S&P upgrades Silgan

Standard & Poor's upgraded Silgan Holdings Inc. including raising its $100 million term A loan due 2008, $275 million uncommitted incremental term facility, $350 million term B loan due 2008 and $400 million revolving credit facility due 2008 to BB from BB- and $200 million 9% debentures due 2009 and $300 million 9% senior subordinated debentures due 2009 to B+ from B. The outlook is stable.

S&P said the upgrade reflects Silgan's improving financial profile and financial policies that support prospects for further debt reduction.

Ratings are supported by Silgan's average business position as a major North American rigid consumer goods packaging producer, steady earnings and free cash flow generation, and sufficient liquidity, offset by aggressive debt leverage.

Although the company completed three acquisitions in the first quarter of 2003, free cash flow is expected to be prioritized towards debt reduction, and acquisition activity, if any, is expected to be modest, S&P said. The company has announced a targeted level of debt reduction, in the order of $200 million to $300 million by 2006. This shift towards a less aggressive financial policy is expected to support the modest improvement to key credit measures to a level consistent with the current rating.

The company has maintained steady operating margins, an attractive return on capital and a consistent track record of free cash generation, S&P said. Still, Silgan is aggressively leveraged due to its historically acquisition-driven growth strategy.

Given the recent issuance of a $150 million incremental term loan to fund the three acquisitions, and some seasonal working capital buildup, total debt (adjusted for capitalized operating leases) to EBITDA has increased to about 4.5x for the 12 months ended March 31, 2003, from about 4x at year end 2002 (although the increase in this statistic is misleading given the timing of recent acquisitions), S&P said. Funds from operations to total adjusted debt is in the mid-teens percentage area, and EBITDA interest coverage was adequate at about 3.5x.

Credit measures are expected to improve by year end 2003, supported by earnings growth from the restructured closure operations, and benefits of value-added features (such as easy-open ends) and increased volumes in the metal can business, S&P said. Free cash generation (after meeting working capital and capital spending needs) is expected to increase substantially in 2003, supported by earnings growth and the inventory reduction program. Accordingly, total adjusted debt to EBITDA of about 3.5x and funds from operations to total adjusted debt near 20% are expected to be achieved by 2004, and maintained over the business cycle.

Moody's upgrades Elizabeth Arden

Moody's Investors Service upgraded Elizabeth Arden, Inc. including raising its $160 million 11.75% senior secured notes due 2011 to B1 from B2 and $151 million 10.375% senior unsecured notes due 2007 to B3 from Caa1. The outlook is stable. The action completes a review for upgrade begun in March. Moody's also assigned an SGL-3 liquidity rating.

The upgrade reflects Elizabeth Arden's recovery from a very difficult integration year in fiscal 2002, which has resulted in vastly improved credit metrics and the increased ability to withstand volatility in its business, Moody's said. The rationalization of its prestige department store distribution, combined with the success of its new product launches and "open-sell" programs at mass retailer has supported sales and margin gains, reduced Elizabeth Arden's exposure to the challenging department store channel and strengthened its retail relationships (with Elizabeth Arden being named category "Supplier of the Year" at J.C. Penney and receiving the fourth quarter "Supplier Award of Excellence" from Wal-Mart in 2002).

Further, Elizabeth Arden profitability has benefited from the migration of supply chain and logistics functions from Unilever and management's focus on cost and working capital efficiencies.

Lastly, Elizabeth Arden's liquidity profile has improved as a result of its December 2002 amendment to its credit facility, which increased the facility size to $200 million from $175 million, lowered borrowing costs, raised advance rates and replaced all financial maintenance covenants with a fixed charge coverage covenant that only applies if availability declines below $50 million, Moody's said.

Continued support for the ratings derives from Elizabeth Arden's strong portfolio of owned and distributed brands, providing the company with critical mass in a highly fragmented industry and, thereby, strengthening its relationships with retailers. The ratings also benefit from Elizabeth Arden's geographic and customer diversity, with only one customer, Wal-Mart (13%), representing over 10% of sales. In addition, the company's experience and focus on managing classic brands somewhat reduces its exposure to the fashion and faddish characteristics of the fragrance industry.

The ratings are restrained by Elizabeth Arden's high leverage (particularly when adjusted for various fixed charges and preferred stock) and modest interest coverage, which combined with the high seasonality of its business, heightens risks associated with economic sensitivity, high competition and brand support needs, potential unsuccessful launches of new products, and reliance on a few key brands.

For fiscal 2003, Elizabeth Arden reported EBITDA of approximately $91 million versus an adjusted $68 million last year. EBITDA less capex interest coverage increased to 1.9x from 1.4x, EBITDA leverage decreased from 5.0x to 3.5x, and retained cash flow (EBITDA less capex, interest and taxes) improved from 6% to over 10%, Moody's said.

S&P upgrades EuroTel Bratislava, Slovak Wireless

Standard & Poor's upgraded EuroTel Bratislava AS and Slovak Wireless Finance Co. BV including raising Slovak Wireless' €160 million 11.25% notes due 2007 to BB- from B+. The outlook is stable.

