S&P upgrades Nash Finch

Standard & Poor's upgraded Nash Finch Co. including raising its $165 million 8.5% senior subordinated notes due 2008 to B- from CC and $250 million secured revolving credit facility due 2005 to B+ from CCC-. The ratings were removed from CreditWatch developing. The outlook is stable.

S&P said the action is based on Nash Finch's successful resolution of its accounting issues relating to vendor rebates, which allowed the company to file its third-quarter 2002 form 10-Q, fiscal 2002 form 10-K, and first-quarter 2003 form 10-Q financial statements.

The filing of these statements satisfied the default declared by the trustee for the company's senior subordinated notes, S&P noted. Nash Finch had received a temporary waiver from the bondholders for the default.

Although these accounting issues relating to vendor rebates have been resolved, the formal Securities and Exchange Commission investigation is ongoing. The ratings also reflect weak same-store sales trends of negative 11% over the past two quarters because of the competitive supercenter openings, the weakened economy, and aggressive promotional pricing by competitors, S&P said.

Lease-adjusted EBITDA coverage of interest was 2.9x in 2002, S&P said. Operating margins improved to 3.9% in 2002 from 1.7% in 1998 as the company improved its operating efficiencies and increased its retail operations, which have higher margins than its food distribution segment. Total debt to EBITDA was 4.2x in 2002. Nash Finch generated marginal free cash flow in 2002.

S&P cuts Trico

Standard & Poor's downgraded Trico Marine Services Inc. including cutting its $250 million 8.875% senior unsecured notes due 2012 to CCC+ from B. The outlook remains negative.

S&P said the downgrade follows a review of Trico's current and expected liquidity and financial performance.

The actions reflect the deterioration of Trico's liquidity and financial profile, resulting from a combination of high debt servicing costs and an extended period of weak operating margins, S&P said. While the rating agency believes that Trico will benefit from an eventual recovery in Gulf of Mexico offshore support vessel demand, the timing and magnitude of such a recovery is uncertain.

In the interim, the company could face weak market conditions in its North Sea operations, S&P noted. Without market recovery, Trico likely will have to sell assets into a weak market to meet prospective cash financing and investment requirements.

The two-notch-lower unsecured debt rating reflects the high level of secured debt in Trico's capital structure, estimated to be greater than 30% of assets when all secured bank lines are fully used.

In the near term, Trico's financial profile will reflect burdensome debt leverage, the current malaise in the Gulf of Mexico market, and the effects of its newbuild program, S&P said. Total debt to capital is expected to remain near 60% with debt to EBITDA likely to exceed 10x during 2003. Leverage is expected to decrease with the recovery of the Gulf of Mexico market, however, even if the company benefits from an extremely strong recovery, near-term debt levels would remain very aggressive without accessing additional equity financing. In the current industry, fixed-charge coverage measures are expected to remain weak, with EBITDA to interest coverage around 1x and EBITDA to interest plus capital expenditures below 1x.

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