S&P puts Hollinger on watch, rates new loan BB-, notes B

Standard & Poor's put Hollinger Inc. on CreditWatch with negative implications. Ratings affected include Hollinger's C$104.62 million 7% preferred shares due 2004 at B-, Hollinger International Publishing Inc.'s $250 million 9.25% subordinated notes due 2006 and $290 million 9.25% senior subordinated notes due 2007 at B and Hollinger Participation Trust's $490 million 12.125% senior notes due 2010 at B-. S&P also assigned a BB- rating to Hollinger International Publishing's new $40 million senior secured revolving credit facility due 2008, $40 million amortizing term loan A due 2008 and $220 million amortizing term loan B due 2009 and a B rating to its $300 million senior unsecured notes due 2010. Ratings on Hollinger International Publishing's $50 million revolving credit facility due 2008, $50 million term A loan due 2008 and $250 million term B loan due 2009, previously at BB-, were withdrawn.

Net proceeds from the new issuances will be used to refinance outstanding indebtedness, including the remaining $240 million 9.25% senior subordinated notes due 2006 and $265 million 9.25% senior subordinated notes due 2007, repay $90 million of debt at Hollinger International, and for general corporate purposes.

S&P said it put Hollinger's ratings on watch because of the limited financial flexibility at the Hollinger Inc. holding company level.

Of particular concern is the C$90.8 million credit facility due on Feb. 28, 2003, S&P added. Hollinger Inc. is required to makes a partial repayment of its bank facility by the end of February 2003, at which time the remaining bank loan will be extended until December 2003.

Hollinger Inc.'s ability to make the required reduction is largely dependant on the completion of announced refinancing at its U.S. subsidiaries or on other financial alternatives, including the sale of assets.

The resolution of the CreditWatch placement is dependant upon the successful completion of the announced transactions and the refinancing and/or reduction of Hollinger Inc.'s bank debt by Feb. 28, 2003, after which the ratings will be affirmed at 'BB-' with a negative outlook, S&P said.

The anticipated negative outlook following the CreditWatch resolution reflects Hollinger's financial profile and policy that remains aggressive for the rating category, S&P added.

Moody's confirms Hughes, PanAmSat

Moody's Investors Service confirmed Hughes Electronics Corp., including its senior secured debt at Ba3, and PanAmSat Corp., including its senior secured debt at Ba2 and senior unsecured debt at Ba3. The outlook is stable.

Moody's said it confirmation follows the announcement that General Motors Corp., its subsidiary Hughes and EchoStar Communications Corp. have reached a settlement to terminate the proposed merger of Hughes and EchoStar, effective immediately. Under the terms of the settlement, EchoStar has paid to Hughes $600 million in cash, and Hughes will retain its 81% ownership position in PanAmSat.

With uncertainty surrounding Hughes' proposed merger with EchoStar now removed, the credit focus turns to liquidity and permanent financing for the company's long-term needs, Moody's said.

The recent bank loan refinancing along with the Echostar proceeds offer some temporary breathing room until August 2003, when the current bank facilities expire, the rating agency said.

An important consideration for the company's credit ratings was the expected payment by EchoStar to Hughes of the $2.7 billion purchase price of Hughes' interest in PanAmSat, which was intended to occur even in the event of regulatory objections to an EchoStar-Hughes merger, Moody's noted. Since that portion of the agreement is no longer a consideration, near-term refinancing risk is very high until more permanent financing is executed as expected.

The EchoStar proceeds are expected to be applied to Hughes' bank facility term loan as called for by the indenture, and current debt levels are not very high, Moody's said.

However, the company is still a net user of cash and therefore will steadily grow its debt levels for the foreseeable future and will likely more than double over the next year, Moody's added.

PanAmSat's ownership uncertainty is also cleared up for now, though as mentioned above, longer-term uncertainty is an issue, Moody's said. The current rating continues to be impacted and constrained by its ownership by its weaker credit-positioned controlling parent Hughes, although, it is reasonably ring-fenced by its bank covenants and restrictions. The company generates good free cashflow and is moderately leveraged.

