S&P puts Adelphia on negative watch

Standard & Poor's put Adelphia Communications Corp. and related companies CreditWatch with negative implications.

S&P said it took the action because of the potential negative impact of bank debt that is co-borrowed by subsidiaries of Adelphia and entities managed by Adelphia but owned by the Rigas family.

These co-borrowings totaled about $2.3 billion at Dec. 31, 2001 and are not reflected in Adelphia's consolidated debt.

S&P said the managed entities own about 300,000 cable subscribers and other assets but added that "a reasonable valuation of these assets may well fall short of the associated incremental debt."

S&P said it will adjust Adelphia's balance sheet and cash flow to reflect the managed entities' associated debt, cash flow and asset value, with adjustments to the extent that the managed entities hold material amounts of Adelphia securities.

Moody's restarts Adelphia downgrade review

Moody's Investors Service said it restarted its review for downgrade on Adelphia Communications Corp., affecting $19 billion of debt and preferred securities. Ratings affected include Adelphia's senior secured bank debt at Ba2, its senior unsecured notes and the subordinated notes of FrontierVision at B2, its convertible subordinated notes at B3 and its convertible and exchangeable preferred stock at Caa1.

Moody's said it reopened the review because it is concerned that "perhaps too much credit" was given for equity issuances earlier this year when it completed the review for possible downgrade in January 2002.

The result could be excess debt leverage compared to earlier assumptions, Moody's said, specifically citing the $2.3 billion of off-balance sheet debt disclosed in Adelphia's earnings conference call that is held at affiliated partnerships which are owned by the Rigas family.

Moody's said it has been aware of the existence of these affiliated entities, the potential for conflicts of interest and the co-borrowing arrangements under which the obligations were ultimately drawn.

The rating agency added that "to a certain extent these considerations" have been included as negatives in its assessment of Adelphia's ratings for some time.

"What we were not fully aware of, however, was the absolute magnitude and recent spike in these off-balance sheet borrowings, and the fact that these proceeds were utilized (particularly at such a material level) to fund the Rigas family's tack-on equity and convertible subordinated note investments in the parent company, thereby diminishing somewhat the value of the 'true' equity contributions that ultimately led to the prior rating confirmations," Moody's said.

As a result, an estimated $0.9 to $1.3 billion of contingent liabilities were not captured, Moody's added.

Resolution Performance pays down $7.5 million bank debt

Resolution Performance Products LLC said it made a fifth voluntary debt repayment of $7.5 million on its term loan B.

The Houston manufacturer of epoxy resins said it has now cut its debt from Nov. 14, 2000 through March 2002 by $134.1 million, including five voluntary repayments on its term loans A and B totaling $76.6 million, $54.1 million repaid on its revolver at the time of recapitalization and $3.4 million mandatory repayments.

Moody's rates new Consoltex credit line Caa1, notes Ca

Moody's Investors Service assigned a Caa1 rating to Consoltex Holdings, Inc.'s new $68.25 million senior secured credit facility due December 2003 and a Ca rating to the $80.5 million of 11% series B PIK subordinated notes due Jan. 31, 2009 jointly issued by Consoltex (USA) Inc. and Consoltex Inc. The outlook is stable.

Moody's said the new debt is the result of a balance sheet and business operations restructuring carried out after Consoltex Holdings defaulted on its bank debt and bonds in late 2001.

Moody's said the ratings incorporate the benefit of a $47 million equity contribution by Consoltex's owner American Industrial Partners, Inc. as well as the expected improvement in earnings from the divestiture of some foreign assets and lesser performing assets.

However, Consoltex still has high leverage, expected to reach 90% of book capitalization in 2002 and about 10 times Moody's forecasted EBITDA; negative tangible equity made worse by asset writedowns related to the 2001 divestitures; and the refinancing risk of its credit facility in 2003, Moodys' said.

The rating agency also expects continued operating losses for the coming year and lack of significant cash generation in the near term.

Moody's raises Clondalkin outlook

Moody's Investors Service raised its outlook on Clondalkin Industries plc to positive from stable. Ratings affected include Clondalkin's €125 million 10.625% senior notes due 2010 at B3.

Moody's said its action reflects Clondalkin's continued progress in growing internal cash flows and deleveraging since the last rating action in April 2001.

"The company has demonstrated its ability to date in successfully pursuing and integrating acquisitions providing complementary technologies, products, with scope for cash flow growth and credit enhancements on a consolidated basis," Moody's said.

