Moody's cuts El Paso to junk

Moody's Investors Service downgraded El Paso Corp. to junk, affecting $25 billion of debt. The outlook is negative. Ratings lowered include El Paso's senior unsecured debt and bank credit facility, cut to Ba2 from Baa3, subordinated debt, cut to Ba3 from Ba1; El Paso CGP Co.'s senior secured debt, cut to Baa3 from Baa2, senior unsecured debt, cut to Ba2 from Baa3, and subordinated debt, cut to Ba3 from Ba1; ANR Pipeline Co.'s senior unsecured debt, cut to Ba1 from Baa2; Colorado Interstate Gas Co.'s senior unsecured debt, cut to Ba1 from Baa2; Coastal Finance I's trust preferred stock, cut to Ba3 from Ba1; El Paso Natural Gas Co.'s senior unsecured debt, cut to Ba1 from Baa2; El Paso Tennessee Pipeline Co.'s senior unsecured debt, cut to Ba2 from Baa3, and preferred stock, cut to B1 from Ba2; Tennessee Gas Pipeline Co.'s senior unsecured debt, cut to Ba1 from Baa2; Sonat Inc.'s senior unsecured debt, cut to Ba2 from Baa3; Southern Natural Gas Co.'s senior unsecured debt, cut to Ba1 from Baa2; El Paso Energy Capital Trust I's trust preferred stock, cut to Ba3 from Ba1; Limestone Electron Trust's senior unsecured guaranteed notes, cut to Ba2 from Baa3; and Gemstone Investor Ltd.'s senior unsecured guaranteed notes, cut to Ba2 from Baa3.

Moody's said it lowered El Paso because of the company's weak cash flows and uncertain prospects for their improvement in the near term; debt levels that remain high relative to the company's cash flows, despite sizable retirements and repayments this year; the likelihood that capital expenditures will continue to exceed cash flow from operations and that the company will rely on asset sales to meet the shortfall and to further reduce its debt; and execution risks related to El Paso's efforts to scale back and refocus its merchant energy activities, including exiting energy trading, consolidating the power business of its Electron affiliate, divesting its petroleum businesses, and furthering its LNG strategy.

The negative outlook reflects uncertainties related to the pending ruling by the Federal Energy Regulatory Commission (FERC) regarding the alleged exercise of market power and violations of marketing affiliate rules and other FERC regulations, Moody's added. While the ultimate impact of these proceedings will not be known for some time, they could potentially bring about other litigation and proceedings that negatively affect El Paso's financial position, liquidity, or business operations and lead to a rating action.

The ratings consider potential calls on cash as a result of the effects of collateral calls, ratings triggers, and other demands on liquidity that may result from the downgrade, Moody's said.

Moody's noted that stress liquidity is very difficult to estimate, and that few merchant energy companies have been able to furnish accurate estimates regarding potential calls on cash. The negative outlook reflects the possibility that the ratings could be adjusted downward if actual liquidity requirements prove much higher than El Paso's expectations.

Moody's cuts IMC Global

Moody's Investors Service downgraded IMC Global Inc. affecting $2 billion of debt. Ratings lowered include IMC Global's secured credit facility, cut to Ba1 from Baa3, senior unsecured notes with subsidiary guarantees, cut to Ba2 from Ba1, senior unsecured notes and debentures, cut to Ba3 from Ba2, and Phosphate Resource Partners LP's senior unsecured notes, cut to B1 from Ba2. The outlook is stable.

Moody's said it downgraded IMC Global because of concerns that future financial performance will remain below previously anticipated levels due to slower global demand growth and modest increases in manufacturing costs.

Moody's said it expects IMC's financial recovery will take longer than previously anticipated, and that the global supply/demand balance and increasing manufacturing costs at IMC will limit improvements in the company's financial performance over the next several years.

Moody's believes that IMC's earnings and free cash flow will be constrained by higher diammonium phosphate production by competitors, new DAP capacity additions, increases in IMC's manufacturing costs, and a slower than anticipated growth in global demand.

Furthermore, Moody's believes that taken together these factors will lead to moderately lower financial performance, than previously expected, through the next cycle in DAP.

If IMC fails to generate a meaningful level of free cash flow in 2003, Moody's could review the appropriateness of the Ba2 ratings, Moody's added.