However, it faces the conflicting negative impact from its exposure to DLA as some of its revenues are derived from that Hughes business. Moody's believes that over the near-term, those revenues are likely to remain, but are significantly in question beyond the next 18 to 24 months, which could materially reduce free cashflows if those transponders cannot be leased to other customers at similar price levels.

S&P changes Hughes, PanAmSat to developing watch

Standard & Poor's changed its CreditWatch on Hughes Electronics Corp. and PanAmSat Corp. to developing from negative. Ratings affected include Hughes' $1.934 billion revolver due 2003 at BB- and PanAmSat's $125 million 6.875% debentures due 2028, $150 million 6.375% notes due 2008, $200 million 6% notes due 2003, $250 million 7-year revolver, $275 million 6.125% notes due 2005, $400 million term A loan due 2008 and $600 million term B loan due 2008 at BB- and $500 million 8.5% senior unsecured notes due 2012 at B-.

S&P said the action follows Hughes' and EchoStar Communications Corp.'s termination of their merger deal. As part of a negotiated resolution, EchoStar will pay Hughes a $600 million cash breakup fee, but will not be purchasing Hughes' PanAmSat stake as originally agreed.

Termination of the merger provides meaningful cash to Hughes and enables the company to freely pursue strategic alternatives to a combination with Echostar, S&P said.

Refinancing risk is also somewhat reduced on Hughes' recently amended and extended $1.9 billion credit facility that expires in August 2003. However, considerable uncertainty still surrounds the eventual ownership of Hughes given parent company General Motors Corp.'s continued interest in divesting this business, S&P noted.

S&P downgrades PerkinElmer, rates loan BB+, notes BB-

Standard & Poor's downgraded PerkinElmer Inc., removed it from CreditWatch with negative implications and assigned a BB+ rating to its new $100 million 5-year revolving credit facility and $345 million 6-year term B loan due 2008 and a BB- rating to its $225 million senior subordinated notes due 2012. Ratings lowered include PerkinElmer's $100 million revolving credit facility due 2002, $115 million 6.8% notes due 2005, $250 million 364-day revolving credit facility and $400 million zero-coupon convertible debentures due 2020, cut to BB+ from BBB-. The outlook is stable.

S&P said the rating action reflects weak credit measures for the rating and sub-par operating performance in 2002.

Ratings previously incorporated the expectation that management would divest its Fluid Sciences business and use proceeds from the sale to reduce debt and improve credit measures, S&P said. Management decided to retain that business.

Management's refinancing actions provide the benefit of extending potential near-term maturities and enhancing liquidity but they do not materially improve credit measures, S&P said. Proceeds from the proposed debt issue and term loan portion of the credit facilities will be used to repay amounts outstanding under the existing credit facility, repurchase outstanding LYONs notes, and repurchase outstanding senior notes.

Operating margins are likely to fall to about 11% in 2002 from about 18% 2001. Pro forma for the refinancing actions, debt to EBITDA for the 12 months ended September 2002 is likely to be about 3.5x, with EBITDA interest coverage in the 4x range, S&P said.

Moody's cuts Guess?

Moody's Investors Service downgraded Guess? Inc.'s including cutting its $80 million senior subordinated notes due 2003 to B3 from B2. The outlook remains negative.

Moody's said it lowered Guess? because of continuing weakness in the company's wholesale division, which has caused the rating agency to significantly revise its view for near-term operating income and cash flow.

The ratings assume that Guess? will be able to refinance its $80 million subordinated notes maturing August 2003 based on the value of its franchise and its licensing income.

The rating outlook remains negative however, recognizing the challenges that Guess? may face in refinancing its debt during a period of cyclical and fashion weakness, Moody's said.

The ratings recognize concerns about Guess' near-term financial performance following news of a steep reduction in wholesale revenues for the fourth quarter of 2002 and reduced guidance for the full year.

Moody's now expects this to be the second full year of operating losses for the combined core wholesale and retail businesses, and has no certainty that a turnaround will occur in the near future.

