23.7% and operating margins of 17.5% for 2002, margins that are particularly strong considering they do not include any land development profit.

Moody's cuts Japan Energy Electronic

Moody's Investors Service downgraded Japan Energy Electronic Materials Inc.'s senior unsecured debt to B1 from Ba3. The outlook is negative.

Moody's said the action reflects the structural subordination of JEEM's public debt under its holding company structure.

The negative outlook reflects Moody's concern that operating subsidiary Japan Energy Corp.'s oil operations - its core business - will continue to face substantial earnings pressure, given the protracted adverse operating environment, which is, in turn, characterized by a weak refining market, Moody's said.

Moody's cuts Tranz Rail, still on review

Moody's Investors Service downgraded to B2 from B1 Tranz Rail Finance Ltd. passthrough certificates series 1996, backed by Tranz Rail Ltd. and kept them on review for possible further downgrade.

Moody's said the action is prompted by the continued difficult operating environment for Tranz Rail occasioned by the recent drought, a strike at Kinleith and lower coal volumes being transported on its network.

Moody's said it does not expect the operating environment to improve in the short term.

As a result Tranz Rail has revised forecasts for the full year and Moody's is concerned that revised forecasts may not be met.

The rating action also reflects uncertainty surrounding short-term liquidity issues. Tranz Rail has relatively low cash balances, high working capital requirements and has bank debt and lease principal payments due in the next few months, Moody's said. Gross cash flow coverage of these payments plus capital expenditure requirements will leave little cash available for further debt reduction which may be a problem given the fact that its current bank debt matures in June 2004 and there can be no certainty the current bank lenders will roll over their exposure on similar terms.

S&P cuts Tranz Rail

Standard & Poor's downgraded Tranz Rail Finance Ltd.'s $74.48 million 7.278% passthroughs due 2008 to B- from BB+ and kept them on CreditWatch with negative implications.

S&P said the rating change reflects the company's extremely tight liquidity position, weak financial profile, recent weakening in its operating performance referenced in its April 7 profit warning, and exposure of its operations to further unfavorable market conditions.

The ratings remain on CreditWatch with negative implications, reflecting the risk of further deterioration in Tranz Rail's financial flexibility in the absence of the planned asset sales or commitment from its banks for further financial support, S&P said.

S&P added that it has agreed with Tranz Rail to discontinue an interactive rating relationship. Ongoing surveillance of the rating, and resolution of the CreditWatch will in the future be based on publicly available information.

Fitch cuts Desc

Fitch Ratings downgraded the senior unsecured foreign and local currency ratings of Desc, SA de CV to BB from BB+ including the $60 million International Finance Corp. B loan participation receipts due 2009 formerly issued by Girsa SA de CV. The outlook remains negative.

Fitch said the actions reflect the ongoing challenges faced by Desc's automotive parts and chemical operations, which together accounted for 78% of total revenues and 86% of EBITDA in 2002.

These challenges have hampered Desc's progress on debt reduction and the improvement of credit protection measures.

In 2002, Desc's consolidated sales declined by 10% and EBITDA declined by 26% as intractable weakness in the U.S. and Mexican economies continued to pressure revenues and cash flows, Fitch noted. Profitability has also been affected by lower fixed-cost absorption as capacity utilization remains low.

Total debt to EBITDA deteriorated to 5.3x in 2002 from 3.4x in 2001, Fitch said. The ratio of EBITDA to interest expense declined to 2.7x in 2002 from 3.0x in 2001.

Desc's refinancing efforts during the year helped to moderate interest costs and limited the deterioration of interest coverage. Preliminary results for the first quarter of 2003 show continuing weak sales, though Desc reversed the operating loss suffered in the fourth quarter of 2002.

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