Moody's cuts Nextel Partners notes

Moody's Investors Service downgraded Nextel Partners, Inc.'s notes to Caa1 from B3 including its $400 million 11% senior notes due 2010, $225 million 12.5% senior notes due 2009 and $520 million 14% senior discount notes due 2009. Moody's confirmed Nextel Partners Operating Corp.'s $475 million senior secured credit facility at B1. The outlook is stable. The action concludes a review begun in June.

Moody's said the downgrade is in response to the increasingly challenging operating environment for all wireless carriers as the industry matures and competition becomes more fierce.

It also reflects Moody's concerns that the anticipated cash flow growth of Nextel Partners will be more difficult to achieve, thus making impairment of the senior unsecured notes more likely.

While to date, the company has met or exceeded Moody's expectations for operating performance, Moody's said it has been concerned with the company's aggressive use of debt to finance its expansion, as reflected in its negative ratings outlook since last November.

Moody's said it confirmed Nextel Partners Operating Corp.'s bank loan as it believes secured lenders have good collateral protection. The credit facility is secured by the all the assets of the company which include over $1 billion of gross PP&E. Further, total bank debt per subscriber is not expected to exceed $500, which Moody's believes is a comfortable level given the superior metrics of the company's subscribers.

Moody's cuts Triton PCS notes

Moody's Investors Service downgrade the subordinated notes of Triton PCS, Inc. to B3 from B2 including its $512 million 11.0% senior subordinated discount notes due 2008, $350 million 9.375% senior subordinated notes due 2011 and $400 million 8.75% senior subordinated notes due 2011, and confirmed its $425 million senior secured credit facility at Ba3. The outlook is negative. The action concludes a review begun in June.

Moody's said the action reflects the increasingly difficult operating environment facing all wireless carriers as subscriber growth slows and cash flow generation becomes more challenging.

It also reflects the delay Triton PCS has experienced in generating free cash flow relating to the investment required to upgrade its network to provide GSM service.

While the company has built a top quality network that has attracted a high quality subscriber base, after over four years of operations, profitability is still distant, and capital expenditure requirements remain high, Moody's said.

Moody's said it confirmed the company's senior secured credit facility as it believes these creditors have very good collateral protection given their security interest in all the company's assets. These assets consist of over $1 billion in gross PP&E, and 30MHz or more of PCS spectrum in its larger markets. Further, Moody's does not expect bank debt outstandings to exceed $300 million, a substantial portion of which should be covered by the company's cash position, and represents under $400 of bank debt per subscriber at 3Q02.

S&P cuts Dynegy, still on watch

Standard & Poor's downgraded Dynegy Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Dynegy's corporate credit rating, cut to B from B+, and notes and bank loans, cut to CCC+ from B-.

S&P said the downgrade reflects its analysis of Dynegy's announced restructuring plan, financial condition, and available liquidity to meet near-term obligations.

Dynegy has taken concerted steps to bolster its financial liquidity and reduce the burden of debt leverage by divesting assets throughout 2002, S&P said. Still, expected cash flow from Dynegy's reconstituted business plan is insufficient to fully offset the massive amount of debt leverage retained from the prior failed business strategy.

Also, the new plan does not provide a sizable amount of discretionary funds as net cash flow after maintenance capital expenditures for 2003 is about $100 million.

The sales of Northern Natural Gas Pipeline, U.K. gas storage, and the Illinois Power Co. transmission assets have improved Dynegy's liquidity, S&P noted. However, the firm is still challenged by substantial refinancing risk related to debt obligations coming due in 2003. In addition, the sale of these assets diminishes the firm's ability to generate stable cash flow and increases their business risk.

Dynegy's near-term obligations include about $74 million in debt and bank facilities due to mature or expire by year-end 2002; $1.8 billion coming due through the second quarter of 2003; $300 million due in the third and fourth quarters of 2003; and the $1.5 billion preferred stock held by Dynegy's largest shareholder, ChevronTexaco Corp., which is redeemable in November 2003.

S&P said it estimates Dynegy's current cash and bank-line capacity is about $700 million, mostly stemming from the August 2002 sale of Northern Natural Gas Pipeline. The U.K. gas storage sale provides another $500 million in cash proceeds. Also, Dynegy has announced the sale of Illinois Power's transmission assets for $239 million, which is targeted to repay obligations at Illinois Power.

Moreover, even if Dynegy is able to meet all of its near-term obligations, its remaining liquidity, which is estimated to be threadbare at the end of second quarter 2003, may not be sufficient to support other ongoing operations, S&P said.