Moody's believes that EBIT is not likely to cover interest expense for the full year 2002. The ratings also recognize the very high revenue and profit volatility typical of an apparel manufacturer and retailer.

S&P confirms Roundy's

Standard & Poor's confirmed Roundy's Inc.'s ratings including its senior secured bank loan at BB- and senior subordinated debt at B. The outlook is positive.

S&P noted that Roundy's plans to issue $75 million of senior subordinated debt as an add-on to its $225 million 8.875% senior subordinated notes due 2012. Proceeds will be used to fund the acquisition of Prescott Supermarkets Inc. and for general corporate purposes.

S&P said it confirmed Roundy's because of the company's stable sales and earnings performance despite a challenging operating environment and S&P's belief that Roundy's credit protection measures will not be greatly impacted by the additional debt.

Roundy's ratings reflect its participation in the highly competitive food wholesale and retail industries, in which it competes with much larger operators, and a limited history in operating a significant retail store base, S&P added. These risks are somewhat mitigated by the company's leading retail market position in the greater Milwaukee, Wis. market, and stable operating performance in its food wholesale segment.

Roundy's retail operations have increased significantly over the past two years through the acquisition of 24 Pick 'n Save stores in 2000, 21 Copps stores in 2001, and 11 Pick 'n Save stores in 2002, S&P said. Through these acquisitions, Roundy's established the leading retail market position in the Milwaukee market, with a 40% share (including licensed Pick 'n Save stores) according to the 2002 Market Scope. Same-store sales were up 1.5% through the first nine months of 2002, down from the mid-single digit area in previous years, due to current industry trends.

Retail margins are expected to improve over the next three years through more efficient labor management, greater emphasis on higher-margin perishable product sales, and cost leveraging through new store openings. S&P expects Roundy's will increase its store base, adding five to seven stores annually over the next three years through either new stores or fill-in acquisitions.

Pro forma lease-adjusted EBITDA coverage of interest is 2.4x. Operating margins of 4.3% in 2001 could increase to about 5.0% over the next three years as the company focuses on improving and expanding its higher-margin retail operations, S&P said.

Moody's rates Roundy's add-on B2

Moody's Investors Service assigned a B2 rating to Roundy's, Inc. planned $75 million add-on to its senior subordinated notes due 2012 and confirmed its other ratings including its $375 million secured bank facility at Ba3 and $225 million 8 7/8% senior subordinated notes due 2012 at B2. The outlook is stable.

Moody's said it confirmed Roundy's in spite of an accelerated acquisition pace because of the company's good operating performance during the current period of revenue and margin pressures across the supermarket industry.

In addition, Moody's expects that the 11 acquired stores will soon prove modestly accretive.

The incremental debt will fund the pending acquisition of 7 stores for $49 million and restore the company's cash balance after the October 2002 acquisition of 4 stores for $26 million.

Roundy's ratings are constrained by the company's leveraged financial condition, the exposure to the economic fortunes of a narrow geographic region (Wisconsin and contiguous areas), and the scale of the company's operations relative to potential competitors in the consolidating supermarket industry, Moody's said.

Moody's belief that the company will continue purchasing supermarkets also affects its views of the challenges facing the company. However, the ratings recognize the company's position as the leading supermarket operator and grocery wholesaler in Wisconsin, the relatively modern condition of the company's store base, and the long-term stability of operating management.

S&P rates Allbritton notes B-

Standard & Poor's assigned a B- rating to Allbritton Communication Co.'s $275 million senior subordinated notes due 2012 and confirmed its existing ratings including its corporate credit rating at B+. The outlook is stable.

The ratings reflect Allbritton's high financial risk from debt-financed television station acquisitions, cash flow concentration from limited geographic and network diversity, and mature TV advertising growth prospects, S&P said. Tempering factors include the potential for good margin and discretionary cash flow generation, and station asset values.

S&P noted the company's cash flow is heavily concentrated in the Washington, D.C. and all its stations are affiliated with the ABC Television Network, representing a further element of concentration. This lack of operational diversity has been of greater concern lately given the ABC Network's lackluster results and its adverse effect on Allbritton's revenue.

