S&P says USEC unchanged

Standard & Poor's said USEC Inc.'s ratings are unchanged including its corporate credit at BB with a negative outlook on its announcement of a long-term supply agreement with Exelon Generation Co.

S&P said it views the extension of the company's relationship with this key customer as a favorable development.

However, S&P said it does not view the agreement as decreasing the risks posed by Louisiana Energy Service's plans to build a competing uranium enrichment facility in the U.S., which could ultimately put USEC at a competitive disadvantage and could lead to lower prices for separative work units, the standard unit of measure of uranium enrichment.

Nevertheless, S&P said it recognizes that the completion of the LES facility faces meaningful hurdles, including obtaining the necessary approvals from the Nuclear Regulatory Commission, site permits, financing arrangements, and local community concerns.

Moody's rates Danka notes B2

Moody's Investors Service assigned a B2 rating to Danka Business Systems plc's proposed $175 million senior unsecured notes. The outlook is stable.

Moody's said the rating reflects the company's declining revenue base, difficult competitive position and limited free cash flow after capital expenditures. The ratings also reflect Danka's significant debt reduction over the last two years and improved operating margins as a result of efficiency gains.

The ratings recognize the company's highly competitive position, negative impact on service and supply revenues due to the shift to digital equipment from analog, and revenue contraction in part due to the weak economy, Moody's said. The company's revenues have contracted in recent years and are only recently beginning to show signs of stabilizing. Nevertheless, Moody's believes that Danka's competitive environment is unlikely to improve significantly until the economy strengthens.

The ratings also consider the improvement in the company's balance sheet over recent years. Danka has over the last two years slashed its net debt levels by 78% from $650 million at March 31, 2001 to about $146 million at March 31, 2003 by selling assets and refocusing its cash flows towards debt paydown. Moody's said it expects current management to be conservative in its use of debt going forward. Danka further benefits from its geographic and customer diversity and no one customer represents more than 4% of total revenue.

The stable ratings outlook reflects the benefits of the company's significant debt reduction over recent years and reduced debt service requirements, improved operating margins and expectations of a rebound in the company's U.S. hardware sales.

Proforma the transaction, total debt to EBITDA for the fiscal year ended 2003 is approximately 2.4x and adjusted debt to EBITDA is 4.9x, including $258 million of convertible participating shares, Moody's said. Pro forma EBITDA coverage of interest is 3.5x.

S&P cuts Wesco

Standard & Poor's downgraded Wesco Distribution Inc. including cutting its $400 million 9.125% subordinated notes due 2008 to B- from B. The outlook is stable.

S&P said the downgrade reflects poor operating performance due to continued weakness in Wesco's key end-markets that has stretched credit measures well beyond S&P's expectations.

At year-end 2002, total debt (adjusted for an accounts receivable securitization program and the present value of operating leases) to EBITDA stood at 7.6x, and EBITDA interest coverage was about 1.8x, S&P added.

Continued weakness in Wesco's industrial, building construction, and electric utility markets has thus far more than offset management's efforts to restructure operations, S&P said. Although capital intensity is modest (asset turnover is over 3x; capital spending is less than 1% of sales), Wesco's large branch network creates operating leverage.

Since 2000, Wesco has cut employment by about 13%, and reduced debt by 17%, but EBITDA has declined by close to 40%. Although Wesco has maintained its market position by adding new customers, the average order size per invoice has declined as customers control inventories and pricing pressures persist, S&P said. Credit measures are expected to strengthen, to levels consistent with the ratings, as the company benefits from continued cost and working capital reductions, and a gradual market recovery. Within the next 12-18 months, debt to EBITDA is expected to strengthen to 5.5x-6x, and EBITDA interest coverage is expected to range around 2x.

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