S&P rates Lyondell notes BB

Standard & Poor's assigned a BB rating to Lyondell Chemical Co.'s new $337 million senior secured notes due 2008 and confirmed its existing ratings on the company including its senior secured debt at BB and subordinated debt at B+. The outlook is stable.

The proposed notes are rated the same as the corporate credit rating and the firm's existing secured debt in view of the shared collateral supporting the company's substantial debt obligations, and minimal subordinate cushion, S&P said. Security consists of domestic personal property (including receivables and inventory) of Lyondell, stock of subsidiaries, a pledge of joint venture distributions and certain property, plant, and equipment. This collateral is likely to provide only a measure of protection to note holders in the event of default or bankruptcy, based on S&P's simulated default scenario.

The ratings on Lyondell Chemical Co. reflect high debt levels stemming from the 1998 acquisition of ARCO Chemical Co., which continue to overshadow the firm's average business profile as a leading North American petrochemical producer, S&P said.

Lyondell Chemical is the world's largest producer of propylene oxide, a key intermediate for urethanes, and an array of industrial chemicals. That strong market position is bolstered by large-scale and cost-efficient operating facilities, S&P noted. Long-term prospects for propylene oxide profitability remain relatively good, although variations in the pricing of oil-based feedstocks, the level of economic activity, and the market for co-products can affect short-term results.

Recently propylene oxide demand has improved somewhat and should trend back toward the historical growth rate of 3% to 5% per year as the economy recovers, S&P said.

S&P rates TriMas notes B

Standard & Poor's assigned a B rating to TriMas Corp.'s new $85 million 9.875% senior subordinated notes due 2012 and confirmed the company's existing ratings. The outlook is positive.

TriMas' ratings reflect its leading positions in niche markets, offset by the highly competitive and cyclical nature of certain of its businesses, high debt leverage, and thin cash flow protection, S&P said.

The company's products have leading market shares. About 70% of its sales are from products that have No. 1 or No. 2 market positions for which TriMas is one of only two or three manufacturers.

Businesses provide a good deal of diversity, and the company's broad product offering lessens its dependence on any single product or customer, S&P said.

TriMas has undergone a rationalization of its manufacturing facilities and headcount reductions since 2001 that have led to about $29 million in potential annual cost savings, over half of which have been realized. TriMas is expected to continue to pursue cost savings and to capitalize on product development. It is also expected to pursue niche acquisitions on an opportunistic basis, S&P said.

The company is highly leveraged, with total debt to EBITDA at 4.5 times on a pro forma basis, S&P added. Over time, S&P expects the company to operate with total debt to EBITDA of 3.5x-4x, and EBITDA to interest coverage is expected to be in the 3x area for the rating.

Moody's cuts ONO

Moody's Investors Service downgraded ONO Group, affecting $1.2 billion of debt, and kept it on review for further downgrade. Ratings lowered include ONO Finance plc's senior unsecured bonds, cut to Caa3 from Caa2, and Cableuropa SA's senior secured bank facility, cut to Caa1 from B3.

Moody's noted that it downgraded ONO in May because of concerns about the company's ability to grow into its highly leveraged capital structure.

However the magnitude of the downgrade at that time was somewhat tempered by the prospects for a materially improved operating environment, higher growth rates in all of the company's business areas, and the continued prospect for further equity support from the company's shareholders, Moody's said.

However Moody's now expects that the current and prospective operating environment for ONO businesses overall continue to be difficult (particularly for pay-TV and business services), additional equity capital appears increasingly unlikely.

As a result, Moody's considers ONO's existing capital structure to be significantly over-leveraged and said it remain so even after the debt reductions expected to result from the currently proposed "Dutch tender" offer.

S&P says Advance Auto unchanged

Standard & Poor's said Advance Auto Parts Inc.'s corporate credit rating of BB- and stable outlook are unchanged on the disclosure that the company has been named as a defendant in lawsuits alleging injury as a result of exposure to asbestos-containing products.

Advance Auto maintains sufficient liquidity through its cash flow, revolving credit facility, and insurance to fund its expected liability related to these claims, S&P said.

However the rating agency added that many claims have recently been filed and are in the early stages of litigation. S&P said it will continue to monitor this issue to determine if an increase in claims filed and/or a greater liability relating to existing claims would be sufficient to impact the ratings and outlook.

Fitch confirms PacifiCare, rates convertibles B+

Fitch Ratings confirmed PacifiCare Health Systems Inc. and assigned a B+ rating to its new $125 million convertible subordinated debentures due 2032. Ratings confirmed include PacifiCare's bank and senior debt at BB and senior unsecured debt at BB-. The outlook is stable.