Most of Allbritton's discretionary cash flow has been consumed by advances (about 23% of the company's total EBITDA) made to the parent company, which are expected to continue. S&P said it would be concerned if the advances lead to higher debt levels.

Recovering advertising demand and political ad spending, offset by languishing performance at the ABC Network that hurt local program ratings, yielded a net revenue decline of 3.1% for the fiscal year ended Sept. 30, 2002, S&P said. The company's EBITDA margin is around 33%, down from the low-40% area historically. Pro forma EBITDA coverage of interest is expense is about 1.8x. Pro forma total debt to EBITDA was approaching 7x at Sept. 30, 2002. Due to Allbritton's fiscal year-end, political revenues are split between fiscal 2002 and 2003. Still, the ad climate is uncertain and the company could face tougher year-over-year comparisons in 2003 without an improvement in network programming.

Moody's rates Allbritton notes B3

Moody's Investors Service assigned a B3 rating to Allbritton Communication Co.'s new $275 million senior subordinated notes due 2012 and confirmed its existing ratings including its $150 million senior subordinated notes at B3. The outlook is stable

Allbritton's ratings reflect the risks posed by its high financial leverage and thin cash flow coverage; the lack of network diversity in the company's television station portfolio; the high concentration of revenue and cash flow in the Washington D.C. market; the expectation that shareholders will continue to avail themselves of substantial cash distributions, making material debt reduction unlikely; and exposure to the cyclical advertising environment, Moody's said.

However, the ratings are supported by the substantial asset value of the company's station portfolio, particularly the Washington D.C. station; the presence of some number one and number two ranked stations both overall and as it relates to news product more specifically; a degree of geographic diversity; and adequate liquidity to execute the company's business plan.

The stable outlook incorporates expectations for improving results given the improvement in ratings for ABC stations, Moody's said. The rating agency added it is likely to consider a more negative outlook should leverage continue to creep upwards and the company continue to provide generous dividends to shareholders.

Notably, leverage increased from 4.9 times at year-end 2000 to 7.2 times by June 30, 2002, due mostly to the poor performance of the ABC network, Moody's said.

S&P upgrades Paiton Energy

Standard & Poor's upgraded Paiton Energy Funding BV including raising its $180 million senior secured bonds due 2014 to CCC from CC. The rating was removed from CreditWatch with positive implications. The outlook is positive.

S&P said the upgrade reflects the significant progress Paiton Energy has made in restructuring its debt with commercial banks and export credit agencies and the expected improvement in its financial profile following the signing of a power purchase agreement amendment with national utility Perusahaan Umum Listrik Negara (Persero).

Until maturity of the rated bonds in 2014, Paiton's average debt service coverage is expected to be 1.52x, S&P added.

Nevertheless, Paiton faces high counterparty risk as it sells its electricity solely to Perusahaan Umum Listrik Negara, S&P said. The credit profile of Perusahaan Umum Listrik Negara is vulnerable, as it continues to incur cash flow losses and depend on government subsidies for its survival.

In addition, Paiton faces risk arising from economic and political uncertainties in Indonesia, which may affect the timeliness of government support to Perusahaan Umum Listrik Negara and consistent implementation of policies regarding the tariff increase program designed eventually to make Perusahaan Umum Listrik Negara commercially viable, S&P added. Offsetting these risks are strong support provided by committed shareholders, strong electricity demand in Indonesia, low technology risk, and a pass-through provision for fuel costs in the power purchase agreement.

Moody's confirms Westport, rates notes Ba3

Moody's Investors Service confirmed Westport Resources ratings, ending a review for downgrade, and assigned a Ba3 rating to its new $300 million senior subordinated notes due 2011. Ratings confirmed include Westport's $275 million of 8.25% senior subordinated notes due 2011 and $126 million of 8.875% senior subordinated notes due 2007 at Ba3 and $75 million convertible preferred stock at B1.