The rating agency described Clondalkin's fourth quarter and full year results as encouraging, showing resilience in margins and cash flows amid difficult macroeconomic conditions and a particularly challenging environment for the company's printing business.

For the twelve months to Dec. 31, 2001, Clondalkin reported net debt/EBITDA (excluding shareholder loans) of 4.3 times compared to 4.5 times the previous year and approximately 5.3 times when the company was first rated in January 2000.

Fitch downgrades GenTek, on watch

Fitch Ratings downgraded GenTek and put it on Rating Watch Negative. Ratings lowered include GenTek's $800 million senior secured bank facility to CCC from BB- and its $200 million senior subordinated notes due 2009 to CCC- from B-.

Fitch said it cut GenTek's ratings because of the heightened risk the company could default on its debt obligations, its poor financial performance caused by a cyclical slowdown in the automobile and manufacturing sector, as well as the significant reduction in capital spending seen in the telecommunications sector.

As a result of lower earnings, free cash flow available for debt reduction is expected to be minimal until 2003 or beyond, Fitch added.

Fitch added that GenTek has acknowledged it does not expect to be in compliance with its credit facility covenants by as early as the first quarter of 2002.

Moody's rates new Call-Net notes Caa3

Moody's Investors Service assigned a Caa3 rating to Call-Net Enterprises, Inc.'s proposed $377 million senior secured notes due 2008 and confirmed the company's existing ratings including its various issues of senior unsecured notes at Ca. A total of $2.2 billion of debt is affected. The outlook is negative.

Moody's said the ratings reflects its belief that Call-Net's present liquidity position may not sustain its long-term business plan, that it has only limited alternative funding prospects and that its business model will continue to face general economic and competitive pressure.

But Moody's also noted Call-Net has significantly improved upon its negative free cash flow run rate in 2001, and it has reached agreement with Sprint Corp. for a more beneficial relationship going forward.

In a liquidation, Moody's said Call-Net's assets would not provide full recovery to debtholders, based on current telecom asset valuations.

Call-Net has proposed exchanging approximately $1.6 billion of debt for $82 million in cash, $377 million in new senior secured notes, and shares in Call-Net equal to 80% of the equity of the company.

Moody's downgrades Kellwood to junk

Moody's Investors Service lowered Kellwood Co. to junk. Ratings affected include its senior notes and senior debentures, all cut to Ba1 from Baa3. The outlook is stable.

Moody's said the action reflects Kellwood's decline in sales and earnings because of a difficult operating environment as well as changes in the market position and strategy of the company's customers and the risk that performance will be more volatile going forward because of these industry changes.

In addition, debt protection measures, while improved over the prior year, still lag behind historical levels and improved more slowly than expected following acquisition and share repurchase activity in 2000, Moody's said.

However Moody's assigned a stable outlook because Kellwood management has taken steps to strengthen its balance sheet and to focus on cash generation, as well as the company's position as a leading supplier of moderate priced women's apparel.

Fitch cuts Viasystems, on watch

Fitch Ratings downgraded Viasystems Inc. and put it on Rating Watch Negative. Ratings affected include Viasystems senior subordinated notes, cut to CC from CCC-, and its senior secured bank facility, cut to CCC from B-.

Fitch said the outcome of the rating watch will depend on Viasystem's potential recapitalization and whether it can comply with bank facility covenants.

Fitch said it cut Viasystems because of the increased risk of bankruptcy due to the low degree of financial flexibility the company has within its bank covenants, the announcement that Rothschild Inc. has been retained to advise the company on alternatives to restructure its capitalization, and the overall negative economic and industry conditions which should continue to pressure the financial performance of the company.

Viasystems has obtained a 60-day waiver from its bank group while recapitalization plans are examined, Fitch noted.

In addition, Viasystems has suffered from continued weakened credit protection measures and further deterioration of its end markets, Fitch said.

S&P downgrades Primedia, still on watch

Standard & Poor's downgraded Primedia Inc. and kept the company on CreditWatch with negative implications. Ratings affected include Primedia's notes and bank debt, lowered to B from BB-, and its exchangeable preferred stock, lowered to CCC from B-.

S&P said it will reassess Primedia's ratings after the release of first quarter earnings and added that the current levels will likely be confirmed barring further negative surprises.

S&P said its downgrade reflects Primedia's poor operating performance and thin interest coverages resulting from the lackluster advertising environment and losses incurred from the company's Internet strategy.

In addition, management's expectation of a continued drop in EBITDA in the first quarter of 2002 will place further pressure on interest coverage and may restrict flexibility within bank covenants, S&P added.

