S&P puts Schuler on positive watch, affirms D.R. Horton

Standard & Poor's put Schuler Homes Inc.'s ratings on CreditWatch with positive implications and affirmed its rating on D.R. Horton Inc. following the announcement that D.R. Horton will acquire Schuler.

Affected ratings include Schuler Homes' $350 million senior unsecured notes rated B+ and its $150 million subordinated notes rated B- and D.R. Horton's $1.466 billion of senior unsecured notes rated BB and its $350 million of subordinated notes rated B+.

S&P said the ratings reflect D.R. Horton's "growing market position through geographic expansion and its consistently above-average gross operating margins." But it noted the strengths are offset by management's "more aggressive expansion strategy and financial profile."

Its ratings on Schuler reflect the company's "improving position within its core homebuilding markets, increased scale and diversification from its recent merger with private, unrated Western Pacific Housing, and profitability and debt-protection measures that were stronger than average for the Schuler rating."

On a pro forma basis, the acquisition will increase D.R. Horton's leverage to 57% from 55%, S&P said. Excluding goodwill, which will increase $200 million with the merger, leverage will be in the low 60% area, higher than similar rated peers, the rating agency added.

S&P also said it has concerns about the 34% acquisition premium being paid for market share at the cyclical peak of the homebuilding cycle, as well as integration concerns due to the recent merger between Schuler and Western Pacific.

Moody's downgrades Hayes Lemmerz

Moody's Investors Service downgraded Hayes Lemmerz, Inc., affecting $2.45 billion of debt securities and bank facilities. Ratings affected include the company's $250 million 8¼% guaranteed senior subordinated notes due 2008, its $250 million 9 1/8% guaranteed senior subordinated notes due 2007, its $150 million 9 1/8% guaranteed senior subordinated notes due 2007, and its $250 million 11% guaranteed senior subordinated notes due 2006, all downgraded to C from Caa2; its $300 million guaranteed senior unsecured notes due 2006, cut to Ca from Caa1; and its $1.25 billion of guaranteed senior secured bank credit facilities, downgraded to Caa2 from B3. The outlook is negative.

Moody's said the action reflects its "significantly increased concern" that Hayes Lemmerz may no longer have "the liquidity necessary to operate, and that the company may even be considering restructuring alternatives."

Because an investigation into recently discovered accounting misrepresentations is taking longer than anticipated, Moody's said the company's actual performance over the past six quarters is "essentially unknown."

The problems also mean Hayes Lemmerz remains in default on its bank credit agreement and is likely to be unable to negotiated waivers and amendments. It is also unable to put in place a new $175 million off-balance sheet accounts receivable securitization to replace a similar $125 million facility that lapsed on May 1, 2001.

In addition, Moody's said: "The difficult market environment and worsened prospects for 2002 automotive production following the Sept. 11th terrorist attacks increase the likelihood that Hayes Lemmerz's results will be down materially during the third quarter of 2001 through the end of the next year."

Moody's confirms Stone Energy ratings

Moody's Investors Service confirmed the ratings of Stone Energy Corp., including the B2 rating on its $100 million of 8¾% senior subordinated notes.

The confirmations follow Stone's announcement that it has entered into an agreement to acquire producing oil and gas property interests in the Gulf of Mexico from Conoco for up to $300 million, to be funded with debt, Moody's said. The transaction is expected to close by the end of the year.

S&P rates Westport Resources new notes BB-

Standard & Poor's said it rated Westport Resources Corp.'s planned offering of $200 million senior subordinated notes at BB-.

S&P raises Penn Traffic outlook to positive from stable

Standard & Poor's raised its outlook on The Penn Traffic Co. to positive from stable and affirmed the company's ratings including its B- senior unsecured debt and BB- minus senior secured bank loan.

S&P said the revision reflects Penn Traffic's "sustained operating improvement" since emerging from Chapter 11 in 1999.

It added: "Operating initiatives to improve customer service and the quality of its store base, and to control costs have resulted in positive same-store sales increases in recent quarters and EBITDA coverage of interest trending in the 2.3 times area, which is strong for the rating."

S&P added that if Penn Traffic continues to show improved operations and "satisfactory financial flexibility" the ratings could be raised over the next 12 months.

S&P withdraws IPC Magazines ratings on acquisition by AOL

Standard & Poor's withdrew its ratings on IPC Magazines Group plc following completion of the company's acquisition by AOL Time Warner Inc. The company's senior unsecured debt had been rated B- and its senior secured bank loan facility BB-.

As a result of the acquisition, S&P said IPC has made a cash tender offer for all of its outstanding 9 5/8% senior discount notes due 2008 and its 10¾% senior discount notes due 2008. Close to 100% of holders accepted and the bank loan has been redeemed.

Moody's upgrades Bay View Capital, positive outlook

Moody's Investors Service upgraded Bay View Capital Corp. and assigned a positive outlook to its ratings. Ratings affected include Bay View Bank, NA's subordinated debt, raised to B1 from B3, Bay View Capital Corporation's subordinated debt and trust preferred rating, raised to B3 from Caa1 and Bay View Capital I's preferred stock rating, up to Caa1 from Caa2.

The rating agency said the action reflects "the significant progress achieved by Bay View's new senior management team in repositioning the institution, and thereby improving its credit fundamentals and future prospects."

At Bay View Bank, Moody's said asset quality has "substantially improved" and liquidity is better thanks to the discontinuation of high risk businesses and disposal of most of the related loans and securities portfolios.

The holding company is now considered "adequately" capitalized and continues to pay interest on its subordinated debt. Once regulators allow it to pay dividends on its preferred securities Bay View Capital could be upgraded further, Moody's said.

S&P puts Blount on negative watch

Standard & Poor's put Blount Inc. on CreditWatch with negative implications.

Ratings affected include Blount's $150 million 7% senior notes due 2005, rated B-, its $325 million 13% senior subordinated notes due 2009, rated CCC+ and its $440 million of bank loans, rated B.

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