Moody's noted that the subordinated note ratings are one notch below the Ba2 senior implied rating but that Westport's bank agreement calls for its banks to become secured by virtually all of its oil and gas reserves if its senior implied rating is not upgraded to Ba1 by year-end 2003. It is thus highly possible the note ratings would be notch down by one rating level to B1.

Moody's began the review on Nov. 8 after Westport announced it a $520 million acquisition of Uinta Basin (northeastern Utah) natural gas reserves, gathering and processing assets, and exploration acreage from El Paso.

The purchase is a potentially transforming transaction, adding a new core area of large scale, concentration, and considerable exploitation potential, Moody's said. It adds visibility to production replacement, lengthens the proven developed (PD) reserve life, and reduces Westport's reliance on short-lived Gulf of Mexico (GOM) and South Texas production.

The issue of $250 million of gross equity this quarter funds almost 50% of the purchase price and properly shifts a large amount of the fully-priced acquisition's substantial development, exploration, and regional price risk to the most junior level of capital, Moody's said. Westport's basis risk and price risk hedging program protects 2003 realized prices.

Westport also says it will under-spend expected 2003 cash flow by $100 million and sell up to $100 million of non-strategic assets to further reduce debt, Moody's said.

S&P confirms Westport, rates notes B+

Standard & Poor's confirmed Westport Resources Corp.'s ratings, removed it from CreditWatch with negative implications and assigned a B+ rating to its new $300 million 8.25% senior subordinated notes due 2011. Ratings confirmed include Westport Resources' $275 million 8.25% senior subordinated notes due 2011 at B+, $600 million revolving credit facility due 2005 at BB and $75 million convertible preferred stock at B and Belco Oil & Gas Corp.'s $150 million 8.875% senior subordinated notes due 2007 at B+. The outlook is now stable.

S&P said the rating actions follow Westport Resources' successful pricing of a 10 million share common stock offering with net proceeds of roughly $188 million in combination with an already completed private placement of $50 million in equity that will bring Westport Resources' expected, year-end 2002 debt leverage down to the low-40% range from above 50%.

Also, the company intends to underspend cash flow by $100 million in 2003 to provide additional cash for debt reduction, S&P noted. Cash flow in 2003 is supported by natural gas price hedges at prices above $3.75 per million cubic feet on 100% of the projected production, from the acquired El Paso Corp. properties.

The ratings on Westport Resources reflect its midsize reserve base and moderate financial profile, reflected by its somewhat aggressive debt leverage, S&P said. The pending acquisition of properties from El Paso should give Westport Resources a backlog of over 2,000 exploitation projects, strengthen its position in the Rocky Mountains region, and further its diversification away from reliance on the Gulf of Mexico for production. These advantages are offset in part by high finding and development costs, with little near-term improvement expected.

S&P rates Owens-Brockway notes BB

Standard & Poor's assigned a BB rating to Owens-Brockway Glass Container Inc.'s $175 million senior secured notes due 2012 and confirmed parent Owens-Illinois Inc. and related companies including Owens-Illinois' senior unsecured debt and senior secured debt at B+ and preferred stock at B and Owens Illinois Group Inc.'s senior secured bank loan and senior secured debt at BB.

S&P said the confirmation incorporates expectations that the company's asbestos liability will remain manageable and that management's efforts to improve cash flow protection measures will be realized in the near to intermediate term.

The ratings on Owens-Illinois Inc. and its related entities reflect the company's aggressive financial profile and meaningful concerns regarding its asbestos liability, offset by an above-average business position and strong EBITDA generation, S&P said. Owens-Illinois' above-average business risk profile reflects the company's preeminent market positions (which are bolstered by superior production technology), operating efficiency, and the relatively recession-resistant nature of many of its packaging products.

Owens-Illinois' leading cost position is demonstrated by strong EBITDA margins averaging about 25%, a level that soundly tops its peer group.

Owens-Illinois has had to make sizable payouts for asbestos-related claims, with 2001 seeing the peak payout at $245 million, S&P noted. The acceleration in its asbestos payouts was due to increased levels of filings and management's proactive efforts to resolve claims. Net payouts in 2001 were reduced by proceeds from insurance settlements, however, the bulk of Owens-Illinois' insurance coverage has now been utilized.

