S&P raises Nextel outlook

Standard & Poor's raised its outlook on Nextel Communications Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at B, preferred stock at CCC+ and Nextel Finance Co.'s senior secured bank loan at BB-.

S&P said the revision is in response to Nextel's solid operating performance in a highly competitive industry and lower financial leverage, though it still has substantial debt on the balance sheet.

Despite the weak economy in 2002, Nextel maintained strong net subscriber additions, industry-leading average revenue per user (ARPU), and low churn, S&P noted. This was primarily due to the company's unique push-to-talk offering and focus on business and public sector users, which accounted for about 70% of the company's 10.6 million subscribers at the end of 2002.

The solid operating performance and cost control allowed Nextel to grow annual revenues by 24%, expand its EBITDA margin to 38% in the fourth quarter of 2002 from 29% in the fourth quarter of 2001, and generate about $122 million in free cash flow for 2002, S&P said. EBITDA growth, along with the use of about $843 million in cash and the issuance of about 173 million shares of common stock to retire about $3.2 billion in aggregate face value of debt and preferred obligations in various privately negotiated transactions, allowed Nextel to lower its debt-to-annual EBITDA leverage substantially to about 3.9x at the end of 2002 from about 7.8x at the end of 2001.

Nextel's ability to improve its financial risk profile could be constrained by several issues, such as wireless number portability, better-capitalized competitors, and technology risks, S&P added. Wireless number portability, which will be phased in starting in November 2003, could increase future subscriber churn and selling expenses.

Several of Nextel's competitors are better capitalized and have the resources to take market share from the company once they narrow the technology gap that currently prevents them from offering a comparable push-to-talk capability, S&P said.

The rating agency added that Nextel has adequate liquidity at least through 2005.

S&P rates General Maritime notes B+

Standard & Poor's assigned a B+ rating to General Maritime Corp.'s proposed 10-year $250 million note offering. The outlook is stable.

S&P said the ratings reflect General Maritime's favorable business position as a large operator of midsize Aframax and larger Suezmax petroleum tankers with a strong market share in the Atlantic Basin, diversified customer base of oil companies and governmental agencies, and fairly good access to liquidity.

These factors are offset by significant, but managed, exposure to the competitive and volatile tanker spot markets and an aggressive growth strategy.

In January 2003, the company announced it would acquire the 19 vessels owned and operated by Metrostar Management Corp. for $525 million, increasing General Maritime's fleet to 47 vessels (28 Aframax tankers and 19 Suezmax vessels) with capacity equal to about 6% of the world Aframax and Suezmax fleets. The transaction is expected to conclude by April 30.

This acquisition expands General Maritime's scope of operations to Europe, the Mediterranean, and the Black Sea, in addition to increasing the total fleet cargo carrying capacity, with a small decrease in the combined fleet's average age, S&P noted.

Tanker rates increased dramatically in the fourth quarter of 2002, reversing declines during the second half of 2001 and most of 2002, and have remained high, reflecting a cold winter, war premiums associated with a potential conflict with Iraq, and an extension of transit time to supply North America due to the oil company strike in Venezuela, S&P said. Although rates may moderate from the current high levels, industry fundamentals over the near to intermediate term are expected to remain favorable.

General Maritime's operating margins after depreciation and amortization averaged a respectable 35% in 2000 and 2001, S&P said. At Sept. 30, 2002, lease-adjusted debt to capital was 38%, with trailing lease-adjusted debt to EBITDA of 3.6x and pretax interest coverage of 1.4x. These numbers reflected the poor September 2002 year-to-date tanker market.

Pro forma for the transaction, debt leverage will be 63% with a total debt burden of $817 million, S&P said.

Moody's rates General Maritime notes B1

Moody's Investors Service assigned a B1 rating to General Maritime Corp.'s planned $250 million senior unsecured notes due 2013. The outlook is stable.

