Moody's cuts US Airways

Moody's Investors Service downgraded some ratings of US Airways Group, Inc. and its subsidiaries affecting $1.7 billion of securities. The outlook remains negative.

Moody's said the action follows US Airways' Chapter 11 filing and the ratings reflect Moody's assessment of recovery.

Ratings lowered are: US Airways Group senior implied rating cut to Caa3 from Caa2 and long-term issuer rating cut to C from Ca; US Airways, Inc. long-term issuer rating cut to Ca from Caa3; equipment trust certificates 1987 Series A through F, 1988 Series A through L and 1989 Series A cut to Caa3 from Caa1, 1990 Series A through D cut to Ca from Caa2, 1991 Series A and B confirmed at Ca and 1993 Series A cut to Ca from Caa2; enhanced equipment trust certificates Series 1996 Class A confirmed at Baa3, Class B cut to Ba3 from Ba2, Class C cut to Caa3 from B3, Series 1998-1 Class A confirmed at Baa3, Class B confirmed at Ba2, Class C confirmed at B3, Series 1999-1 Class A confirmed at Baa3, Class B confirmed at Ba2, Class C confirmed at B3, Series 2000-3 Class C confirmed at B3 and Series 2001-1 Class C confirmed at B3; industrial revenue bonds lowered to C from Ca, Piedmont Aviation passthrough certificates cut to Ca from Caa2 and ETC Repackaging Trust, Series 1998 -1 Class B cut to Caa1 from B3, Class C cut to Caa2 from Caa1 and Class D cut to Ca from Caa3.

Insured EETC's, insured IRB's and some IRB's issued by the Port of New York and New Jersey are not affected.

Moody's rates Service Corp. exchange notes B1, lowers outlook

Moody's Investors Service assigned a B1 rating to Service Corp. International's proposed $300 million 7.7% senior notes due 2009 to be offered in an exchange to holders of the company's 6% senior notes due 2005. Moody's also confirmed Service Corp.'s existing ratings and lowered the outlook to stable from positive. Ratings confirmed include Service Corp.'s $251.3 million 6.3% senior unsecured notes due 2020 putable in 2003 and $.16 billion of various senior unsecured notes due 2004 to 2013 at B1 and its $345 million senior subordinated convertible notes due 2008 at B3.

Moody's said it lowered Service Corp.'s outlook because to reflect its more moderate expectations about Service Corp.'s sustainable cash flow improvements, asset sales/debt reduction and liquidity.

While ratings are appropriate for the category, Moody's said it no longer believes that current trends will allow for a ratings upgrade over the next six to 12 months.

Profitability has come under pressure, as evident in second quarter results in which Service Corp. reported significantly lower profitability, despite having sold or closed several underperforming operations over the last two years, Moody's npted.

In addition, the company has postponed plans to sell its French operations. Moody's said it had anticipated that proceeds from this sale would be used for debt reduction in 2002.

Finally, in July Service Corp. replaced its original $700 million five-year unsecured credit facility which expired in June 2002 with a three-year $185 million senior secured revolving credit facility.

Moody's cuts Compuware

Moody's Investors Service downgraded Compuware Corp. to junk, cutting its senior unsecured bank facility to Ba1 from Baa2. The outlook is negative.

Moody's said the downgrade reflects revenue and profit weakness, a weak environment for enterprise software and IT services, and ongoing challenges to the company's key relationship with IBM, including lawsuits filed by Compuware in March and June.

Free cash flow is likely to be modest for the current fiscal year given funding plans of a new company headquarters, Moody's added. Liquidity from internal and external sources and no outstanding funded debt provide credit support.

Moody's confirms Alliant Techsystems, outlook still positive

Moody's Investors Service confirmed Alliant Techsystems, Inc. including its $400 million 8.5% senior subordinated notes due 2011 at B2. The outlook remains positive.

Moody's said Alliant Techsystems' leverage continues to improve in line with the rating agency's expectations.

The company's financial performance and cash flow generation continue to be strong and the industry environment is favorable, Moody's added.

Alliant Techsystem's capital structure has been largely restored after the sharp increase in debt in connection with the April 2001 acquisition of Thiokol, Moody's said. Debt-to-capital, peaking at 83% in July 2001, stands at 61% as of June 2002, compared to 58% before the acquisition.

The de-levering was accomplished through both debt reduction and equity issuance in connection with the equity-financed acquisition of the Sporting Equipment Group of Blount International, Inc. in December 2001, the rating agency noted.

Moody's said it considers favorably the company's paying down more than $100 million of debt through internally generated cash over the course of the past year before increasing debt again in May 2002 by $53 million to finance the acquisition of Boeing's Ordnance business.

The positive outlook reflects Moody's expectations of the continuation of existing margin levels and cash flow generation, and steady de-levering of the balance sheet, coincident with the successful integration of Thiokol.