"Even when an upturn materializes, debt will remain high and Internet operations are still likely to be in a development mode," the rating agency commented.

EBITDA coverage of interest expense and preferred dividends declined to 1.0 times in 2001 from 1.3 times in 2000, reflecting a 29% drop in EBITDA from continuing businesses, S&P noted. Primedia estimates that EBITDA will decline roughly 28% in the seasonally weak first quarter of 2002 reflecting a continued weak advertising industry environment and a sharp drop in noncash assets for equity revenues.

However S&P said it is taking a cautious view of the company's expectation that EBITDA for 2002 as a whole will increase about 25% due to cost reductions already taken, reduced Internet losses, and a full year ownership of EMAP USA.

S&P downgrades NTL

Standard & Poor's downgraded NTL, Inc. and its units. The outlook is negative.

Ratings affected include NTL Inc.'s exchangeable preferred stock, cut to C from CCC-, and subordinated convertible notes, cut to C from CCC; NTL Communications Corp.'s notes and convertible notes, cut to C from CCC; NTL Communications Ltd.'s £1.3 billion bank loan due 2006 and NTL Business Ltd.'s £2.5 billion bank loan due 2005, both cut to CCC from B; Diamond Cable Communications plc's notes and Diamond Holdings plc's notes, both cut to C from CCC; and NTL Triangle Ltd.'s debentures, cut to C from CCC.

S&P downgrades Twinlab

Standard & Poor's downgraded Twinlab Corp. including cutting its $100 million 10.25% senior subordinated notes due 2006 to CCC- from CCC+. The outlook is negative.

S&P said it cut Twinlab because the company's operating results were below the rating agency's expectations and because of diminished financial flexibility.

Sales declined 17.5% in 2001 versus the previous year due to lower volume to a major customer and weakness in the company's herbal product line, S&P noted.

Sales to health and natural foods stores moderated as these customers worked off excess inventories during the year, while sales to mass merchants grew somewhat. With unabsorbed factory overhead from low sales volumes and reduced, although still high operating expenses, Twinlab reported a $19.8 million operating loss for 2001, adjusted for non-cash charges. This follows a $17.4 million operating loss in 2000, a year when the company was challenged with implementing a new computer system, and had losses from unabsorbed overhead, S&P added.

Twinlab is cutting costs for about $15 million in savings annually and has received an amendment to its bank facility relaxing its EBITDA covenant, S&P noted.

But the rating agency warned that with $6 million available on its secured revolving credit facility, Twinlab's liquidity is a concern.

S&P downgrades Allegiance Telecom

Standard & Poor's downgraded Allegiance Telecom Inc. and put the company on CreditWatch with negative implications.

Ratings affected include Allegiance's $205 million 12.875% senior notes due 2008 and $250.5 million senior discount notes due 2008, both lowered to CCC+ from B and Allegiance Finance Co.'s $500 million secured bank facility due 2006, lowered to B from B+.

S&P cuts some Heafner Tire ratings

Standard & Poor's lowered some ratings on Heafner Tire Group Inc.

Ratings affected include Heafner's $150 million 10% senior notes due 2008, cut to D from CCC+, its $200 million revolving credit facility due 2003, kept at B- and changed to CreditWatch with developing implications from CreditWatch with negative implications.

S&P said the downgrades follow Heafner's completion of a tender offer for up to $126 million of its senior notes. About $121 million in principal amount of the notes were tendered for $535 per $1,000 principal amount. The purchase price represents a deep discount to face value, resulting in impairment to bondholders, S&P said.

While completion of the tender and other financing transactions will result in reduced debt levels, Heafner continues to be challenged by a heavy debt burden, weak cash flow generation, and difficult end-market conditions, S&P said.

Moody's puts Panavision on downgrade review

Moody's Investors Service put Panavision Inc. on review for possible downgrade, including its $193 million senior subordinated notes due 2006 rated Caa1 and its $340 million senior secured bank credit facilities rated B2.

Moody's said it began the review because of Panavision's lower than expected cash flow through the third quarter of 2001and estimates for the full year mostly as a result of the weak economic environment and the impact of the Sept. 11 terrorist acts on film production.

Moody's said its review will focus on its concerns about Panavision's ability to support its current debt load, particularly in light of the cash interest expense beginning in August 2002 for the senior subordinated discount notes as well as its capital expenditure requirements.

Management is currently proposing a refinancing, Moody's noted. Whether that transaction takes place or not, the rating agency said it is likely there will be a "material" downgrade of any existing securities.

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