The ratings are supported by: General Maritime's record to date of free cash generation and debt reduction; potential positive effects of the $525 million acquisition of 19 vessels from Metrostar Management Corp.; and an increasing leadership position that Moody's expects General Maritime will hold in the medium-size crude oil tanker sector in a favorable market environment, the rating agency said.

The ratings also reflect the high leverage due to the 100% debt-funded purchase of Metrostar vessels, uncertainty regarding potential future acquisitions by the company, and the historically volatile nature of earnings experienced in the crude oil tanker sector.

The stable outlook depends primarily on the company's aggressively reducing senior debt during the next two years, Moody's said. Any reluctance or inability to meet expectations in this regard by borrowing to fund another large acquisition, or because market conditions deteriorate more severely than anticipated, will likely result in a ratings downgrade.

Despite debt reduction, leverage relative to profitability more closely reflects changes in market conditions. When the company expanded its fleet and re-capitalized in 2001, debt stood at 3.0x EBITDA in a strong tanker market. However, although General Maritime was able to reduce debt in 2002, debt/EBITDA actually increased to 3.6x as a consequence of relatively weak charter rates experienced in that year, Moody's said.

Moody's upgrades Hollywood Casino

Moody's Investors Service upgraded Hollywood Casino Corp. including raising its $310 million 11.25% senior secured notes due 2007 and $50 million floating-rate senior secured notes due 2006 to B1 from B3.

Moody's said the action follows Penn National, Inc.'s announcement that it has completed its acquisition of Hollywood Casino and called for redemption all of Hollywood Casino's outstanding senior secured notes. The ratings will be withdrawn once the notes are redeemed.

Fitch cuts Fiat to junk

Fitch Ratings downgraded Fiat SpA to junk including cutting its senior unsecured debt to BB+ from BBB-. The outlook remains negative.

Fitch said it lowered Fiat because it is concerned the creditworthiness of the company's future core operations is no longer consistent with an investment-grade credit profile.

Fiat announced on Feb. 28 its intention to dispose of its two best performing operations, Fiat Avio and Toro Insurance to reduce indebtedness.

Fitch said it views the announcement, alongside the appointment of a new CEO and chairman, as reflecting a change in strategy.

The downgrade also takes into account Fiat Auto's lower than expected profit generation for fiscal 2002, Fitch said. Fitch expects the European auto market to decline by 2% in fiscal 2003 due to the weaker economic environment, which will increase competitive pressure.

Fitch acknowledges that the announced transactions aim at supporting the Fiat Auto restructuring plan and at achieving a sounder credit profile at the other group businesses. However, the disposal of the profitable Fiat Avio and Toro result in a weaker underlying profit mix, as the group retains its interest in the underperforming Comau (production systems), Teksid (metallurgy products) and Magneti Marelli (components) operations. These activities will remain exposed to cyclical markets, which are undergoing structural changes and consolidation.

S&P raises Hollwood Casino

Standard & Poor's upgraded Hollywood Casino Corp. and removed it from CreditWatch with positive implications. Ratings raised include Hollywood Casino's $310 million 11.25% senior secured notes due 2007 and $50 million floating-rate senior secured notes due 2006, lifted to B+ from B.

S&P said the upgrade follows completion of the previously announced merger between Hollywood Casino and Penn National Gaming Inc.

Penn National has called the notes and S&P will withdraw its ratings if the notes are redeemed.

Fitch cuts Potlatch

Fitch Ratings downgraded Potlatch Corp. including cutting its senior secured debt to BBB- from BBB, senior unsecured debt to BB+ from BBB- and senior subordinated debt to BB from BB+. The outlook is now negative.

Fitch said the action is based on several quarters of weak market conditions for wood products-prices having hit a 10-year low-and declining margins in tissue hurt by certain competitors' strategy to buy market share.

Despite strong housing starts and fair remodel and repair markets in 2002, U.S. lumber companies have struggled with a multiyear slump in wood prices brought on by an oversupply of lumber and panel production, Fitch noted.

