S&P puts Simmons on watch

Standard & Poor's put Simmons Co. on CreditWatch negative including its $125 million 10.25% subordinated notes due 2009 at B and $50 million term loan due 2006, $70 million term loan due 2004, $70 million term loan due 2005 and $80 million revolving credit facility due 2004 at BB-.

S&P said the CreditWatch placement follows Simmons' statement on its recent form 8-K filing that it is evaluating a possible sale.

S&P said it expects that under new ownership, Simmons would continue to be highly leveraged and that a sale or a recapitalization transaction could result in a weaker financial profile.

S&P rates JohnsonDiversey notes B

Standard & Poor's assigned a B rating to JohnsonDiversey Holdings Inc.'s 10.67% senior discount notes due 2013. The outlook is stable. S&P also confirmed JohnsonDiversey Inc. including its senior secured debt at BB- and subordinated debt at B.

S&P said JohnsonDiversey's ratings recognize the company's enhanced position following the acquisition of DiverseyLever in 2002, relatively stable profitability and cash flow, and management's commitment to reduce debt.

The union between DiverseyLever and S.C. Johnson Commercial Markets was complementary: DiverseyLever's broad capabilities added significant market presence to S.C. Johnson Commercial Markets' strong position in floor care and janitorial services, S&P said.

Importantly, the company should become a more formidable competitor in the industry by offering a full range of products and related services across most geographic areas, which appeals to customers with multiple locations that value a consistent product and service offering, S&P noted. A challenge for the company will be the integration of DiverseyLever's distribution method, which is weighted toward direct sales, with S.C. Johnson Commercial Markets' strong relationship with independent distributors. Significant cost synergies resulting from the combination should enable the company to improve operating margins (before depreciation and amortization) to at least 15% from about 12%.

The firm is highly leveraged, with a debt to EBITDA ratio of more than 5.0x, including the payment-in-kind discount notes issued by JohnsonDiversey Holdings, S&P said. Cash flow protection is weak for the ratings, with EBITDA interest coverage less than 2.5x. Funds from operations as a percent of total debt is in the low-teens percentage area. Stable profitability should support good cash flow generation.

S&P says Triad unchanged

Standard & Poor's said Triad Hospitals Inc.'s ratings are unchanged including its corporate credit at BB- with a positive outlook after the company announced that it will acquire four Arkansas hospitals from Tenet Healthcare Inc.

The acquired facilities will add to Triad's existing complement of five other hospitals in the state, S&P noted. The $142 million acquisition is not expected to hurt the company's recently improving financial profile, and if the profile continues to improve, even amid the company's modest acquisition activity, the rating could be raised within the next few years.

S&P cuts Hanger Orthopedic debt, rates loan B+

Standard & Poor's downgraded Hanger Orthopedic Group Inc.'s debt including cutting its $100 million senior secured bank loan due 2007 to B+ from BB- and $200 million 10.375% senior unsecured notes due 2009 to B- from B but confirmed the corporate credit rating at B+. S&P also assigned a B+ rating to its proposed $150 million term loan maturing in 2008. The outlook is stable.

S&P said the senior unsecured rating is being lowered solely to reflect the increased amount of senior secured debt resulting from the transaction and is not indicative of deterioration in corporate credit quality.

The bank facilities are rated the same as the corporate credit rating since S&P is reasonably confident of meaningful recovery of principal in the event of a default, despite potentially significant loss exposure.

Hanger Orthopedic's ratings reflect its relatively narrow business focus, its cost-management challenges, the risk of changing third-party reimbursement policies, and its aggressive capital structure. Partly offsetting these concerns is the company's strong position in a relatively high-margin niche medical field.

The company's operating margins are expected to continue to average in the low-20% area (up from about 16% in 2000). Return on permanent capital and funds from operations to total debt are expected to average in the low teens, and EBITDA interest coverage is expected to be above 2x, S&P said. Although the company remains burdened with much of the debt incurred to acquire NovaCare, it has delevered its capital structure as expected. In the next few quarters, total debt to EBITDA is expected to average below 5x, down from a high of almost 10x in 2000.

Moody's confirms Graphic Packaging, rates liquidity SGL-3

Moody's Investors Service confirmed Graphic Packaging International, Inc.'s ratings including its $850 million term loan B due 2010, $350 million term loan A due 2009 and $300 million revolving credit facility due 2009 at B1, $425 million senior unsecured notes due 2011 at B2 and $425 million senior subordinated notes due 2013 at B3 and assigned an SGL-3 speculative-grade liquidity rating. The outlook is stable.

Moody's said the confirmation follows the completion of the merger between Graphic Packaging Corp. and Riverwood, which closed Aug. 8.

The confirmation reflects Graphic's sizable market position and strong operating margins in various product segments as well as increased selling opportunities with regards to long standing customer relationships and geographic extension of existing products, Moody's said.

The ratings also reflect Moody's expectation that there will be a continued focus on cost containment over and above anticipated cost synergies and that the company will maintain a reasonable liquidity position.

However, the ratings also incorporate Graphic's high leverage, the uncertainty regarding any meaningful near-term improvement in the difficult environment in which the company operates, as well as the challenges that management will likely face with the integration of the two operations over the near term.

The SGL-3 liquidity rating reflects Moody's view that over the next 12 months Graphic will remain compliant with covenants and liquidity will be adequate. However, Moody's also believes the cushion under its financial covenants will be modest and alternate sources of liquidity will be limited.

As of June 30, 2003, the company's leverage was high with EBITDA coverage of total debt of approximately 5.9x, although interest coverage was acceptable on an EBITDA and EBIT basis of about 2.6x and 1.2x, respectively (trailing 12 months EBITDA pro forma historic basis, excluding expected synergies, and utilizing debt levels and interest costs post refinancing). In regards to covenants, with leverage limited to 6.4x and minimum interest coverage of 2.0x Moody's expect compliance to be achievable.

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