S&P puts Prestolite on positive watch

Standard & Poor's put Prestolite Electric Inc. on CreditWatch Positive including its $125 million 9.625% senior notes due 2008 at B-.

S&P said the CreditWatch listing follows Prestolite's announcement that it has retained CIBC World Markets Corp. to assist in the potential sale of the company.

S&P said it expects that a sale of the company could result in a higher rating, should Prestolite be sold to a significant strategic buyer or a financial buyer that intended to establish a more robust capital structure.

If no sale is completed, S&P said it would review the company's stand-alone strategies and financial policies, and ratings could be affirmed.

Prestolite's credit measures improved in 2002, with EBITDA interest coverage of 2.3x at year-end and total debt to EBITDA of 4.3x, S&P noted. Financial performance in 2002 benefited from higher commercial original equipment sales and good aftermarket and military volumes.

S&P raises Intertek outlook

Standard & Poor's raised its outlook on Intertek Testing Services plc to positive from stable including its corporate credit at BB+.

S&P said the action follows Intertek's strong 2002 results performance, which has confirmed Intertek's capacity to improve interest coverage and cash flow ratios.

The change in outlook reflects Intertek's good operating performance, resilient profitability and cash flow generation, and improving credit protection measures in an extremely challenging economic environment, S&P said.

In financial 2002, Intertek raised operating profit by 10.2% to £76.9 million ($123.3 million) at actual exchange rates, and recorded an improved free cash flow of £27.5 million from £11.6 million in 2001, S&P noted.

The group's refinancing of its pre-flotation debt in May 2002 substantially reduced its debt servicing costs in the second half of the year and, based on the lower interest charge and sustained operating performance, pro forma EBITDA to net fixed-charge coverage improved to 5.7x from 3.4x for the full year 2002. Similarly, funds from operations (FFO) to net debt strengthened in 2002 to about 25% from 8% in 2001.

Moody's cuts Apogent to junk, rates notes Ba2

Moody's Investors Service downgraded Apogent Technologies Inc. including cutting its senior unsecured debt to Ba1 from Baa3 and assigned a Ba2 rating to its proposed $250 million subordinated debt offering. The outlook is negative.

Moody's said the downgrade is based on the impact on Apogent's cash flow relative to debt metrics over the near term of Apogent's recently announced tender auction for up to 15% of its common shares and longer term uncertainty regarding Apogent's strategy to reward shareholders, given slow organic growth rates and fewer external opportunities for acquisitions.

The negative outlook reflects the challenges of meeting revenue and earnings targets in a lower growth environment and a business strategy more focused on internal growth; the possibility of additional shareholder value initiatives that could further weaken bondholder protection; and potential further writedowns of goodwill that could reduce book equity and lead to breaches of covenant compliance.

In addition, Apogent faces a potential $300 million debt obligation in October 2004 when its senior convertible notes may be put back to the company, although Moody's notes that Apogent currently has nearly full capacity on its $500 million bank credit facility expiring in 2005.

The combination of successfully refinancing this obligation, establishing a longer track record of performance in a lower growth environment, and demonstrating willingness to deleverage, could result in a more stable rating outlook, Moody's said.

Moody's notes that the proposed transaction and issuance of subordinated notes will raise Apogent's debt to approximately $970 million, which will be somewhat higher after adjusting for operating leases and unfunded pension obligations. Assuming that Apogent is able to successfully reverse trends in rising inventory levels, Moody's anticipates that Apogent's operating cash flow will continue to be in the $170 - $180 million range.

Moody's anticipates free cash flow (after working capital and capital expenditures but before acquisitions) will be in the $100 million range, benefiting from the absence of a shareholder dividend.

However, resulting cash flow relative to debt metrics are below Moody's earlier expectations, contributing to the ratings downgrade. Although management intends to deleverage, Moody's believes that acquisitions and share repurchases - though lower - could consume free cash flow and delay meaningful debt reduction.

Moody's puts RFS on review

Moody's Investors Service put RFS Partnership, LP on review with uncertain direction including its senior debt at B1.

Moody's said the action follows the announcement that CNL Hospitality Properties, Inc. has agreed to acquire RFS Hotel in an all cash transaction valued at $687 million, which will include the assumption of RFS Hotel's debt.

Moody's noted the potential strategic benefits that the merger will provide to RFS Hotel's bondholders, including increased scale and diversification.

However, the rating agency also considered the increase in leverage that could result from the transaction, and the challenges facing new management in integrating systems.

RFS Hotel's bonds include a change of control, whereby CNL Hospitality will be required to offer to repurchase the notes at 101% of par, plus accrued interest.

CNL Hospitality has indicated in its press release that a significant portion of the purchase price will be financed on a secured basis by an affiliate of Bank of America utilizing the available secured debt capacity under the terms of RFS Hotel's 9.75% senior notes due 2012.

Moody's confirms Ahold, still on review

Moody's Investors Service confirmed Koninklijke Ahold NV's ratings including its senior unsecured debt at B1 and subordinated debt at B2 and kept it on review for possible downgrade.

Moody's said its action follows Ahold's disclosure of a larger than expected overstatement of earnings at its US Foodservice operations.

Despite larger than anticipated earning adjustments, Moody's noted that the ratings continue to depend largely on continued support from the lending banks.

Moody's said it views positively the appointment of a new CEO with prior retail experience, and the leadership and experience of the recently appointed interim CFO.

However the review for downgrade continues because of Moody's continued concerns over the company's liquidity profile, the significant refinancing risks that the company faces and its ability to deleverage in the intermediate term.

Moody's puts Trico Marine on review

Moody's Investors Service put Trico Marine Services on review for downgrade including its $250 million of 8.875% senior unsecured notes due 2012.

Moody's said the action is due to the cumulative impact on the Trico Marine's resources of a deeper and more prolonged down-cycle than expected and absence of a sufficiently robust near-term up-cycle catalyst.

March 31, 2003 debt totaled $383 million versus $386 million at year-end 2002, Moody's noted. Since March 31, 2002, debt increased approximately $82 million to fund Trico Marine's vessel newbuild program. An additional $18 million of capital spending will complete that program. Trico Marine is assessing alternative funding for that final vessel.

TMAR reported first quarter 2003 EBITDA of $4.7 million, down from $8.8 million in the fourth quarter of 2002 and $9.7 million in the first quarter of 2002. For the last 12 months, debt/EBITDA was 12.6x.

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