Moody's rates Veritas credit facility Ba2

Moody's Investors Service assigned a Ba2 rating to Veritas DGC's new$75 million senior secured revolver maturing 2005 and $200 million senior secured term loan maturing 2007. Moody's also confirmed Veritas' issuer rating at Ba2 and upgraded its senior implied rating to Ba2 from Ba3. The Ba3 rating on the company's $130 million 9¾% senior unsecured notes due 2003 will be withdrawn when they are retired. The outlook is stable.

The actions conclude Moody's review.

Moody's said the stable outlook reflects its expectation of continued financial discipline by Veritas.

Veritas' ratings are supported by its solid market position as one of the four major international providers of land and marine seismic services and conservative corporate finance practices that have been compatible with the material cyclical, technical, and investment risks of its business, Moody's said.

Veritas has a track record of consistent operating cash flow generation ($185 million in fiscal 2002, ending July), moderate leverage (2.3x adjusted debt/EBITDAR in fiscal 2002), and ample liquidity, the rating agency said.

The company has had success with its multi-client library investment (generating cumulative revenues at about 140% on total cash costs to date), and has funded a large part of investment spending incremental to operating cash flow with equity ($133 million in net equity issuance FY99-02 represented 57% of its $223 million 1999-02 cash flow deficit after investment spending).

Debt has been maintained at moderate levels, and the use of operating leases for marine and computer assets has provided flexibility to drop or substitute updated assets as needs have evolved through technology and demand cycles, Moody's added.

Negative factors are Veritas' business concentration in seismic services, its significant capital and investment spending requirements, and its emphasis on multi-client work, Moody's added. The ratings also incorporate the company's significant operating lease rentals ($65 million in fiscal 2002) related to assets critical to cash flow generation.

S&P puts NextMedia on watch

Standard & Poor's put NextMedia Operating Inc. on CreditWatch with negative implications. Ratings affected include NextMedia's $125 million senior secured revolving credit facility due 2007 at B+ and $200 million 10.75% senior subordinated notes due 2011 at B-.

S&P said the action is in response to NextMedia's plans to acquire four FM radio stations and one AM radio station in the Saginaw/Bay City/Midland Michigan market for $55.5 million.

The acquisition intensifies concerns about narrowing liquidity, weak credit measures for the rating and ongoing acquisition activity that restrains credit profile improvement, S&P said.

NextMedia will have consumed approximately $75 million of Goldman Sachs private equity to help fund these acquisitions, which will close in early 2003. Availability of the private equity had been a key source of liquidity for Nextmedia and an important rating factor, S&P noted.

At Oct. 31, 2002, no amounts were available for borrowing under the company's $100 million revolving credit facility maturing in 2007, S&P said. Nextmedia amended its credit facility subsequent to the third quarter, including a reduction in the commitment to $75 million and relaxation of certain covenants. These amendments will be effective following the funding of the remaining portion of the equity commitment.

Pro forma for the completion of acquisitions, liquidity will be primarily derived from borrowing availability under the amended credit facility and operating cash flow. Amended financial covenants are tight, with minimal cushion to absorb revenue shortfalls or additional debt.

Fitch cuts Cummins, rates new notes BB-, loan BB+

Fitch Ratings downgraded Cummins Inc. including cutting its senior unsecured notes to BB- from BB+ and mandatorily redeemable convertible preferred securities to B+ from BB-. Fitch also assigned a BB- rating to Cummins' planned $200 million of senior unsecured notes and a BB+ rating to its new $385 million secured revolving credit agreement. The outlook remains negative.

Fitch said the downgrades reflect persistently weak end markets, longer term concerns related to Cummins' competitive position and profitability, weak credit measures, increasing pension obligations and the granting of security to the company's revolving credit lenders resulting in the subordination of the unsecured notes and preferred securities).

Over the past several years, Cummins has exhibited a steady deterioration in market share across its heavy-duty and medium duty truck lines, Fitch said. These trends have been exacerbated by weak end market demand, particularly in the heavy-duty truck market which is still working off the inventory overhang resulting from excessive industry production in the late 1990's.

Despite successful cost reductions from restructuring programs, margins remain pressured.

Leverage remains high despite significant cutbacks in capital expenditures and asset divestitures. Increased pension obligations, off-balance sheet obligations and outflows related to dividends and joint-venture investments will make it difficult to improve fixed-charge coverage over the near term, Fitch said.

Although third quarter results were relatively strong, this performance primarily reflected pre-buying ahead of the new emission standards, Fitch noted. A sharp drop-off in industry demand is expected for the fourth quarter, with ultimate recovery not expected at least through the first half of 2003.

The company also faces a number of challenges over the intermediate term. Although Cummins offers a technologically competitive product line, consolidation and vertical integration among its customers have placed the company in competition with its major customers' in-house suppliers, Fitch said.

