Moody's cuts TXU unit

Moody's Investors Service downgraded the senior unsecured debt ratings of TXU Europe Ltd., the issuer rating of TXU Europe Group plc and the debt ratings of the Energy Group Overseas B.V to Baa3 from Baa1. All ratings have been left on review for further downgrade.

Moody's affirmed TXU Corp.'s Baa3 senior unsecured rating with a negative outlook.

The affirmation assumes that further deterioration in the rating at TXU Europe will not impact U.S. operations, Moody's said.

This assumption is premised upon two factors - that additional equity will not be sent from TXU Corp. to TXU Europe and that no further cross default or cross collateral language exists beyond that in the $500 million working capital facility available to TXU Corp. which the company plans to remove this week.

Bank concurrence in the modification will help ringfence TXU Corp should the problems at TXU Europe deteriorate further.

S&P ups AmeriSource-Bergen outlook

Standard & Poor's revised the outlook for AmeriSource-Bergen Corp. to positive from stable and affirmed its ratings, including the 5% convertible subordinated noted due 2007 at B+.

AmeriSource-Bergen's EBITDA coverage of interest was a solid 6x for the first nine months of fiscal 2002, tracking well ahead of pro forma coverage at the time of the merger and earlier-than-expected merger synergies, improved capital management and wider operating margins.

Liquidity is satisfactory, with $360 million in cash and $7 billion in inventory and accounts receivable as of June 30. The debt maturity schedule should be manageable given good cash flow generation. Total debt outstanding at June 30 was about $1.8 billion.

AmeriSource-Bergen could achieve a higher rating if the combination of the two companies moves ahead as planned, S&P said. If the company is able to demonstrate continued solid progress in integration, the rating could be reviewed within the next year.

Moody's ups Central Garden & Pet outlook

Moody's Investors Service revised the outlook for Central Garden & Pet Co. from negative to stable and confirmed its ratings, including the $115 million of 6% senior subordinated convertible notes due 2003 at B3.

The action follows fiscal third quarter results showing improved profit margins, resulting in higher cash flow and lower funded debt as well as the recent two-year extension of its primary credit facility, Modoy's said.

The outlook is stable due to, among other things, an increase in liquidity resulting from the extension of its principal credit facility and lower debt levels, with total funded debt of $234 million at June 30 compared to $308 million a year before.

The rating and outlook could be negatively impacted by a failure to successfully extend or restructure upcoming debt and credit facility maturities, including the September 2003 maturity of the Pennington credit facility and the November 2003 due date for the senior subordinated convertible notes, Moody's added.

The use of cash for rationalization of manufacturing and distribution facilities, especially if it occurs contemporaneously with aggressive sales and marketing responses from competitors, could also negatively impact the ratings and outlook.

Continued traction in the branded products businesses, reflected by unit sales growth without material margin reduction, could positively impact the rating outlook. Another positive impact is possible from regularized credit facilities possessing longer maturities and allowing a freer inter-company flow of funds.

Moody's lowers Spherion outlook

Moody's Investors Service lowered its outlook on Spherion Corp. to negative from stable. Debt affected includes Spherion's $207 million 4.5% convertible subordinated notes due 2005 at Ba3.

Moody's said the outlook change is in response to weakened demand for Spherion's personnel staffing and recruitment related to general weakness in the staffing industry.

The outlook change also reflects the uncertain timing of an economic recovery and the company's reduced liquidity after the restructuring of its credit facilities, Moody's said.

The rating outlook also takes into account the company's cost cutting initiatives including the divestment of a number of less strategic businesses.

At current run rates, free cash flow generation on its $2.1 billion of revenues is likely to be marginal or even slightly negative for 2002, Moody's noted.

In addition, Moody's said it remains concerned that the company may restart its acquisition program to offset weak customer demand or to take advantage of opportunities that may not be available in a stronger market.

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