S&P lowers Wellman outlook

Standard & Poor's lowered its outlook on Wellman Inc. to negative from stable and confirmed its ratings including its senior secured bank loan at BB+.

S&P said the outlook revision follows lower than expected profitability in PET during the second quarter resulting in unexpected deterioration to the financial profile and concerns that challenging business conditions may forestall efforts to improve credit quality this year.

The recent startup of two large-scale PET plants in the North American market, representing an increase of approximately 14% to regional capacity, occurred ahead of market expectations, S&P added. These developments, combined with higher raw material costs and the negative impact on demand from adverse weather conditions in the northeastern U.S., served to dampen profits during the normally strong second quarter.

Looking forward, Wellman may also be challenged to remain in compliance with minimum profitability levels required in its bank credit agreement, should operating profitability for the remainder of the year fail to stabilize in line with expectations.

Cash flow protection and debt leverage measures are at substandard levels because of aggressive debt use to fund significant additions to manufacturing capability during recent years. Accordingly, S&P said it expects the company to improve the ratios of funds from operations to total debt (adjusted to capitalize operating leases and include accounts receivable securitizations and a synthetic lease) and total debt to EBITDA, to the mid-20% area and 3.0x, respectively, from about 15% and 4.5x.

Moody's puts AFC on review

Moody's Investors Service put AFC Enterprises under review for possible downgrade including its $275 million secured credit facility at Ba2.

Factors prompting the review include increased unease about timely and benign reporting of financial results for fiscal 2002 and restating of results for 2001 and 2000, Moody's concerns regarding the price and availability of another filing extension if financial results are not reported before the current bank deadline of August 22, 2003, and operational pressures that have confronted the entire quick service restaurant industry since the second half of 2002, Moody's said.

The company has announced that an outside forensic accounting firm will assist the Audit Committee and outside counsel in its investigation. Given the apparent scope of the accounting investigation, Moody's anticipates that the company may require another filing extension from its bank lenders beyond the current deadline.

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