The new revolving credit agreement and planned $200 million senior unsecured note issuance will resolve near-term liquidity concerns posed by the early 2003 maturity of its revolving credit agreement and $125 million note maturity, Fitch added. The revolving credit agreement has been downsized from $500 million to $385 million, and has gone from unsecured to secured. The term has also been shortened to a three-year term from five years previously.

S&P raises Vestel outlook

Standard & Poor's raised its outlook on Vestel Elektronik Sanayi Ve Ticaret AS to stable from negative including its corporate credit rating at B-.

S&P said the action follows its revision of the outlook on the Republic of Turkey to stable from negative.

Vestel's rating Vestel continues to reflect the company's high proportion of euro-denominated revenues, good positions in the European TV market (market share of about 15%), and sustained operating performance, S&P said.

These strengths are offset mainly by Vestel's foreign-currency-denominated debt, which has exposed it to the recent sharp fluctuation in the Turkish lira, S&P added.

S&P puts Buhrmann on watch

Standard & Poor's put Buhrmann NV on CreditWatch with negative implications including its $2.25 billion bank loan due 2007 at BB- and $350 million subordinated notes due 2009 at B. The company had previously had a negative outlook.

S&P said the action reflects its view that Buhrmann is at risk of not meeting its bank covenant step-up in the first quarter of financial 2003.

For the 12 months ended Sept. 30, 2002, Buhrmann's EBITDA to net cash interest coverage was about 2.65 times, which is above the current interest coverage covenant of 2.50x, S&P noted.

But with a softer fourth quarter expected and uncertainties as to 2003, S&P said it estimates that

Buhrmann is at risk of not meeting the step up in the EBITDA to net interest coverage covenant to 2.75x from 2.50x in first quarter 2003.

Buhrmann has already renegotiated its financial covenants once before, in December 2001, when there was a strong possibility of the group breaching them.

S&P raises Turkcell outlook

Standard & Poor's raised its outlook on Turkcell Iletisim Hizmetleri AS to stable from negative, confirmed its corporate credit rating at B- and upgraded Cellco Finance NV's $400 million 12.75% notes due 2005 to B- from CCC+.

S&P said the outlook revision follows its revision of the outlook for the Republic of Turkey to stable from negative.

S&P said it equalized Cellco with the corporate credit rating because of the gradual repayment of a number of secured bank facilities, which now represent only a minor portion of the company's asset base and therefore afford pari passu protection to existing unsecured bondholders.

The senior unsecured debt rating reflects the expectation that no new secured bank facility will be negotiated in the intermediate term, S&P added.

S&P keeps SpectraSite on watch

Standard & Poor's said SpectraSite Holdings Inc. remains on CreditWatch with negative implications and added that its senior unsecured debt will be lowered to D from C when the company makes its expected prepackaged bankruptcy filing.

Also at the time of filing, S&P will revise the CreditWatch on subsidiary SpectraSite Communications Inc.'s $1.1 billion secured bank facility to positive from negative. The loan is rated CC.

SpectraSite announced that it has reached an agreement with bondholders for a restructuring of its $2 billion accredited value of senior notes as part of a planned prepackaged bankruptcy filing, S&P noted.

When the company emerges from bankruptcy, S&P will reevaluate SpectraSite Holdings' corporate credit rating in light of its much less leveraged capital structure and the bank loan at SpectraSite Communications will be revaluated for potential upgrade.

S&P cuts Ericsson

Standard & Poor's downgraded Telefonaktiebolaget L.M. Ericsson and removed it from CreditWatch with negative implications. The outlook is negative. Ratings lowered include notes, cut to BB from BB+.

S&P said it lowered Ericsson because of continued weak and volatile market conditions, as reflected in the 42% sequential decline in Ericsson's order bookings in the third quarter of 2002.

Although the recent SEK29 billion ($3.2 billion) rights issue has strengthened Ericsson's liquidity, given the difficult market conditions, the group must continue to cut costs to reduce cash losses, S&P added

Market conditions remain extremely challenging. Ericsson's book-to-bill ratio, which compares the group's quarterly orders and sales, fell sharply to 0.61 times in the third quarter of financial 2002 -excluding cancelled orders, the ratio declined to 0.78x - from 0.92x in the second quarter of 2002, S&P said. In this market environment, Ericsson's restructuring program assumes critical importance.

Ericsson's restructuring program is on track although challenges remain, the rating agency added.

S&P raises Golden State

Standard & Poor's upgraded Golden State Bancorp Inc. and its subsidiaries. Ratings affected include Golden State Holdings Inc.'s $1.85 billion floating-rate senior notes due 2003, raised to AA- from BB+, California Federal Bank, FSB's $100 million 10% subordinated debentures due 2006, raised to AA- from BBB- and California Federal Preferred Capital Corp.'s $500 million non-cumulative exchangeable preferred stock series A, raised to A+ from BB+.