Fitch said it expects PacifiCare to use approximately one-half of the proceeds of the convertibles to pay down existing bank debt and use the remainder for general corporate purposes.

PacifiCare's debt leverage of approximately 37% remains firmly within the range appropriate for its rating category, Fitch said.

Fitch added that it views the financing as positive, and that it will provide the company with a more permanent and favorable capital structure.

Fitch rates MDC notes BBB-

Fitch Ratings assigned a BBB- rating to MDC Holdings, Inc.'s new issue of $150 million 7.0% senior notes due Dec. 1, 2012. The outlook is positive.

This new issue enables the company to finance its growth with longer term debt more appropriate to the assets that will be utilized, Fitch said.

Fitch added that it expects leverage (excluding financial services) to remain below management's stated debt to capital target of 45%.

Ratings for MDC are based on the company's solid financial performance over recent years and the expectation that the company's credit profile will continue to improve as it executes its business model and embarks on a new period of growth, Fitch said. The company has noticeably improved its capital structure, pursued conservative capitalization policies and has positioned itself to withstand a meaningful housing downturn. The rating is balanced somewhat by the cyclical nature of the housing industry and the company's moderate bias towards owned rather than optioned land.

MDC's concentration of closings in Colorado weighs negatively on the rating, as the company is more susceptible to an economic downturn in this region than certain of MDC's more geographically diversified peers, Fitch added. However, the company has been decreasing the relative import of Colorado which accounted for 51% of home closings in 1993, but so far in 2002 represented 35.6% of total closings (although only 28.8% of total net new home orders). Arizona and California have become much more significant to MDC, accounting for 24.3% and 17.7%, respectively, of 2002 closings.

Moody's upgrades Cumulus loan, raises outlook

Moody's Investors Service upgraded Cumulus Media Inc.'s credit facilities to Ba3 from B1 including its $112.5 million revolving credit facility due 2009, $112.5 million term loan A due 2009 and $175 million term loan B due 2010, confirmed its $160 million senior subordinated notes due 2008 at B3 and raised the outlook to stable from negative.

Moody's said the action is in response to the improvement in the company's balance sheet due to the repurchase of $112 million of preferred stock with the proceeds from the company's equity sale coupled with management's stated intention to stay within this more conservative leverage range through the rating horizon.

Moody's decision to raise the rating on the bank credit facilities one notch from the senior implied rating reflects the improvement in Cumulus' overall credit profile, the company's more solid position in the B1 rating category, and the senior-most status of this class of debt.

As a result of the repurchase and the favorable operating environment, debt + preferred stock/EBITDA has improved from 8.6 times for the 12 months ended Dec. 31, 2001 to 5.7 times for the 12 months ended Sept. 30, 2002, Moody's noted.

In addition to the improvement in the company's balance sheet, the ratings are supported by strong collateral coverage provided by the company's geographically diverse station portfolio; the prominence of its station clusters in their markets and the benefits of reach and scale that result from the same; management's willingness to pursue asset and equity sales to support balance sheet repair; the company's focus on local advertising revenue which is more durable in an uncertain economic environment than national revenue; and ample liquidity to execute its business plan, Moody's said.

Moody's puts J.L. French on review

Moody's Investors Service put J.L. French Automotive Castings, Inc. on review for possible downgrade including its $175 million of 11.5% guaranteed senior subordinated unsecured notes due June 2009 at B3 and $90 million revolving credit facility maturing April 2005, $125 million term loan A maturing April 2005 and $150 million term loan B maturing October 2006 at B1.

Moody's said that while J.L. French is in the process of negotiating a partial refinancing of its existing senior secured credit agreement to address current liquidity issues no certainty exists that the necessary commitments will be obtained on a timely enough basis.

The proposed refinancing is structured to enable the company to eliminate all quarterly scheduled principal amortization payments for the period beginning with December 2002 through 2006, Moody's noted. Absent successful execution of the refinancing transaction, J.L. French faces a potential December 2002 liquidity event which could result in payment defaults under both the company's guaranteed senior subordinated notes indenture and its existing guaranteed senior secured bank credit agreement.

On Dec. 1 the company is scheduled to pay approximately $10 million of semiannual cash interest to its noteholders. A 30-day grace period for the bond interest is applicable before an event of default under the indenture would be triggered. On Dec. 31 an approximately $13.3 million principal payment is required under J.L. French's senior secured term loan A facility, for which the company does not have the benefit of any grace period.

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