Fitch lowers Williams Cos.

Fitch Ratings downgraded The Williams Companies, Inc. including cutting its senior unsecured debt to B- from BB-. The short-term rating remains at B. Fitch also lowered the senior unsecured debt of Williams' three pipeline issuing subsidiaries, Northwest Pipeline Corp., Texas Gas Transmission Corp., and Transcontinental Gas Pipe Line Corp. to BB- from BB. All ratings remain on Rating Watch Negative.

Fitch said the action reflects Williams' lack of progress in restoring its cash and liquidity profile since the expiry of a $2.2 billion unsecured credit facility on July 23.

Since the lapsing of the credit facility, Williams has repaid $175 million of maturing Transco senior notes and posted cash margins to support energy marketing and trading activities of at least $280 million, the rating agency said.

As a result, Fitch estimates that Williams' available cash position has dwindled to less than $700 million from approximately $1.14 billion just one week ago.

With upcoming debt maturities of $300 million on July 31 and $350 million on Aug. 1 and the potential for more than $300 million of additional cash collateral calls at energy trading in the near term, Williams' liquidity position is becoming increasingly tenuous, Fitch said.

Moody's raises iStar outlook

Moody's Investors Service raised its outlook on iStar Financial Inc. to positive from stable and confirmed its ratings including its senior debt at Ba1, preferred stock at Ba3 and the senior debt of its REIT subsidiary TriNet Corporate Realty Trust, Inc. at Ba1.

Moody's said the outlook change reflects iStar's successful integration of recently acquired businesses - TriNet Corporate Realty and ACRE Partners - along with its improved capital profile, as evidenced by lengthening its debt maturity schedule, and the improvement in matched funding of its long-term liabilities with long-term and illiquid assets.

The firm's loan portfolio has performed well, even in the current recession, but this book is still relatively unseasoned and individual exposures tend to be large - characteristics which call for caution, Moody's said. In addition, these loans are highly structured, which attenuates their illiquidity and can heighten their risk.

Property investments are triple-net leased for long tenors, with a large percentage of the corporate tenants being investment-grade, Moody's added.

Positives include iStar's experienced management team, its ability to formulate highly structured transactions utilizing strong underwriting skills, its diversification in real estate loans by geography and tenant mix, the variety of products offered and the firm's disciplined asset management and servicing systems.

On the negative side, iStar has moderately high targeted leverage, given its business profile, large single transactions, substantial levels of secured debt and part of its investments in more junior loans, Moody's said. In addition, iStar has had a relatively short operating history as a public company, and has not operated through a full real estate and economic cycle.

Moody's rates Agrilink's loan Ba3

Moody's Investors Service rated Agrilink Foods Inc.'s $200 million senior secured revolver due 2007 at Ba3 and $270 million senior secured term loan due 2008 at Ba3. Moody's also confirmed the company's $200 million 11.875% senior subordinated notes due 2008 at B3, senior implied rating at B1 and senior unsecured issuer rating at B2. The ratings outlook is stable.

Ratings are limited by "high financial leverage, exposure to variable agricultural crop yields, quality and prices, declining demand for basic frozen vegetable products, and highly competitive product markets," Moody's said. "In addition, the ratings incorporate the risks inherent in sustaining development of new value-added products to offset declines in core frozen vegetables, including intense competition in the value-added arena, which is an important area of focus for the large, well resourced food processors (such as Nestle, ConAgra, Heinz, Campbell Soup) because of relatively higher growth rates." Lastly, the company's raw materials are tied to annual crop cycles, requiring maintenance of significant inventory and presenting challenges in resizing inventories.

Ratings are supported by the company's scale and geographic reach, prominent market position, value of the Birds Eye brand, portfolio of smaller regional/niche brands and increased flexibility for restructuring the asset base due to a new organizational structure, Moody's said.

The stable outlook reflects the rebuilding of Agrilink's financial cushion with Vestar's investment and greater organizational flexibility to resize inventories and restructure assets than it has with the current cooperative ownership structure, Moody's said.

Moody's puts Land O'Lakes on review

Moody's Investors Service put Land O'Lakes, Inc. on review for possible downgrade, affecting $1.1 billion of debt including its senior unsecured debt at Ba3 and Land O'Lakes Capital Trust I's trust preferred securities at Ba3.

Moody's said the review is in response to Land O'Lakes' weaker-than-expected operating performance and deteriorating debt protection measures.