S&P said the upgrade follows Golden State's acquisition by Citigroup Inc.

S&P confirms Leica

Standard & Poor's confirmed Leica Geosystems Holdings AG and removed it from CreditWatch with negative implications. Ratings affected include Leica Geosystems Finance plc's €65 million 9.875% notes due 2008 at B+. The outlook is stable.

S&P said action follows Leica's announcement of its second quarter 2002 results, which show it has met all financial covenants in its SFR270 million bank facilities.

Although one of the financial covenants was tight at the end of September 2002, S&P said it believes the company will have sufficient leeway in the future.

Leica's ratings reflect the company's below-average risk profile, based on its standing as one of the world's largest engineering services providers of high-precision surveying and optical measurement instruments, as well as its aggressive financial profile, S&P said.

Factors constraining Leica's credit quality include the competitive nature of the global surveying and optical measurement industry, in which several players have found it hard to generate positive operating profits, as well as the company's relatively modest business scope. Moreover, the current uncertainty over the general economic climate has resulted in relatively low visibility of orders, S&P said.

S&P added that it expects Leica's ratios to remain satisfactory for the rating category for the foreseeable future. Net debt to EBITDA for financial 2003 is expected to remain at less than 3 times, and EBITDA to interest at 4x at least.

Moody's upgrades Golden State

Moody's Investors Service upgraded Golden State Bancorp Inc. and its subsidiaries including California Federal Bank. Ratings raised include GS Escrow Corp.'s senior debt to Aa1 from Ba1, California Federal Bank's senior debt to Aa1 from Baa2 and subordinated debt to Aa2 from Baa3, and California Federal Preferred Capital Corp.'s preferred stock to Aa3 from Ba1.

The action follows completion of the acquisition of Golden State by Citigroup, Moody's said.

Moody's cuts Cummins senior unsecured debt

Moody's Investors Service downgraded Cummins Inc.'s senior unsecured debt to Ba2 from Ba1 and its trust preferreds to Ba3 from Ba2. Moody's also assigned a Ba2 rating to its proposed $200 million senior notes due 2010. The outlook is negative.

Moody's said the downgrade reflects Cummins' replacement of a $500 million unsecured revolving credit agreement that was to mature in January 2003 with a new $385 million, three-year revolving credit agreement that provides bank lenders with security.

Moody's said it believes that this security interest diminishes the measures of protection available to unsecured creditors.

The negative outlook is based on the risk that operators of class 8 heavy-duty trucks could defer purchases during the next 12 months due to the market uncertainty created by the Oct. 1, 2002 initiation of more stringent EPA emissions regulations, Moody's said. Such a deferral of class 8 truck purchases would place additional pressure on Cummins' truck engine operations, and further delay any expected improvement in the company's operating performance and debt protection measures.

As a result of the severe, two-year long downturn in the U.S. truck sector, Cummins' performance has weakened, Moody's said. For the 12 months to September 2002 operating margins were only 2.3%, debt/EBITDA exceeded 4.5 times, EBIT/interest (excluding restructuring charges) approximated 1.3 times, adjusted debt (including operating leases and securitizations) exceeded $1.5 billion, and cash flow after working capital, capex and dividends resulted in a cash burn of about $33 million, Moody's said. The company's recent restructuring initiatives should help it maintain a competitive position in truck engines, and improve longer-term returns. Nevertheless, near-term operating performance and cash generation will remain under pressure.

Moody's cuts AES Drax

Moody's Investors Service downgraded AES Drax Holdings Ltd.'s £200 million and $302.4 million senior secured bonds and InPower Ltd.'s £905 million senior secured bank debt to Caa2 from Caa1. The outlook on these ratings is negative. Moody's also cut AES Drax Energy Ltd.'s £135 million and $200 million notes to C from Ca.

Moody's said the actions follow the notice provided on Nov. 4 by TXU Europe to the Drax Security Trustee that it intends to terminate the hedge agreement.

TXU Europe is required to provide 90 days notice and the proposed date of termination is Feb. 3, 2002.

The notice of termination follows the failure by Drax to post a £50 million letter of credit to TXU Europe.

Moody's said it believes that there is sufficient cash available in Drax accounts to meet in full at the end of December the next senior secured debt scheduled principal and interest payments. However, there appears to be virtually no prospect of cash being made available for the next Drax Energy interest payment in February 2003.

All the ratings reflect Moody's views on the extremely high probability of default and the expected losses.

Fitch cuts Iusacell

Fitch Ratings downgraded Grupo Iusacell, SA de CV including cutting its $350 million senior ntoes due July 2006 to C from CCC+ and Grupo Iusacell Celular, SA's $150 million senior notes due 2004 to C from B and put the ratings on Rating Watch Negative.

Fitch said the action reflects Iusacell's announced intention to restructure its debt.

