Moody's puts American Plumbing on review

Moody's Investors Service put American Plumbing & Mechanical, Inc. on review for possible downgrade including its $95 million 11.625% senior subordinated notes due 2008 at B3.

Moody's said the review was begun in response to American Plumbing's significantly weaker than expected first half 2002 operating results, which resulted in its having to seek two separate amendments from its bank group.

As part of the most recent amendment, the company's bank credit facility was reduced in size, from $95 million to $90 million through year-end 2002, to $85 million in 2003, and to $80 million in 2004.

With borrowings of $72 million under the line as of June 30, 2002, American Plumbing had $18 million of available borrowing capacity for the balance of this year and reduced capacity thereafter.

Moody's cuts Pac-West Telecomm

Moody's Investors Service downgraded Pac-West Telecomm, Inc. including cutting its $129 million 13.5% senior notes due 2009 to Ca from Caa1. The outlook is negative.

The action concludes a review begun in October 2001 and reflects Moody's concern about the impact of a likely tightening of Pac-West's reciprocal compensation revenue base that the rating agency believes will lead to near-term liquidity pressure.

At the end of June 2002, Pac-West's liquidity comprised cash and short-term investments of $64 million, Moody's noted. This is substantially reduced from the end of the prior quarter, when liquid resources stood at $95 million comprising $65 million in cash and short-term investments plus $30 million undrawn under its bank credit facility. The $40 million bank credit facility, which was retired at maturity in June 2002, has not been replaced.

Moody's said it believes Pac-West has sufficient liquidity to support its operations for the rest of 2002, regardless of the outcome of its discussions with SBC Communications and Verizon.

Pac-West's business model is largely dependent upon the sustainability of reciprocal compensation revenues, which represented 42% of Pac-West's total revenues during the second quarter of 2002, Moody's said. This represents a greater dependence on reciprocal compensation than any major rated CLEC.

Pac-West is in discussions with SBC Communications and Verizon Communications concerning the interconnection rates charged by Pac-West under its future contracts with these carriers. Two of the rates that serve as benchmarks for these negotiations are the FCC's interim compensation rate, which declines from $0.0010 per minute at present to $0.0007 per minute in mid 2003, and the current rate approved by the California PUC of $0.0018 per minute.

Moody's cuts AES Drax

Moody's Investors Service downgraded AES Drax including cutting AES Drax Holdings Ltd.'s £200 million and $302.4 million senior secured bonds to Ba2 from Ba1, InPower Ltd.'s £905 million senior secured bank loan to Ba2 from Ba1 and AES Drax Energy Ltd.'s £135 million and $200 million notes to Caa2 from B1. All ratings remain on review for further downgrade.

Moody's said the downgrades reflect the confirmation of a new base case financial model, with revised projections that include new market price forecasts from the market consultant.

The price forecasts have been revised down again and are the principal reason for the model showing a generally weaker financial profile for the Drax project going forward, the rating agency added.

Additionally, the revised model has led to one of the tests not being met to allow distributions this month to AES Drax Energy Ltd. As a consequence, this could lead to a payment default on the AES Drax Energy Ltd. notes on Aug. 30.

Moody's said it believes that the ultimate parent, AES Corp. intends to avoid this payment default by making a payment to the AES Drax Energy noteholders.

Moody's rates William Lyon notes B3

Moody's Investors Service assigned a B3 rating to William Lyon Homes' planned $200 million senior unsecured notes due 2012, confirmed the company's senior implied rating at B2 and raised its senior unsecured issuer rating to B3 from Caa2. The outlook is stable.

Moody's said its actions reflect a shift in William Lyon's capital structure away from one top heavy with secured debt along with the substantial growth in the company's equity base since 1997, its strong shares in key California markets and its healthy profitability.

Proceeds of the proposed new senior unsecured notes will be used to retire the remaining $70.3 million of 12.5% senior unsecured notes due 2003 (whose rating of Caa1 will be withdrawn) and to repay nearly $125 million of senior secured debt (bank debt, construction notes, and seller financing), Moody's noted.

Pro forma for the proposed new senior unsecured note offering as of June 30, 2002, secured debt within the company's capital structure drops from 74% of total debt to 36%, and from 49% of total capitalization to 24%, Moody's said.

S&P cuts Grant Geophysical

Standard & Poor's downgraded Grant Geophysical Inc. including cutting its $100 million 9.75% senior notes due 2008 to D from CC.

S&P said it lowered Grant Geophysical Inc. after the company said it did not make the $2.1 million interest payment due Aug. 15 on its senior unsecured notes.

S&P cuts International Wire

Standard & Poor's downgraded International Wire Group Inc. Ratings lowered include International Wire's $150 million 11.75% senior subordinated notes due 2005, cut to CCC+ from B-, and its $70 million senior secured revolving credit facility due 2005, cut to B+ from BB-.

S&P said it lowered International Wire because it expects weakness in many of the company's key end markets will continue. Also, automotive demand, accounting for 41% of the company's revenues, is unlikely to remain at current strong levels, which would have a further negative impact on the company's already weak financial performance.

In addition, S&P said it is concerned that a nominal decline in financial performance could lead to a covenant violation under its bank credit facility, restricting borrowing availability.

The company's total debt to total capital ratio is very aggressive at 94%, S&P said. The weak operating performance has resulted in a deterioration of credit protection measures.

Following a 41% decline in EBITDA to $57 million for fiscal year ending Dec. 31, 2001, EBITDA for the six month period ending June 30, 2002, declined 22% to $26.5 million from $34.2 million translating into a weak EBITDA to interest coverage of 1.5 times. Annualizing the six month funds from operations results in a very weak funds from operations to total debt ratio of 6.6%, S&P said.

Moreover, during the six month period ending June 30, 2002, IWG had a deficit of $8.6 million in free operating cash flow, stretching the company's liquidity. As of June 30, 2002 IWG had cash balances of $6 million and availability under its new $70 million borrowing based revolving credit facility of $24 million. Further deficits in free cash flow will increase the company's reliance on its revolving credit facility, S&P added.

S&P notes NRG extension

Standard & Poor's noted NRG Energy Inc.'s extension from lenders to Sept. 13 to post collateral for its $2 billion construction revolver helps relieve a near-term liquidity crisis but said it has no immediate effect on the rating.

The extension provides NRG with time to provide additional information to the bank group and possibly complete further asset sales to raise cash, S&P said.

While the extension buys some time to negotiate a reasonable global solution to its credit problems, NRG has no source of immediate liquidity available, the rating agency added.

S&P said it continues to believe NRG will be challenged to meet its obligations.

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