Land O'Lakes' core dairy foods business has begun generating operating losses as it continues to be challenged by a fiercely competitive operating environment, as well as overcapacity and low prices for some products, Moody's said.

In Land O'Lakes second largest operation - animal feed - the cooperative would have also reported an operating loss for the second quarter if not for a one-time, non-recurring gain, the rating agency noted. The feed business has been challenged as volumes have declined, and as it incurs charges to integrate acquisitions.

These challenges occur at a difficult time as Land O'Lakes increased leverage late 2001 in order to finance the acquisitions of Purina Mills, Moody's continued.

However the rating agency added that Land O'Lakes has strong brand and market share in diary foods as well as a solid position in animal feed and seed.

Fitch cuts Xcel to junk

Fitch Ratings downgraded Xcel Energy, Inc. and its subsidiaries Northern States Power MN, Northern States Power WI, Southwestern Public Service Co. and Public Service Co. of Colorado. Xcel's senior unsecured rating was lowered to BB+ from BBB+ and its commercial paper to B from F2 and withdrawn. The subsidiaries first mortgage bonds were lowered to BBB+ from A-, the senior unsecured debt to BBB from A, the trust preferreds to BBB- from A- and commercial paper to F2 from F1. The outlook is negative for all ratings.

Fitch said the downgrade is in response to the high leverage and liquidity concerns at Xcel's subsidiary NRG Energy, Inc. and the likely need for parental infusions of capital or credit support.

Although a cross-default clause exists which would link a future default by NRG to an event of default within Xcel's $800 million in parent-level committed facilities, the ratings incorporate an expectation by Fitch that a waiver will ultimately be negotiated with the bank group, thus limiting the linkage between the rating of Xcel and the implicit rating of NRG, the rating agency said. Failure to achieve receipt of a waiver from the bank group for the $800 million committed facilities would see Xcel's ratings lowered further into speculative grade.

The current ratings also acknowledge the strength of dividend cash-flow received by Xcel from its four regulated subsidiaries, but also the limitations upon increasing this source of cash for the Xcel holding company, Fitch said.

The utilities have very strong individual financial profiles and provide stable dividend income that is the primary support for the credit of the Xcel parent company. Xcel itself has low headline leverage, though this is to some extent offset by the proximate pressures on cash-flow, Fitch said.

S&P puts Alpharma on watch

Standard & Poor's put Alpharma Inc. and Alpharma Operating Co. on CreditWatch with negative implications. Ratings affected include Alpharma's $125 million 5.75% convertible subordinated notes due 2005 and $170 million 3% convertible notes due 2006, both at B, and Alpharma Operating's $300 million senior secured revolving credit facility due 2007, $175 million senior secured term A loan due 2007 and $425 million senior secured term B loan due 2008, all at BB- and its $200 million senior subordinated notes due 2009 at B.

S&P said the action is in response to Alpharma's recent downward earnings revision for 2002, reflecting increasing competition in the animal health sector and a production slow-down at the company's Baltimore manufacturing facility.

Alpharma's animal health business accounts for roughly 25% of the company's revenues. Recent increased generic competition to several of the company's swine products have led to lower sales and operating margins at the franchise, S&P said.

Meanwhile, the company's U.S. human generics business, which accounts for roughly 20% of total revenues, excluding the F.H. Faulding & Co. acquisition, also saw revenues decline, due to a product recall in early 2002 and continued production slow-down at the company's Baltimore plant, S&P added. The FDA is currently conducting an inspection of the facility, and Alpharma hopes to receive the results sometime in August.

Alpharma's free cash flows are only expected to be break even for the year, S&P said. At the same time, the company, due to its late 2001 acquisition of the generic oral solid-dose pharmaceutical business of Faulding, has over $900 million of debt outstanding.

Moody's rates Headwaters' loan B1

Moody's Investors Service rated Headwaters Inc.'s proposed $220 million senior secured five-year term loan B at B1, proposed $25 million three-year revolver at B1, senior implied rating at B1 and senior unsecured issuer rating at B3. The outlook is stable.

Net proceeds from the term loan and two million shares of common stock will be used to finance the acquisition of Industrial Services Group, including the retirement of ISG's $180 million of debt. Security for the credit facility is a perfected first priority lien on all material and future property and assets of Headwaters and its wholly-owned subsidiaries.

The revolver is expected to be undrawn at closing.