The company competes in the Mexican wireless telecommunications market with 2.2 million subscribers and a 9.0% market share. The company is a distant second to Telcel, which has a 77% market share and over 19.4 million subscribers. Iusacell's competitive position remains challenged given Telcel's nationwide network as well as the expanded presence of Telefonica through its recent acquisition of Pegaso, Fitch said.

The financial flexibility of the company remains low. Iusacell's financial results continue to soften with declining year over year growth rates and declines with the most recent interim comparisons, and have been pressured by the slowdown in the Mexican economy, Fitch added.

Fitch confirms Nuevo Energy

Fitch Ratings confirmed Nuevo Energy Co's senior subordinated debt at B. The outlook remains stable.

Fitch said the confirmation reflects Nuevo's modest credit profile and the size and scope of its operations.

At Sept. 30, 2002, last 12-month EBITDAX/interest, was 2.9 times and total debt/EBITDAX was approximately 3.4 times, Fitch said. These numbers are negatively impacted by a very weak fourth quarter of 2001, when production hit its lowest point in 12 quarters and lifting costs soared. Since that time production has increased by 15% and lifting costs have declined by 30%.

Year-end 2001 reserves were approximately 234 with production split 89% oil and 11% gas, Fitch continued. Its proved reserves are predominantly oil (92%), mostly proved developed (86%), and are based primarily in California (93%). Its onshore properties in California represent approximately 76% of the company's total reserves and its offshore properties in California make up approximately 17% of Nuevo's total reserves. Nuevo also has reserves located onshore in the Gulf Coast region and offshore West Africa.

Recently, Nuevo acquired Athanor Resources, Inc., a privately owned company for $102 million. The transaction indicates Nuevo is making progress at transforming its asset base through acquisitions of higher margin properties, Fitch said.

S&P puts McDermott on watch

Standard & Poor's put McDermott International Inc. on CreditWatch with negative implications. Ratings affected include McDermott's senior unsecured debt at B and J. Ray McDermott SA's $200 million bank loan due 2003 at B.

S&P said the watch placement is in response to operating issues at McDermott's J. Ray McDermott marine construction services subsidiary, weak near-term operating outlook and potential liquidity concerns.

Operating performance at McDermott continues to be adversely affected by cost overruns on three EPIC SPAR projects, and a backlog with low margin projects, S&P said.

Regarding the EPIC SPAR projects, in the second quarter of 2002, the firm took a $33.9 million pretax charge for cost overruns, and an additional $65.2 million charge in the third quarter for further deterioration on the projects. In addition, the firm has hired outside consultants to review the its project estimating and bidding procedures, and continues to search for a senior executive to head marine construction operations.

McDermott expects to experience negative cash flows at J. Ray for the next four quarters, and for the next three quarters for the consolidated entity, S&P added. As a result, J. Ray is expected to be in noncompliance of financial covenants under its bank credit facility. Discussions are under way to extend J. Ray's and McDermott's bank facilities, both of which expire in February 2003.

At present liquidity is good; the firm has $63 million of unrestricted cash, and $144 million of undrawn availability under its two credit facilities, S&P said. However, if the bank facilities are extended under the current terms, given the firm's cash requirements over the next four quarters, liquidity could become tight by mid-2003.

Moody's cuts Petroleum Geo-Services

Moody's Investors Service downgraded Petroleum Geo-Services ASA, affecting $1.8 billion of debt including lowering its senior unsecured notes to B3 from Ba3, its junior subordinated debt to Zaa2 from B2, the trust preferred securities of PGS Trust I to Caa2 from B2 and the guaranteed first preferred mortgage notes of Oslo Seismic Services, Inc. to B1 from Ba2. The outlook is negative.

Moody's said it lowered Petroleum Geo-Services because of limited prospects for any material improvement in seismic industry fundamentals in the near to medium term, the company's high financial leverage and its high refinancing risk.

The negative outlook reflects the significant challenges Petroleum Geo-Services faces in addressing its 2003 debt maturities, Moody's added.

Marine seismic activity remains reasonably strong outside of North America, where the bulk of Petroleum Geo-Services' vessels are currently operating, but contract margins remain weak, and Moody's said it does not expect any material pickup in margins in the near to medium term based on continued industry overcapacity.

The performance of the company's production operations has improved, but the current under-utilization of its Banff and Varg production units must be resolved in order to sustain and build cash flow from this segment longer-term, Moody's added.

The company's financial leverage remains high, with total debt/EBITDA of over 6 times, including off-balance sheet obligations, Moody's said. Petroleum Geo-Services' new management team plans to reduce operating costs to maximize internally generated cash and sell the company's non-core assets, the proceeds of which will be available for debt reduction. However, the timing of such asset sales, including the company's pending sale of its Atlantis subsidiary, remains uncertain.

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