S&P cuts Penn Traffic

Standard & Poor's downgraded The Penn Traffic Co. and kept it on CreditWatch negative. Ratings lowered include Penn Traffic's $100 million 11% senior unsecured notes due 2009, cut to C from CCC-, and $205 million revolving credit facility due 2005, $40 million term loan A due 2005 and $75 million term loan B due 2006, cut to CCC- from B-.

S&P said the action follows Penn Traffic's announcement that it is considering all of its strategic alternatives, including filing a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code.

S&P lowers Columbus McKinnon outlook

Standard & Poor's lowered its outlook on Columbus McKinnon Corp. to negative from stable and confirmed its existing ratings including its subordinated debt at CCC+.

S&P said the outlook revision reflects Columbus McKinnon's weaker-than-expected operating results, due to continued soft market demand and the expectation that improvement to the company's credit profile will be limited in the near term.

Columbus McKinnon continues to be negatively affected by soft end markets, causing weak financial results and stretched credit protection measures, S&P noted. In fiscal 2003, EBITDA declined by approximately 25%, to about $43 million, from about $61 million a year earlier. At the fiscal 2003 year-end, total debt to EBITDA was slightly over 7x, which is stretched for the current rating.

Management continues to focus on improving profitability and cash generation by rationalizing facilities, reducing overhead, and selling non-core assets. However, management's initiatives have been unable to fully offset the challenging market conditions it currently faces, S&P said.

S&P expects the company's credit profile to show very modest improvement over the near term, with total debt to EBITDA trending toward the 6x area, and longer-term this ratio should strengthen to about 5x.

S&P cuts Amerco

Standard & Poor's downgraded Amerco including cutting its $200 million 8.8% senior notes due 2005, $250 million medium-term notes series C and $275 million senior notes due 2009 to D from CC.

S&P said the downgrade follows Amerco's failure to meet a $175 million debt maturity on May 15, 2003. The corporate credit rating was lowered to SD on Oct. 16, 2002, after Amerco failed to meet a $100 million debt maturity. Subsequently, the company also failed to make preferred stock dividend payments.

Amerco's failure to meet the debt maturity due May 15, 2003, continues a pattern of defaults on certain debt payments that began in October 2002, S&P noted.

On March 28, the company announced it had accepted a proposal for a new four-year $865.8 million secured credit facility, the proceeds of which, if completed, would be used to refinance certain of Amerco's debt and for working capital purposes. The company also indicated it hoped to close and fund the new credit facility in May 2003, S&P said. However, that date is fast approaching and there have been no recent announcements as to the status of this credit agreement. The company has reached standstill agreements with several of these creditors, but they are scheduled to expire soon and it is questionable whether and for how long they will be extended.

Therefore, if the company is not able to access financing over the near term, it could be forced to file for Chapter 11 bankruptcy protection, S&P said.

Fitch rates Northwest convertibles B

Fitch Ratings assigned a B rating to Northwest Airlines Corp.'s $150 million convertible senior unsecured notes. The outlook is negative.

Fitch said the rating reflects continuing concerns over Northwest's capacity to deliver the substantial improvements in operating cash flow that will be necessary if the airline is to meet growing cash financing obligations (interest, scheduled debt and capital lease payments, rents and required pension plan contributions).

In light of the weak business travel demand environment that clouds prospects for a quick rebound in industry unit revenue, Northwest's future liquidity position will be influenced primarily by the company's success in negotiating labor cost reductions with its unionized employees. While the dialogue with labor is ongoing, there are no signs that a substantial reduction in labor costs is imminent, Fitch said.

Northwest's credit profile has clearly benefited from the company's focus on cash conservation during the industry's revenue crisis, Fitch noted. Liquidity remains a source of relative strength. As of March 31, Northwest reported an unrestricted cash balance of $2.2 billion. This represented approximately 23% of 2002 total revenues, the strongest liquidity position of the U.S. network carriers. The issuance of the $150 million in convertible notes signals the company's ability to access the capital markets (albeit on a limited basis) at a time of great turmoil in the industry.

Moody's rates Ubiquitel notes Ca

Moody's Investors Service today assigned a Ca rating to UbiquiTel Operating Co.'s recently issued 14% senior discount notes due May 2010, downgraded its 14% senior subordinated discount notes due April 2010 to C from Ca and confirmed its senior secured bank debt at B3. The outlook is negative.

Moody's said the ratings continue to reflect the very difficult operating environment for wireless service providers generally as subscriber growth slows and competition intensifies.

The ratings also reflect the particularly difficult circumstances facing all the affiliates of Sprint PCS, who are less mature than their competitors in their regions, still require strong growth in order to avoid balance sheet restructurings and have difficulty achieving economies of scale due to their high variable cost structure due to their operating arrangements with Sprint PCS, Moody's added.

UbiquiTel, one of the youngest of the Sprint PCS affiliates, began operations in early 2000 and just achieved positive EBITDA in the first quarter of 2003.

The company recently completed a debt exchange under which $192.7 million face value of the original $300 million 14% subordinated discount notes due April 2010 were exchanged for a combination of cash and new notes. The cash portion of the exchange was funded by a new debt security that ranks ahead of the remaining subordinated discount notes and matures in December 2008. Further, the new notes received in the exchange also rank ahead of the remaining subordinated discount notes.

So, while $192.7 million of debt was retired, on a net basis the face value of the debt reduction was $131.7 million and two new layers of debt capital were introduced.

While the debt exchange certainly lowered the aggregate amount of UbiquiTel's debt, and will lower its debt service burden beginning in the fourth quarter of 2005 when the remaining subordinated notes and the two series of new senior unsecured notes require cash interest payments, the exchange does not solve the company's operating difficulties, Moody's said.

The company has experienced a very high level of subscriber churn in 2002, which has been improving since peaking at 4.3% per month in the third quarter of 2002, but at 3.4% in the first quarter of 2003 is still too high. This high churn level, combined with high cost of acquiring new subscribers (well over $400 per gross subscriber addition) has led to a subscriber base lower than Moody's expectations and has reduced Moody's expectations for free cash flow generation going forward.

This is particularly troubling for UbiquiTel as the company relies on senior secured bank debt to a much greater extent than most of its Sprint PCS affiliate peers, Moody's added.

S&P cuts Piccadilly Cafeterias

Standard & Poor's downgraded Piccadilly Cafeterias Inc. including lowering its $71 million 12% senior secured notes due 2007 to CCC+ from B-. The outlook is negative.

S&P said the downgrade is based on the Piccadilly Cafeterias' continued poor operating performance that has weakened cash flow protection measures and tightened liquidity.

In the first nine months of fiscal 2003 ended April 1, 2003, same-store sales fell 4.9% (7% in the third quarter) while traffic decreased 7.7% (9.9% in the third quarter), following a 4.0% decline in same-store sales and a 7.0% drop in traffic in fiscal 2002, S&P said.

The cafeteria sector has experienced prolonged sales declines as it struggles to attract a younger segment of the population. Piccadilly's sales also have been negatively affected by a reduction in shopping mall traffic related to the general economic downturn. About half of the company's stores are located in shopping malls.

Operating margins for the 12 months ended April 1, 2003, fell to about 10%, from 11% the year before, primarily because of a decline in sales leverage. As a result, cash flow protection measures weakened, with lease-adjusted EBITDA coverage of interest for the 12 months ended April 1, 2003, of 1.5x, compared with 2x the year before, S&P said.

The rating agency added that it is concerned that continued weakness could further pressure liquidity and credit measures. In addition, covenants currently provide very limited cushion.

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