Fitch confirms Tyco, off watch

Fitch Ratings assigned a BB rating to Tyco International Ltd.'s new convertible debentures, confirmed its existing ratings including its senior unsecured debt at BB and removed it from Rating Watch Negative. The outlook is negative.

Fitch said the removal from watch reflects positive actions at Tyco that have removed the immediate risk of further deterioration in the company's liquidity and other concerns such as corporate governance that were expressed earlier by Fitch. These actions include the installment of a new executive management team since July 2002, the completion of Tyco's internal investigation that found no significant fraud affecting the company's financial statements, and the completion of new financing including $4.5 billion of convertible debt and a $1.5 billion bank facility anticipated near the end of January or early February.

In addition, Tyco's liquidity would benefit from the cash proceeds of any asset sales although such sales are not anticipated to involve the company's core operations or to exceed 10% of total revenue.

Despite significant progress addressing short-term maturities, $3.6 billion of convertible debt that may be put to Tyco next November, together with cash requirements related to reserves for purchase accounting and restructuring, could potentially leave the company with nominally sufficient cash balances by calendar year-end, Fitch said.

In addition, concerns have yet to be fully addressed by the new management team about Tyco's overall capital structure, the degree to which Tyco allocates free cash flow to debt repayment or other uses, its operating performance and ability to meet internal cash generation forecasts, its long term strategic direction, and the reestablishment of full access to capital markets, Fitch added.

S&P cuts Jackson Products, on watch

Standard & Poor's downgraded Jackson Products Inc. and put it on CreditWatch with negative implications. Ratings lowered include Jackson Products' $105 million acquisition line due 2004 and $30 million revolver due 2004, cut to CCC from B-, and its $115 million 9.5% subordinated notes due 2005,c tu to CC from CCC.

S&P said the action is in response to significant near-term liquidity challenges that have heightened the company's financial risk.

Jackson Products faces a $2.5 million debt amortization payment associated with its senior debt on March 31, 2003, and a $5.5 million interest payment on its subordinated debt on April 15, 2003, S&P said.

As of Sept. 30, 2002, Jackson Products had about $2.5 million in bank credit facility availability and around $200,000 in cash.

Further straining liquidity is that Jackson Product's first two quarters usually require an investment in working capital, S&P noted. For the first six months of 2002, the firm used approximately $7.5 million in working capital.

As a result, it is highly likely that without a restructuring of the company's debt or an equity infusion, the company will not be able to meet its debt obligations, S&P said.

As a result of operating results that were below the firm's expectations, Jackson Products was in violation of its bank covenants at the end of the third quarter of 2002 (Sept. 30, 2002). The company received a forbearance agreement from its senior lenders through Jan. 31, 2003, and is currently in the process of extending the forbearance period, while it also works on a longer-term amendment to its bank credit agreement. However, bank negotiations could prove challenging as Jackson Products amended its bank agreement for the fifth time in March 2002, S&P said.

S&P rates Horizon Lines loan BB-

Standard & Poor's assigned a BB- rating to Horizon Lines LLC's planned $175 million term loan due 2009 and $25 million senior secured revolving credit facility due 2008. The outlook is positive.

Horizon Lines is currently a subsidiary of CSX Corp. CSX is selling 84.5% of the company to an investor group comprised of The Carlyle Group and Craddock Inc. for $315 million, including fees and expenses. The $200 million credit facility will comprise the entire debt structure of the firm and will be used to partially finance the acquisition of CSX Lines.

S&P said the ratings reflect Horizon Lines' initially high financial leverage, competitive rate environment, and participation in the capital-intensive shipping industry. Mitigating these credit concerns are barriers to entry afforded by the Jones Act (which applies to intra-U.S. shipping), experienced management and crew, stable demand in its various markets, and a broad customer base comprised of large industrial and consumer products companies.

Horizon Lines operated under the Jones Act, which requires cargo shipments between U.S. ports to be carried on U.S.-built vessels registered in the U.S. and crewed by U.S. citizens. The Jones Act provides a barrier to entry by prohibiting direct competition from foreign flagged vessels, S&P said. The existing management team will stay with the company, providing a wealth of experience and established relationships with key customers.

Customers are comprised of major manufacturing and consumer products companies that provide food and other staples to residents of Alaska, Puerto Rico, Hawaii, and Guam. Competition from other modes of transportation is limited due to cost and geographic considerations.

Operating margins before depreciation and amortization have averaged around 12%, which is reasonable for a shipping company, S&P said. Margins are expected to improve gradually as market conditions in the Puerto Rican market improve (due to the exit of one major competitor) and operating efficiencies are implemented. Lease-adjusted debt to capital at the time of the transaction will be roughly 70%, with lease-adjusted debt to EBITDA of 3.3x and pretax interest coverage starting at 2.0x. Debt levels are expected to reduce over time with available excess cash flow.

S&P said the positive outlook reflects its view that if management is successful in improving profitability and reducing debt, the resulting improvements to the company's financial profile could lead to a higher rating over the intermediate term.

Moody's puts Constellation Brands on review

Moody's Investors Service put Constellation Brands, Inc. on review for possible downgrade. Ratings affected include Constellation's $200 million 8.5% senior subordinated notes due 2009 and $250 million 8.125% senior subordinated notes due 2012 at Ba3 and $200 million 8.625% senior unsecured notes due 2006, $200 million 8% senior unsecured notes due 2008, £80 million 8.5% senior unsecured notes due 2009 and £75 million 8.5% senior unsecured notes due 2009 at Ba2.

Moody's said it began the review in response to the announcement that the company may acquire or merge with Australian wine producer BRL Hardy and that both companies have signed non-solicitation and break fee agreements although no deal has been finalized.

The ratings review will focus on the financing structure for the potential transaction and will include a thorough review of business and financial risk pro-forma for the possible transactions, Moody's said.

S&P says ConMed unchanged

Standard & Poor's said ConMed Corp.'s ratings are unchanged including its corporate credit at BB- with a stable outlook after the company announced that it would be acquiring Bionx for approximately $48 million.

Bionx is expected to generate approximately $20 million of revenue in 2003, while expanding ConMed's offering in sports medicine products, S&P noted.

ConMed will finance the purchase using its $100 million revolving credit facility.

The company should continue to maintain adequate liquidity as it is expected to have more than $45 million of available borrowings under its facility after the close of the transaction, S&P said. Moreover, ConMed produced $28 million in cash from operations during the first nine months of 2002 and does not face any significant maturities until 2007.

S&P says Georgia-Pacific unchanged

Standard & Poor's said Georgia-Pacific Corp.'s ratings are unchanged including its corporate credit rating at BB+ with a negative outlook following the company's announcement of a $315 million addition to its reserve for asbestos liabilities and defense costs (pretax and net of anticipated insurance recoveries) through 2012.

The company established a $350 million reserve last year covering periods through 2011, S&P noted. However, it experienced significantly greater than expected outlays during 2002, mostly as a result of higher settlement amounts for cases involving serious illness.

Georgia-Pacific spent (pretax and before insurance) about $44 million per quarter during the first nine months of 2002, twice as much as during the same period in 2001. The liability still seems manageable with insurance expected to cover a portion of Georgia-Pacific's costs for a number of years.

However, if asbestos-related payments continue to escalate, or if asbestos liabilities hamper Georgia-Pacific's access to capital for debt refinancing, ratings could be lowered, S&P said.

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