Moody's calls cable, healthcare, food and drug, and coal safe havens

Moody's Investors Service said it believes the U.S. cable, healthcare, food and drug, and coal sectors continue to be "safe havens" in the high-yield market that are relatively immune to the effects of the current economic slowdown. Rating outlooks on the sectors have not changed in response to the terrorist attacks on Sept. 11.

"As far reaching as the effects of the recent terrorist attacks have been, with an almost universally negative impact for so very many businesses and individuals, this horrific series of events in and of themselves are not expected to diminish the credit quality of pay television service providers," said Moody's analyst Russell Solomon in a news release.

"The cable industry is probably as well positioned today as it has been at almost any other time in its history," he said. "Industry fundamentals continue to improve."

Solomon noted cable companies are much less exposed to cyclical downturns in advertising spending than other broadcast and print media companies and hence are relatively immune to economic slowdowns.

In the health sector, Moody's sees relatively favorable reimbursement environment compared to recent years, favorable pricing from the managed care sector, solid demographic and utilization trends, and access to capital markets for both equity and debt.

Moody's outlook on leveraged food and drug retailers also continues to be stable, although not for its value drug segment. Supermarkets, food distributors and drug stores have remained relatively stable in previous downturns, according to Moody's analyst Richard W. Baldwin. However he said value drug stores have been pressured by the difficulty of competing with national chains.

Coal should be helped by the highest spot prices in 20 years, Moody's analyst Steve Oman said. But he said those high prices may not translate into higher credit ratings.

Oman noted coal prices will likely fall, although not to former levels, because production will increase, coal is plentiful, and "environmental objections to coal are not going to go away."

Moody's downgrades Versatel to Ca

Moody's Investors Service downgraded Versatel Telecom International NV's debt to Ca from B3 after the company announced an exchange offer.

The action affects $1.54 billion of debt including Versatel's $225.0 million 13.25% senior notes (with warrants) due 2008; its $150.0 million 13.25% senior notes (with warrants) due 2008; its $180.0 million 11.875% senior notes due 2009; its €120.0 million 11.875% senior notes due 2009; its €300.0 million 11.25% senior notes due 2010; its €300.0 million 4.0% senior convertible notes due 2004; its €360.0 million 4.0% senior convertible notes due 2005.

Moody's said that although Versatel has not defaulted the rating agency considers "distressed exchanges" to be an event of default.

Moody's downgrades Kaiser, cuts outlook on other aluminum companies

Moody's Investors Service downgraded Kaiser Aluminum & Chemical Corp. and kept its ratings under review for possible further downgrade. The rating agency also put a negative outlook on Century Aluminum Co., Golden Northwest Aluminum, Inc., and Ormet Corp. Altogether $2 billion of debt securities is affected.

Moody's said the action reflects rating pressure being exerted by low and falling aluminum prices, potentially lower shipments, and the impact this could have on each firm's liquidity.

It added: "All four companies will be hurt by weaker fundamentals for aluminum brought about by the slowing global economy."

For Kaiser, Moody's added that it expects the company to be impacted by lower demand for heat-treated aluminum from the commercial aerospace industry and the continued shuttering of its Pacific Northwest smelters. There are also uncertainties about Kaiser's debt refinancing plans and its asbestos liability, Moody's said.

Moody's downgraded the following Kaiser ratings and kept them on review for possible further downgrade: $208 million of 9.875% senior notes due 2002 to B3 from B2; $225 million of 10.875% senior notes due 2006, to B3 from B2; $400 million of 12.75% senior subordinated notes due 2003, to Caa2 from Caa1.

Ratings with negative outlook are: Century Aluminum Co.'s $100 million senior secured revolving credit facility rated Ba2 and its $315 million of 11.75% guaranteed first mortgage notes due 2008 rated Ba3; Golden Northwest Aluminum, Inc.'s $75 million senior secured revolving credit facility rated B2 and its $150 million of 12% guaranteed first mortgage notes due 2006 rated B3; Ormet Corp.'s $100 million senior secured revolving credit facility rated B1, its $150 million of 11% guaranteed senior secured notes due 2008 rated B3 and its $75 million guaranteed senior secured floating rate term loan due 2008 rated B3.