S&P said the upgrade reflects EuroTel's continued solid operational performance, improvement in its credit metrics and the expectation that the company will generate positive free operating cash flow from 2003.

Furthermore, EuroTel has been successful in protecting its relatively strong market position and 42.6% subscriber market share in the two-player Slovak mobile telecoms market.

EuroTel remains exposed, however, to foreign exchange risk on its outstanding €160 million ($183 million) bonds due 2007. In addition, a high 76% of the company's 1.3 million customers use prepaid services, leaving EuroTel exposed to churn. The company is expected to continue in its efforts to migrate its customers from prepaid telephony to postpaid subscriptions to mitigate this risk.

S&P said it expects competition to remain rational and that EuroTel will maintain its strong market position and high levels of operating efficiency. This will enable EuroTel to generate sustained free operating cash flow and maintain acceptable levels of liquidity and refinancing risk.

Fitch rates Lyondell notes BB-

Fitch Ratings assigned a BB- rating to Lyondell Chemical Co.'s new $325 million senior secured notes and confirmed its existing senior secured debt at BB-. The outlook remains negative.

S&P lowers Hartz Mountain outlook

Standard & Poor's lowered its outlook on Hartz Mountain Corp. to negative from stable and confirmed its ratings including its senior secured debt at BB-.

S&P said the outlook revision is because of Hartz Mountain's continued weaker than expected operating results and the limited cushion under its bank loan financial covenants.

The ratings continue to reflect Hartz Mountain's leveraged financial profile, weak credit measures, and customer concentration concerns, S&P added. These factors are partially mitigated by the company's well-known brand name, leading market shares, and broad product portfolio in the relatively stable pet care industry.

Hartz Mountain's financial condition is weak for the rating, S&P said. Following lackluster performance in 2002, operating performance continued to suffer from general economic weakness and adverse weather conditions in the first quarter of 2003.

Weak credit protection measures have fallen below S&P's expectations, which included EBITDA coverage of cash interest at 2.5x and total debt to EBITDA at less than 4x. EBITDA coverage of cash interest for the trailing 12 months ended March 31, 2003, dropped to about 2.3x from about 2.6x at year-end.

In addition, Hartz Mountain remains highly leveraged, despite approximately $15 million in voluntary prepayments of term debt in 2002 and an additional $5 million payment so far in 2003, S&P noted. Total debt (adjusted for operating leases) to EBITDA was about 4.5x for the same 12 month period. However, these credit measures are even weaker when taking into consideration the company's pay-in-kind seller note.

S&P said it is concerned that credit measures may continue to weaken in 2003 due to the weak economy and margin pressures arising from Hartz Mountain's continued sales shift to the mass merchandiser channel.

Moody's rates Hard Rock notes B3

Moody's Investors Service assigned a B3 rating to Hard Rock Hotel, Inc.'s new $140 million second lien notes due 2013, confirmed the company's B2 senior implied rating and lowered its long-term issuer rating from B3 to Caa1. The outlook is stable.

Moody's said the ratings consider Hard Rock's single asset profile, narrowly defined customer base, and high leverage. Pro-forma for the new notes, debt/EBITDA is about 5.3x.

Positive rating consideration is given to the company's strong market niche, widely recognized name brand, and free cash flow profile, Moody's said. Over the past several years, Hard Rock has generated between $7 million and $10 million of positive cash flow after interest, capital expenditures, working capital and other investing activities.

In October 2002, Moody's upgraded Hard Rock's ratings to reflect its improved balance sheet despite challenges brought on by the effects of a slowing economy, and increased competition.

The B3 rating on the new second lien notes reflects the secured nature of the transaction and limitations on additional secured debt. Except for a new $40 million senior secured credit facility and $15 million of permitted liens, the notes will be effectively senior to all debt and other obligations including trade payables.

The downgrade of Hard Rock's long-term issuer rating to Caa1 from B3 acknowledges the substantial increase of secured debt in the company's overall capital structure, which would impact the ranking of any future issuance of unsecured debt.

The stable ratings outlook anticipates that the Hard Rock will be able to maintain its current credit profile while it pursues an estimated $26 million expansion plan over the next two years, Moody's said. The company intends to expand its banquet facilities, expand parking, and make improvements to its hotel and casino facilities.

S&P confirms Leslie's Poolmart

Standard & Poor's confirmed Leslie's Poolmart Inc. including its senior secured bank loan at B+ and senior unsecured debt at B-. The outlook is stable.

S&P said the confirmation is based on Leslie's planned extension of about $57 million of its $90 million 10.375% senior unsecured notes to 2008 from 2004. The remaining notes are expected to be redeemed by the company on or before Aug. 15, 2003.

The confirmation also assumes the successful refinancing of the company's bank facility that matures in January 2004.

Pro forma credit protection measures are expected to improve somewhat as a result of the reduction in higher coupon senior unsecured debt and lower debt levels.

