Moody's puts Orion on review for upgrade, Reliant on review for downgrade

Moody's Investors Service on Thursday put the debt of Orion Power Holdings Inc. (Ba3 senior unsecured) under review for possible upgrade in relation to the $2.9 billion merger agreement with Reliant Resources Inc., a majority owned unit of Reliant Energy Inc. Specifically affected are Orion Power's $400 million 12% senior notes due 2010 and $200 million 4.50% convertible senior notes due 2008, both now rated Ba3 by Moody's.

The possible upgrade, Moody's said, reflects Reliant Resources' significant power plant operating and power marketing capabilities, a strategic fit between the two and Reliant Resources' greater credit strength.

As for Reliant's ratings, Moody's put the company's debt on review for potential downgrade. It said it will consider, among other things, how the merger might lower operating and overhead costs, the manner in which Reliant Resources' will assume Orion Power's existing debt and Reliant Resources' financing plans.

S&P puts Reliant Resources on watch negative, Orion on watch positive

Standard & Poor's placed its BBB+ on Reliant Resources Inc., Reliant Energy Capital (Europe) Inc., and Reliant Energy Mid-Atlantic Power Holdings LLC on CreditWatch with negative implications in response to the company's announcement that it will acquire Orion Power Holdings. At the same time, Standard & Poor's placed its BB corporate credit and B+ senior unsecured ratings on Orion Power on CreditWatch with positive implications, reflecting the announced acquisition of the company by a much larger and stronger corporate entity.

S&P said the acquisition weakens Reliant Resources' financial profile, pushing debt to more than 50% of capital and lowering cash flow interest coverage to around 3.0 times. However, the rating agency said, "The acquisition could strengthen RRI's overall business profile. Orion's portfolio of 6,620 MW of generating capacity is strategically located; much of it is under contract for the next four to 10 years; it increases fuel diversity and supply curve dispatch (base load, intermediate and peaking capacity); and the portfolio provides greater commercial opportunities, particularly in the metropolitan regions of Pittsburgh, New York City, and the cities of the Mid-Atlantic region."

S&P said it anticipates Reliant Resources will remain investment grade.

Fitch puts Reliant ratings on review, negative due to Orion acquisition

Fitch on Thursday put its BBB+ implied senior unsecured debt rating for Reliant Resources Inc. on review, negative, for possible downgrade. Given the all cash nature of the transaction, Fitch said it expects near-term pressure on the parent Reliant Energy's balance sheet and credit protection measures. Total debt to capitalization, including non-recourse debt and lease obligations, is expected to reach 53% at closing compared with about 22% as of June 30, Fitch said. However, assuming the successful monetization of the European generation business, Fitch said projected credit ratios should remain within parameters for the low to mid range of the BBB rating category.

S&P puts Advanstar, Key3Media, Penton on CreditWatch negative

Standard & Poor's put its ratings for Advanstar Communications Inc. (subordinated debt B-), Key3Media Group Inc. (subordinated debt B), and Penton Media Inc. (subordinated debt B) on CreditWatch with negative implications.

The rating agency said the action reflects its expectation that the operating environment for these companies will worsen as a result of the Sept. 11 terrorist attacks and will "exacerbate industry conditions that were already weak prior to the attacks."

Short-term, S&P said it expects lower business travel which will hurt trade show results for at least the rest of the year. In addition, it said Advanstar and Penton's trade magazine operations are likely to suffer from further reductions in advertising.

Helping somewhat for the rest of 2001 is that exhibition fees, which make up the majority of revenues, are collected well in advance and insurance coverage might also help, S&P said.

S&P warned that the companies could violate financial covenants as early as the fourth quarter, depending on how much profits fall short.

S&P puts Winn-Dixie on CreditWatch negative

Standard & Poor's said it put its ratings for Winn-Dixie Stories Inc. on CreditWatch with negative implications.

Affected are the company's BBB- corporate credit and senior secured bank loan ratings and its BB+ senior unsecured debt ratings.

S&P said the CreditWatch placement follows Winn-Dixie's significant lowering of its earnings guidance for fiscal 2002 to $1.20 per share from $1.75 per share at the high end of the range, blaming uncertainties about the U.S. economy and the timing of achieving the benefits of restructuring.

S&P noted its existing ratings expect sequential improvement in EBITDA coverage of more than 3 times by June 2002 but based on the revised guidance S&P now sees EBITDA coverage below 3x for that period.

S&P cuts Buhrmann to BB- after profit warning, still on negative watch

Standard & Poor's downgraded Netherlands-based office products supplier Buhrmann NV following a profit warning and kept its ratings on CreditWatch where they were placed with negative implications on Aug. 3, 2001. Buhrmann's subordinated debt falls to B from B+ while its senior secured drops to BB- from BB.

S&P said: "The ratings downgrade and continued placement of ratings on CreditWatch reflect Buhrmann's further deterioration in its already weak debt protection measures following its third profit warning. EBITDA to net interest coverage was 2.6 times (x) for the first half of 2001, compared with 3.0x for the corresponding period in 2000."

With the persistent downturn in the U.S. economy, made worse by the Sept. 11 terrorist attacks, S&P said: "Any hope of an early recovery of Buhrmann's U.S. business, which accounts for about half of the group's total operating profits, is therefore limited."

Any further "meaningful deterioration" in profit could result in bank covenant violation in the next six months, S&P added.