S&P lowers Ormet ratings

Citing weak aluminum prices, and the company's poor financial performance and higher debt levels, Standard & Poor's lowered Ormet Corp.'s senior secured debt rating to B- from B, the company's senior secured bank loan rating to B+ from BB-, and its corporate credit rating to B from B+. The current outlook is negative, according to S&P.

The report cites Ormet as a "vertically integrated aluminum producer" that is enduring operating losses due to "reduced flexibility in responding to the cyclicality inherent in the aluminum industry." Further, the report states, aluminum prices which are presently at a 28-month low, are unlikely to recover soon, with recession, and other fallout from the Sept. 11 terrorist attacks on the US reducing demand among "key end users."

Ormet's operating losses and its two-year, $40 million capital expenditure program to address bauxite degradation issues at its Burnside alumina facility, have resulted in debt levels increasing to a "very aggressive 98%" as of June 30, 2001 (including $55 million of accounts receivable securitization), according to the S&P report.

Ormet Corp. is headquartered in Wheeling, W.Va.

Moody's rates U.S. Steel's SQUIDS Ba3

Moody's Investors Service assigned a Ba3 rating to United States Steel, LLC's proposed new issue of up to $365 million of unsecured Senior Quarterly Income Debt Securities (SQUIDs), due 2031. The outlook on the rating is negative. The issue is being offered in an exchange for outstanding securities.

Moody's said its ratings are based on the expectation that U.S. Steel will be separated from USX Corp. in a tax-free spin-off and that its proposed capital structure will reflect a $900 million value transfer from USX-Marathon Group.

Moody's added that its ratings reflect "the currently challenging domestic steel industry conditions that have weakened USS' pro forma debt protection measures, and the outlook for these difficult conditions to persist into the intermediate term. The ratings also incorporate USS' access to substantial liquidity facilities expected to total $800 million, the long-term maturity profile of its outstanding debt, and its flexibility to draw funding for post-retirement benefit obligations from the Voluntary Employee Benefit Association (VEBA) rather than from cash flow. Despite severe operating pressure, USS' long-term debt profile and available liquidity are key factors to the company's ratings."

Moody's upgrades Whole Foods Market bank loan to Ba3, convertibles to B1

Moody's Investors Service upgraded Whole Foods Market, Inc., including its $220.0 million unsecured bank loan, raised to Ba2 from Ba3, and its $135.8 million 5% zero-coupon convertible subordinated notes due 2018, raised to B1 from B2. The outlook is stable.

Moody's said its upgrade was prompted by "the strong performance of the company over the past three years and our expectation that operations will remain strong as the company continues its business plan of quickly growing store count. Quarterly comparable store sales have stayed above 7% for the past four years and gross margin has improved to 34.5% for the twelve months ending June 2001 versus 32.9% for Fiscal 1997. Cash flow is strong with lease adjusted leverage of 2.7 times and EBITDA equal to cash interest expense of about 18 times, even though the company has added additional debt to finance the rapid pace of new store construction."

Fitch rates new Terra $200 mln senior secureds BB-

Fitch assigned its BB- rating to Terra Capital's new $200 million senior secured notes, due Oct. 15, 2008, and Terra's $175 million new senior secured credit facility. Fitch also assigned a rating of B- to the outstanding $200 million. Terra Industries senior unsecured notes. The rating outlook is stable.

"The notching between the senior secured ratings and the senior unsecured rating reflects the security in current assets granted to the senior secured credit facility and the security in fixed assets of Terra's operating subsidiaries (Beaumont, Port Neal, and Woodward plants) granted to the senior secured notes," Fitch stated, adding that "the notching reflects the structural subordination of the existing senior unsecured notes issued at the Terra Industries level to the secured credit facility and new senior secured notes issued at the Terra Capital level."

The ratings reflect Terra's position as a leading Midwest producer of upgraded nitrogen fertilizer products, according to the rating agency.

Fitch cited other factors that should work in the company's favor: increases in anticipated corn acreage next planting season, a substantial decline in nitrogen prices, and lower natural gas prices.

The Sioux City, Iowa-based company's total debt at June 30, 2001, was $455 million. Debt-to-total capitalization was approximately 46% at June 30, 2001, but could increase in the near term if Terra were to write down goodwill and/or assets, according to Fitch.

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