Until some reduction of capacity occurs, Fitch said it expects overproduction will continue and is uncertain when and by how much lumber and panel prices will improve.

Tissue markets are also facing substantial capacity additions which could harm Potlatch's operating margins, Fitch added. The Resource segment continues to be profitable, and Fitch estimates that the market value of Potlatch's timberlands exceeds the company's aggregate debt.

S&P cuts Ntelos

Standard & Poor's downgraded Ntelos Inc. including cutting its $100 million senior secured revolving credit facility due 2007, $150 million senior secured tranche B term loan due 2008 and $75 million senior secured tranche A term loan due 2007 to D from CCC.

S&P said the action follows Ntelos' Chapter 11 bankruptcy filing.

S&P cuts Allegiance, still on watch

Standard & Poor's downgraded Allegiance Telecom Inc. including cutting its $205 million 12.875% senior notes due 2008 and $250.5 million discount notes due 2008 to C from CC and Allegiance Finance Co.'s $500 million secured bank facility due 2006 to CC from CCC. The ratings remain on CreditWatch with negative implications.

S&P said the actions reflect the likelihood that Allegiance Telecom will need to restructure its debt in the near term due to the terms of an interim amendment to its bank agreements.

The amendment requires the company to reduce total indebtedness by about 50% to $645 million by April 30, 2003. If this debt reduction is not consummated prior to the issuance of the 2002 audit report by its independent accountants, KPMG LLP, and in a manner that provides the company with sufficient available cash to fund operations for at least the next 12 months, Allegiance Telecom has been informed by KPMG LLP that the report will contain a "going concern" qualification, S&P noted.

Allegiance Telecom's financial profile has been adversely impacted by the slow turnaround in the economy and the increased number of carrier and retail customer bankruptcies, S&P said. Although the company has made progress in reducing its EBITDA loss over the past year, its ability to service its overall debt is unlikely given the fundamental challenges facing the competitive local exchange carrier industry.

Moody's raises RCN liquidity

Moody's Investors Service upgraded its speculative-grade liquidity rating on RCN Corp. to SGL-3 from SGL-4.

Moody's said the change reflects its assessment that RCN's liquidity profile is now best characterized as "adequate" and no longer "weak".

The revision follows the company's recently completed sale of cable television system assets in central New Jersey which resulted in proceeds of about $245 million (less transaction expenses and a portion to be held in escrow for the next year), and the ensuing completion of Moody's own analyses in support of the revised contention that RCN is no longer expected to experience a liquidity shortfall over the next year.

Moody's did note that financial maintenance covenants as stipulated in the company's senior secured bank credit agreement do continue to be notably tight, nonetheless, and that the minimum consolidated EBITDA test which is scheduled to be applicable again starting in 2004 may prove particularly challenging to remain compliant with if a transition to positive cash flow is not affected.

S&P confirms CenterPoint, off watch

Standard & Poor's confirmed CenterPoint Energy Inc. including its senior unsecured debt at BBB-, subordinated debt at BBB- and preferred stock at BB+, CenterPoint Energy Houston Electric LLC's senior secured debt at BBB and CenterPoint Energy Resources Corp.'s senior unsecured debt at BBB, subordinated debt at BBB- and preferred stock at BB+, removed it from CreditWatch with negative implications and assigned a stable outlook.

S&P said the confirmation reflects CenterPoint's successful negotiation of an amendment to its existing $3.85 billion credit facility. Importantly, the amendment extends the loan maturity to June 2005 from October 2003 and eliminates $1.2 billion in mandatory prepayments that would have been required this year; the first $600 million had been scheduled on Feb. 28.

As a consequence, the overhang of substantial refinancing risk has been eliminated, S&P said.