Moody's rates Terra Industries upcoming deal B3

Moody's assigned ratings of B1 to Terra Capital, Inc. $175 million guaranteed senior secured revolving credit facility maturing 2005 and B3 to its upcoming offering of $200 million guaranteed senior secured notes due 2008. The rating outlook continues to be negative, Moody's added.

"The ratings and negative rating outlook reflect the downcycle in the company's cyclical commodity products (nitrogen fertilizers and methanol), the expected continuing pressure on prices and margins in the intermediate term from global overcapacity in these products, and increasing competition from imports with lower cash costs," Moody's stated.

Moody's also said that the Caa2 rating on Terra Industries, Inc.'s $200 million senior notes due 2005 will be downgraded to Caa3, to reflect their structural and effective subordination to a larger amount of secured debt at the operating company ($375 million of proposed secured debt at Terra Capital, Inc., including the revolving credit facility, compared with $225 million secured debt currently). Terra Industries, Inc., headquartered in Sioux City, Iowa, produces nitrogen fertilizer products (ammonia, urea, nitrogen solutions, and ammonium nitrate) and methanol.

S&P rates Terra Industries upcoming deal BB-

Standard & Poor's rated Terra Industries Inc.'s proposed $200 million senior secured notes due 2008 BB-. The rating agency also assigned its BB bank loan rating to Terra's $175 million senior secured revolving credit facility, and affirmed its BB-corporate credit rating and its B senior unsecured debt rating on the company. The outlook is negative.

"Credit quality reflects Terra's fair business position as a commodity fertilizer producer, offset by high financial risk," S&P stated, adding that the company's profitability and cash flows "have been negatively impacted by overcapacity in global nitrogen markets, exacerbated by the lingering effects of reduced demand attributable to low Chinese nitrogen imports, and higher natural gas and feedstock costs."

Terra is a leading North American producer of nitrogen fertilizer and methanol, according to the S&P report, which added that the company also has nitrogen facilities in Europe.

Moody's changes Zale's outlook to negative, confirms Ba1 rating

Moody's confirmed Zale Corp.'s Ba1 senior implied and senior unsecured debt ratings but changed the company's rating outlook to negative from stable. Moody's also confirmed Zale's Ba2 senior unsecured issuer rating.

Specifying that "the aftermath of the Sept. 11th attacks have negatively impacted consumer sentiment," Moody's stated that the outlook change "reflects greater uncertainty at a time when Zale's financial condition had weakened and its operating performance was already under pressure as a result of an anticipated downward economic cycle." The current rating, according to Moody's, is supported by "good available liquidity," as well as a history of reducing spending to curtail growth.

Zale, headquartered in Irving, Texas, is the leading North American jewelry retailer, operating approximately 2,344 locations, including over 900 Piercing Pagoda kiosks," Moody's stated, adding that the company's revenues were $2.07 billion for the fiscal year ended July, 2001.

Moody's downgrades Jackson Products to Caa3 from B3

Moody's Investors Service downgraded Jackson Products, Inc.'s debt, affecting $250 million of long-term debt, including its $115 million of 9.5% senior subordinated notes due April 2005 which dropped to Caa3 from B3. The outlook is negative.

Also affected are Jackson's $105 million senior secured acquisition term loan due April 2004, its $30 million senior secured revolving credit facility due April 2004, and its senior implied rating, all of which fall to B3 from B1.

Moody's said the downgrade reflects Jackson's "tight liquidity condition, constrained financial flexibility, worsening operating performance, as well as its weakened credit protection measures."

But it added the ratings still recognize the company's leading market position in the personal safety products and highway safety products markets.

Moody's said it has a negative outlook because of expected continuing challenging economic and market conditions.

S&P cuts Simonds to CCC+, outlook negative

Standard & Poor's said it downgraded Simonds Industries Inc., affecting $100 million in debt securities. The outlook is negative.

S&P said the actions reflect the company's "increased level of financial stress, resulting from deteriorating operating results, a heavy debt burden, and constrained liquidity."

Weak industry fundamentals, especially in the wood market mean operating performance continues to be weaker than expected, S&P said. It cited "weak" credit protection measures, with total debt to EBITDA of about 8.2 times and interest coverage of 1.2x as of June 30, 2001. "Given current end market conditions, these measures are likely to worsen over the near term," S&P commented.

Simonds obtained waivers of covenant violation in the second quarter but without a near-term rebound in demand, S&P believes "the potential for future covenant violations is high."

S&P cut Simonds corporate credit rating to CCC+ from B and its subordinated debt rating to CCC- from CCC+.

Fitch affirms TeleCorp Wireless and Tritel PCS ratings

Fitch affirmed its ratings on TeleCorp Wireless' and Tritel PCS, Inc. and said the outlook is stable.

Affected the B+ rating on TeleCorp's $560 million senior secured credit facility, the B- rating on its $575 million 11 5/8% senior subordinated discount notes due April 15, 2009 and its $450 million 10 5/8% senior subordinated notes due 2011. For Tritel, the affirmed ratings are B+ on Tritel's $550 million senior secured credit facilities and the B- on its $372 million 12 ¾% senior subordinated discount notes due 2009 and $450 million 10 3/8% senior subordinated notes due 2011.

Fitch said the affirmation reflects its belief that both companies will reach EBITDA breakeven in the third quarter of 2002, one quarter later than originally anticipated. It anticipates the two companies will continue to successfully execute management's revised operating strategy of targeting postpaid customers and benefit from their spectrum position and affiliate agreements with AT&T Wireless Services (AWS).

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