S&P rates Veridian's loan BB-

Standard & Poor's rated Veridian Corp.'s $350 million senior secured bank loan at BB-. Furthermore, the company's BB- corporate credit rating was affirmed following the announced acquisition of Signal Corp. for $227 million. The outlook is stable.

The credit facility consists of a $50 million five-year revolver and a $300 million term loan due June 30, 2008. Security for the loan is substantially all assets.

Ratings reflect "moderate but predictable earnings and cash flow from a diversified portfolio. They also reflect an improved capital structure following Veridian's June 2002 $175 million initial public offering (IPO). These factors are tempered by an active acquisition strategy," S&P said.

Pro forma for the transaction, debt to EBITDA will be under 4 times and EBITDA interest coverage of about 3.5 times.

Moody's puts AES Drax on review

Moody's Investors Service put AES Drax on review for possible downgrade including AES Drax Holdings Ltd.'s £200 million and $302.4 million senior secured bonds rated Ba1, Inpower Ltd.'s £905 million senior secured bank debt at Ba1 and AES Drax Energy Ltd.'s £135 million and $200 million notes at B1.

Moody's said the action reflects its concerns about the prospects for U.K. electricity market prices and a number of uncertainties including the hedging contract with TXU Europe, the insurance waiver for units 3 and 4, and the receipt of sufficient cash at AES Drax Energy in time to ensure that the next interest payment due at the end of the month is met in full.

S&P cuts Mrs. Fields

Standard & Poor's downgraded Mrs. Fields Original Cookies Inc. and maintained the outlook at negative. Ratings lowered include Mrs. Fields' $140 million 10.125% senior unsecured notes due 2004, cut to CCC from CCC+.

S&P said it took the action in response to Mrs. Fields' "very constrained liquidity position" and its payment default risk.

Mrs. Fields only had $1.9 million in cash and $8.8 million outstanding on its revolving credit facility as of June 29, S&P said. The revolver reduces to $7.0 million on Aug. 31 and $6.0 million on Sept. 30. Moreover, the company has a $7.1 million interest payment due on Dec. 1, 2002.

Mrs. Fields' operating performance has been negatively affected by the general economic downturn, which led to a decrease in mall traffic, S&P added. Most of the Mrs. Fields' stores are located in shopping malls.

Moreover, performance at Wal-Mart locations has been well below expectations, causing the company to enter into discussions with Wal-Mart to obtain a release from its locations, S&P said. The company expects to incur significant costs associated with the closing and exiting of these locations.

Moody's rates Emmis Operating's loan Ba2

Moody's Investors Service rated Emmis Operating Co.'s new $500 million term loan B due 2009 at Ba2. Furthermore, Moody's confirmed the company's $220 million senior secured revolving credit facility due 2009 at Ba2, $204.8 million senior secured Tranche A term loan due 2009 at Ba2 and $300 million 8.125% senior subordinated notes due 2009 at B2. Ratings confirmed for Emmis Communications Corp. include its $286.3 million 12.5% senior discount notes due 2011 at B3, $143.8 million 6.25% cumulative convertible preferred stock at Caa1, senior unsecured issuer rating at B3 and senior implied rating at Ba3. The outlook remains negative.

Ratings reflect high financial leverage and modest cash flow coverage of interest, financing and integration risks associated with potential future acquisitions, risks due to the company's exposure to the New York economic environment, exposure to cyclical advertising environment, television broadcast cash flow margins that fall below the company's industry peer group and highly competitive nature of radio markets, Moody's said.

Ratings are supported by the high underlying asset value of the company's station portfolio, Moody's said.

The negative outlook reflects Emmis' continued operation at the edge of the rating category, Moody's said. If Emmis pursues a sizable acquisition of challenged properties that are not financed with a prudent mix of debt and equity, a ratings downgrade could be warranted. If the company remains focused on improving its balance sheet through asset sales and the application of free cash flow to debt reduction, ratings stabilization could occur.

For the 12 months ended May 31, total debt to EBITDA was 8.6 times and cash flow coverage of interest was 1.4 times.

Moody's puts Magellan Health on review

Moody's Investors Service put Magellan Health Services on review for possible downgrade, affecting $1 billion of debt including its bank facilities at B2, senior unsecured notes at B3 and senior subordinated notes at Caa1.

Moody's said it began the review because of heightened concerns about the financing capabilities of the company, the near-term potential for a covenant breach on its bank facility, as well as membership declines which have been slightly worse than anticipated.

The existing ratings assume Magellan will successfully complete the refinancing of its bank facility, Moody's noted.

Based on management's revised expectations for year-end 2002 EBITDA, there is likely to be a covenant breach by Sept. 30 under the existing agreement. While the company is actively pursuing refinancing alternatives, Moody's said it believes the timing between potential completion of this refinancing and breach of covenants is extremely tight.

In addition, although not a primary reason for the ratings review, membership declines associated with the Aetna contract have been somewhat worse than anticipated.

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