Moody's cuts Oglebay Norton

Moody's Investors Service downgraded Oglebay Norton Co. including cutting its $265 million senior secured revolving credit facility to B3 from B2 and $100 million 10% guaranteed senior subordinated notes due 2009 to Ca from Caa2. The outlook remains negative.

Moody's said the action was prompted by Oglebay's weakening profitability amid continuing economic and industrial sector malaise, very high leverage, diminished financial flexibility and uncertainties related to asbestos and silicosis litigation.

Moody's said it believes there is a high likelihood that subordinated noteholders will experience a loss on principal.

The ratings are supported by Oglebay's strong market share in three different but loosely correlated industry segments, its difficult-to-duplicate Great Lakes vessels and mineral reserves and its focus on cost management and operating efficiency, Moody's added.

Oglebay's operating income was weak in 2002, and declined in the first quarter of 2003, with every business segment reporting lower operating income than in the first quarter of 2002, Moody's noted. Demand remains weak for most of the company's products and operating and employee benefit costs have increased.

For the 12 months ended March 31, 2003, Oglebay's operating income was $35 million and EBITDA was less than capex and interest. As of March 31, 2003, debt to EBITDA was 6.7 times.

Oglebay's debt keeps rising and its liquidity is limited. In April, the company received temporary covenant relief from its syndicated bank group, which waived financial covenants through June 15, 2003 and granted access to $4 million of committed but reserved funds.

Nevertheless, the company's options for improving its financial flexibility appear limited. Asset sales are a possibility but are likely to involve cash-flow-positive assets that may be sold at cyclically low valuations, thereby hindering attempts to de-leverage, Moody's said.

S&P cuts Oglebay Norton

Standard & Poor's downgraded Oglebay Norton Co. including cutting its $100 million 10% senior subordinated notes due 2009 to CCC from CCC+ and $118 million term loan due April 1, 2003 and $232 million senior secured loan due April 1, 2003 to B- from B. The outlook is negative.

S&P said the action is in response to continued weakness in Oglebay Norton's end markets and concerns regarding its deteriorating liquidity.

The ratings reflect Oglebay's aggressive debt leverage, constrained liquidity and its below-average business position owing to its cyclical end markets, and capital-intensive operations, S&P said.

Weak demand in most of its end markets, together with rising healthcare, interest, and energy costs have significantly weakened Oglebay's profitability, S&P said. The company's operating margin has fallen to about 18% as of March 31, 2003, from about 21% for the same period in 2001.

Moreover, Oglebay's debt levels increased and are now at an all time high of $454 million (adjusted for operating leases) due to increased borrowings required to fund its operations and debt-financed acquisitions, S&P said. The company's current total debt to capital and total debt to EBITDA ratios are very aggressive at 81% and 6.7x, respectively. EBITDA to total interest coverage for the 12-month period ending March 31, 2003, was a very weak 1.4x and will continue to be pressured until markets improve.

S&P says US Airways unchanged

Standard & Poor's said the ratings of US Airways Group Inc. and subsidiary US Airways Inc. are unchanged including the corporate credit at B with a negative outlook after the company reported a first-quarter pretax loss of $282 million before special items, an improvement on the $435 million pretax loss a year earlier.

Large unusual gains from cancellation of liabilities upon the companies' exit from Chapter 11 bankruptcy proceedings produced a net profit of $1.63 billion, but that figure is not representative of US Airways' ongoing performance.

US Airways Group's pretax loss margin of negative 18%, although very weak in absolute terms, was better than those of UAL Corp. (negative 30%), AMR Corp. (negative 25%), and Delta Air Lines Inc. (negative 21%), S&P noted. US Airways' revenues were hurt by the effects of the Iraq war, as were those of other U.S. airlines, but cost reductions implemented in bankruptcy enabled the airline to improve its year-over-year performance.

Liquidity remains adequate, with $1.27 billion of unrestricted cash, a respectable level for an airline of its size, S&P said.

Moody's confirms ONO

Moody's Investors Service confirmed the ratings of ONO group including ONO Finance plc's senior unsecured bonds at Caa3 and assigned a Caa1 rating to Cableuropa SA's amended €750 million senior secured bank facility. The outlook is negative. The action concludes a review begun on Nov. 26, 2002.

Moody's said the confirmation positively acknowledges ONO's continued financial progress and the strengthened balance sheet and improved liquidity position resulting from the company's successful

Dutch auction tender offer and subsequent re-capitalization.

But the negative outlook also reflects Moody's belief that the company likely remains over-leveraged and will be challenged to grow into even its improved capital structure.

The ratings continue to recognize ONO's strong management team which has demonstrated solid operating progress, significantly increased gross margins (69% in Q4 2002 versus 56% in Q4 2001), maintain strong SG&A cost control, and increased EBITDA (positive €13.0 million in Q4 2002 versus negative €9.4 million in Q4 2001) in what has been both a difficult economic and competitive environment, Moody's said.

The ratings also positively acknowledge the company's solid growth in revenues, customer ARPU, and subscriber penetration as well as the continued support of reputable shareholders who invested an incremental €100 million in the recent re-capitalization (albeit, the investment was at the bondholder level as opposed to historic investments at the equity level).

Moody's expects ONO will continue to demonstrate solid growth and maintain tight cost controls.

However, the magnitude of requisite growth in the context of the company's high debt levels, the relatively limited scale afforded by ONO's franchise areas, and the difficult economic and competitive environment which characterizes ONO's franchise areas (particularly for business services and Pay-TV), remains of significant concern, Moody's said.

While the successful completion of the offer and subsequent re-capitalization significantly reduced ONO's debt burden, a considerable amount of debt remains outstanding. Pro forma for the re-capitalization, debt at year-end 2002 amounted to approximately €934 million (3.1x annualized revenue or 18.0x annualized EBITDA).

S&P cuts Acterna

Standard & Poor's downgraded Acterna Corp. including cutting its $165 million senior loan, $175 million revolving credit facility due 2007, $175 million tranche A term loan due 2007 and $510 million tranche B term loan due 2008 to D from CCC+ and $275 million 9.75% senior subordinated notes due 2008 to D from CCC-.

S&P said the action follows the announcement that Acterna filed for Chapter 11 bankruptcy protection for its U.S. domestic subsidiaries on May 6.

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