Ratings reflect a cautious stance regarding cash flow derived from the company's Covol Fuels business unit, which relies on economics associated with Section 29 tax credits, high degree of customer concentration, exposure to the cyclical and seasonal construction market for CCP, high leverage, a difficult five-year loan amortization schedule, acquisition risk, few tangible assets, negative tangible equity and susceptibility to contract disputes, litigation and regulatory changes, Moody's said.

Supporting the ratings is the currently strong market position of Covol Fuels and ISG's CCP businesses, potential for increased substitution of fly ash for cement in concrete, stability afforded by long-term reagent and CCP supply contracts, minimal capital expenditure requirements, modest working capital investment and solid liquidity, Moody's said.

For the twelve months ended June 30, consolidated revenue for the Headwaters and ISG was $309 million and EBITDA was $65 million. Headwaters' debt to total capital ratio will be 71%, and pro forma debt to EBITDA for the twelve months ended June 30 will be 3.4. Including rent payments yields a total debt to EBITDAR ratio of 4.0.

S&P puts International Multifoods on developing watch

Standard & Poor's put International Multifoods Corp. on CreditWatch with developing implications including its senior secured debt at BB+.

S&P said the action follows International Multifoods' announcement that it has entered into an agreement to sell its foodservice distribution business to an affiliate of a private equity firm, Wellspring Capital Management LLC, for about $180 million.

Net proceeds will be used to reduce outstanding debt.

The ratings could be lowered because the remaining business will be a much smaller participant in the packaged foods industry, which is dominated by larger players with significant market positions and greater financial resources, S&P said. Conversely, the ratings could be raised because there is potential for improved financial measures resulting from the lower interest expenses from the proposed debt reduction.

The ratings could be affirmed as International Multifoods looks to increase its remaining packaged foods business, S&P added.

S&P cuts GenTek

Standard & Poor's downgraded GenTek Inc. including lowering its $300 million revolver due 2005, $150 million term A loan due 2005, $200 million term C loan due 2007 and Noma Acquisition Corp.'s $150 million term loan due 2007 to CC from CCC and its $200 million 11% subordinated notes due 2009 to D from CC.

S&P said the downgrade is in response to GenTek's announcement that it has received a blockage of interest payment notice from its senior lenders regarding the company's 11% senior subordinated notes due 2009.

As a result of the notice from its senior lenders, GenTek will be unable to make its Aug. 1 interest payment on its 11% senior subordinated notes, S&P noted.

There is a high likelihood that GenTek will be unable to make the interest payment within the 30 day grace period, S&P commented.

Additionally, GenTek is currently not in compliance with its bank covenants, and its senior lenders now have the right to accelerate payment on more than $700 million in bank debt, S&P said. GenTek is in negotiations with its senior lenders to resolve the default, however, bank negotiations have been challenging. GenTek continues to experience very difficult end-market conditions in both automotive and telecommunications.

S&P rates Hollinger loan BB-

Standard & Poor's assigned a BB- rating to Hollinger International Publishing Inc.'s proposed $350 million three-tranche senior secured bank facility due between 2008 and 2009.

Net proceeds will be used to refinance outstanding indebtedness, including the remaining $239.1 million 9.25% senior subordinated notes due 2006 and a portion of the 9.25% senior subordinated notes due 2007, and for general corporate purposes.

Although S&P said it believes there is a strong possibility of substantial recovery of principal in the event of default or bankruptcy, the rating agency said its level of confidence in full recovery is not sufficient to warrant the bank loan being rated one notch higher than the long-term corporate credit rating.

S&P: No change in Calpine credit profile

Standard & Poor's said that neither the recent fall in Calpine Corp.'s (BB/stable) share price, which at times has been as low as about $2.75 per share, nor its announcement last week that it expects a second-quarter profit of 18c to 19c a share will affect its near-term credit profile.

Construction projects remain both on schedule and on budget for the year and Calpine is still pursuing several sale-lease back transactions in California that will improve liquidity.

In addition, Calpine's income stability fund offerings in Canada should yield about C$400 million to C$500 million this year. Calpine is still pursuing some asset sales but may find prices unattractive under current market trends for power assets.

S&P said it also expects Calpine's financial flexibility to be constrained near term. The capital and bank markets are providing very little debt to the power sector, but Calpine's recent $2 billion secured borrowing gives it immediate liquidity.

Although Calpine issued about $800 million in equity earlier this year when its stock price was depressed - $11.54 a share on April 24 - current, even more depressed price levels make another offering unlikely, S&P added.

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