CenterPoint has a low business risk profile. Texas electric operations are supported by a very supportive regulatory environment, lack of an electricity supply function/commodity risk, and continued moderate growth in its service territory, S&P noted. These factors are mitigated by volume volatility due to weather. Gas operations are diversified and purchased gas adjustment clauses in all six jurisdictions mitigate commodity risk.

Consolidated debt will remain high until 2004/2005, when the Texas generation assets are sold, and proceeds are received from the securitization of stranded costs associated with the generation assets, S&P said.

The rating agency added that the stable outlook indicates that CenterPoint will maintain its current rating over the medium term despite positive trends and interim challenges.

Moody's puts Stillwater on review

Moody's Investors Service put Stillwater Mining Co. on review for possible downgrade including its $65 million term loan due November 2005, $135 million term loan due November 2007 and $50 million revolving credit facility maturing November 2005 at Ba2 and $30 million senior unsecured exempt facility revenue bonds Series 2000 due 2020 at Ba3.

Moody's said the review is in response to uncertainty surrounding the company's efforts to establish adequate near-term and long-term liquidity.

In the short term, this depends primarily on Stillwater gaining access to the unused portion, approximately $17.5 million, of its revolving credit facility, which contains production covenants that Stillwater does not believe it will attain at March 31, 2003.

Stillwater is currently working with its banks to obtain amendments or waivers to the bank covenants and to obtain access to additional borrowings under the revolver, Moody's noted.

Longer term, Moody's believes the company needs to obtain additional capital in order to fund capital projects at its Montana mines and ensure adequate liquidity while it works to solidify the performance of the company.

Its plan to sell a majority interest in the company to MMC Norilsk Nickel for consideration currently valued at $300 million addresses this longer-term need. This transaction is subject to governmental, shareholder, and bank group approval and the company expects the transaction to be completed by the end of the second quarter of 2003.

While successfully concluding the Norilsk transaction could lead to a confirmation of Stillwater's ratings, the ratings have been placed under review for possible downgrade due to the uncertainty associated with the company's ability to obtain covenant relief from the credit facility lenders so that Stillwater can access the revolver credit facility and successfully conclude the Norilsk transaction.

S&P puts Trenwick on watch

Standard & Poor's put Trenwick Group Ltd. on CreditWatch with negative implications including Trenwick America Corp.'s $75 million 6.7% notes due 2003 at CCC- and Chartwell Re Corp.'s $75 million 10.25% senior notes due 2004 at CCC-.

S&P said the watch placement is because it believes Trenwick's ability to restructure its senior debt to keep it out of default is remote.

Trenwick had a covenant in its recently renewed bank letter of credit facility that required a refinancing of its April 1 maturity of $75 million of senior debt by March 1. Although management has a waiver of the covenant, S&P said it believes its ability to restructure such that the senior debt is not in default remains remote.

Moody's rates Knowledge Learning's loan Ba3

Moody's Investors Service rated Knowledge Learning Corp.'s $25 million senior revolver due 2008 and $235 million senior secured term loan B due 2010 at Ba3. The rating outlook is stable.

Security is first priority perfected liens on substantially all existing and after acquired property and a pledge of the capital stock of the borrower and its subsidiaries. Proceeds from the facility will be used to help fund the acquisition of Aramark Educational Resources from Aramark Corp.

Ratings reflect the company's stable business model, consistent customer demand, and synergies and scale to be achieved through its proposed AER acquisition, Moody's said.

However, while ratings incorporate the expectation that low profitability facilities will be closed, the ability to raise occupancy rates at remaining facilities may be challenged by economic conditions, Moody's explained. If revenues were to come under pressure, the company's ability to cut its cost may be hampered by reliance on leased facilities.

Pro forma for the debt issuance and for the acquisition, debt to EBITDA is expected to be in the 2.7 times area for 2003, Moody's said. Debt-to-EBITDAR is estimated at 5.2 times for 2003. EBITDA coverage of interest is expected to be around 6.1 times while EBITDA less capital expenditures to interest is estimated at 3.9 times.

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