S&P said it does not view this proposed transaction as a distressed exchange offer as the extension of the notes will maintain the same coupon as the existing notes, will have the same rank as the old notes, and the bondholders will receive a 2% consent fee.

The company's capital structure is highly leveraged, with total debt to EBITDA in the low-4x area. EBITDA coverage of interest improved to 2.2x in 2002 from only 1.3x in 2000, S&P noted. Leslie's improved free cash flow generation over the past three years through better working capital management and reduced capital expenditures.

S&P rates Jefferson Smurfit notes B

Standard & Poor's assigned a B rating to Jefferson Smurfit Corp. (U.S.)'s planned $350 million senior unsecured notes due 2015 and confirmed the company, parent Smurfit-Stone Container Corp. and its other subsidiaries including Smurfit-Stone's preferred stock at CCC+, Jefferson Smurfit Corp. (U.S.)'s senior unsecured debt at B, Stone Container Corp.'s senior unsecured debt at B and Stone Container Finance Co. of Canada's senior unsecured debt at B. The outlook is stable.

S&P said the ratings reflect Smurfit-Stone's market leadership in containerboard and box manufacturing and an improving cost position, offset by industry cyclicality, a narrow product focus, and high debt levels.

Smurfit-Stone is highly leveraged, with credit measures in line with the ratings: debt to EBITDA above 5x, EBITDA interest coverage in the low to mid-2x area, and funds from operations to debt in the 10% to 12% range, S&P said. If the company's underfunded postretirement obligations of $1.3 billion as of Dec. 31, 2002, are included as debt, these ratios are somewhat weaker.

S&P puts RailAmerica on watch

Standard & Poor's put RailAmerica Inc. on CreditWatch negative including its bank debt at BB and senior subordinated notes at B.

S&P said the watch placement follows RailAmerica's announcement that it intends to commence a tender offer for 100% of the equity securities of Tranz Rail Holdings Ltd., a New Zealand-based freight and passenger railroad company.

The acquisition, if completed, would increase the diversity of RailAmerica's operations, S&P said.

However, it would also increase debt leverage and present a number of operating challenges. Tranz Rail has a weak financial profile and has recently suffered from depressed operating performance and very constrained liquidity.

Existing ratings on RailAmerica incorporate the company's aggressive debt leverage and the potential for debt-financed acquisitions, partly offset by its position as the largest owner and operator of short-line (regional and local) freight railroads in North America and the favorable risk characteristics of the U.S. freight railroad industry, S&P said.

RailAmerica has built its rail network through acquisitions and, as a result, is highly leveraged, S&P said. Total debt to total capital (adjusted for off-balance-sheet items) is currently about 67%. Although this is down materially from the 82% at the end of 2000, it is still aggressive.

Despite RailAmerica's recent statement that it is committed to reducing debt leverage this year and plans to use $100 million in expected proceeds from asset sales for debt reduction, debt leverage will rise if the Tranz Rail deal is consummated, S&P noted. Current ratings have been based on an assumption that leverage will remain at or below current levels and that EBITDA coverage of interest, which is currently about 2.5x, will remain at or below 2x.

Moody's rates B/E Aerospace liquidity SGL-3

Moody's Investors Service assigned a speculative-grade liquidity rating of SGL-3 to B/E Aerospace and confirmed the company's B2 senior implied rating.

The SGL-3 rating reflects the adequate liquidity profile of the company in Moody's estimation over the forward 12-month period.

Specifically, Moody's noted its expectation that the company should remain largely cash flow neutral as its business outlook stabilizes and operating margins improve, and that current excess cash balances should be sufficient to offset and fund any shortfalls as necessary. Additionally, Moody's acknowledged the company's remaining undrawn bank revolving line of credit as being potentially available if needed to augment its liquidity position, but noted potential constraints on the availability of same based on perceived tightness to financial maintenance covenants, particularly beginning in 2004.

S&P rates Vail Resorts' loan BB-

Standard & Poor's assigned a BB- rating to Vail Resorts Inc.'s $425 million credit facility consisting of a $325 million revolver due May 2007 and a $100 million term loan B due November 2008. The rating outlook is negative.

Security is a capital stock of the restricted group and its subsidiaries. Based on S&P's simulated default scenario, it is not clear that a distressed enterprise value would be sufficient to cover the entire fully-drawn loan facility since the value of collateral in a default scenario may be impaired by the discretionary nature of demand, and assets could suffer some erosion of value if overall company earnings decline. Furthermore, while properties are currently well maintained, it is common to see distressed leisure companies defer maintenance and upgrades, which can also degrade value, S&P said.

Proceeds from the facility will be used to refinance existing debt.

Ratings reflect the company's limited geographic diversity, high capital expenditures and risks associated with a highly seasonal and cyclical industry. This is offset by solid operating performance, a dominant market share in Colorado, and good revenue mix, S&P said.

The negative outlook reflects high debt leverage and limited cushion under its covenants. With this year's ski season basically over, any improvement in credit profile or liquidity would be dependent on the upcoming ski season.

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