The company took a charge of $475 million in the first quarter of 2002 to increase the reserve for estimated future asbestos-related costs to a total of $712.5 million, S&P said. The increase raises concern because the liability has exceeded earlier estimates and suggests that Owens-Illinois' obligations relative to asbestos is declining more slowly than previously expected. Still, Owens-Illinois expects that its asbestos-related cash payments in 2002 will be about 10% lower than 2001 payments and should continue to decline thereafter.

S&P said it views Owens-Illinois' asbestos litigation differently from many other defendants because the company exited the business several years earlier, has a much older claimant base (average age 76), and is receiving fewer claims.

S&P cuts some Air 2 US ratings

Standard & Poor's downgraded some ratings of AIR 2 US, LLC including its $127.092 million 10.127% enhanced equipment notes series C due 2020 to B- from B, its $226.4 million 8.627% enhanced equipment notes series B due 2020 to B from B+ and its $76.178 million 12.266% enhanced equipment notes series D due 2020 to CCC+ from B-. All ratings remain on CreditWatch with negative implications.

S&P said the action follows the bankruptcy of United Air Lines Inc.

Air 2 US is a Cayman Islands-based limited liability company that in 1999 issued more than $1.1 billion of enhanced aircraft notes whose repayment depends, among other factors, on the level of lease rentals paid by United Air Lines to various financing subsidiaries of Airbus Industries SAS, S&P said. United leases 22 A320-200 jet aircraft from those Airbus units, representing more than half of the total rentals related to this transaction, with the remainder paid by American Airlines to lease 19 A300-600R planes (one of which has since been removed due to its loss in an accident) from other units of Airbus.

Although United is expected to seek to retain the A320-200s in its bankruptcy reorganization, the airline's filing still raises the risk that some aircraft will have to be repossessed and re-leased to another airline in the current depressed aircraft market, S&P said.

However, in contrast to an enhanced equipment trust certificate, repossessed planes would not be sold, and therefore might later generate higher lease revenues when the aircraft market recovers. That potential benefit was one factor in maintaining the existing BBB- rating on the senior series A enhanced aircraft notes.

S&P keeps PBG Aircraft on watch

Standard & Poor's said PBG Aircraft Trust remains on CreditWatch with negative implications following the bankruptcy of United Air Lines Inc., which leases some aircraft in the portfolio that secures the notes. Ratings affected include PBG Aircraft Trust's series A aircraft notes at BBB- and series B aircraft notes at BB.

S&P said the ratings incorporate the benefits of a diverse portfolio of U.S. airline credits, which limits somewhat the potential impact of United's bankruptcy.

United leases two B737-300s and an affiliate leases a BAe146-300 regional jet, together representing about 22% of the total aircraft value in PBG Aircraft Trust's portfolio.

Moody's puts Nissho Iwai on upgrade review, Nichimen on downgrade review

Moody's Investors Service put Nissho Iwai Corp.'s long-term unsecured senior debt rated B2 on review for possible upgrade and Nichimen Corp.'s long-term unsecured senior debt rated B1 on review for possible downgrade. Moody's also put Nissho Iwai's convertible debentures at B2 on review for possible downgrade.

Moody's said the action follows the companies' announcement of plans for business integration under a newly created holding company structure. The downgrade review on Nissho Iwai's convertibles is because they are likely to be moved to the holding company where they will have structural subordination.

Moody's said it believes the plan to create a new holding company with the objectives of achieving further expense reduction, coupled with planned re-capitalization at the holding

company, may have the potential to positively impact the rating of Nissho Iwai. However, the credit risk profile of Nichimen may be negatively impacted by future integration of its business with larger sized counterpart.

S&P cuts Midway passthrough to D

Standard & Poor's downgraded Midway Airlines Corp.'s $20.528 million 8.92% passthrough series 1998-1C due 2008 to D from B.

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