S&P upgrades Del Monte, rates notes B, loan BB-

Standard & Poor's upgraded Del Monte Corp., assigned a BB- rating to its new $300 million revolving credit facility due 2008, $195 million term A bank loan due 2008 and $750 million term B bank loan due 2010 and a B rating to its new $450 million 8.625% senior subordinated notes due 2012, removed the company from CreditWatch with positive implications and assigned a stable outlook. Ratings raised include Del Monte's $325 million revolver bank loan due 2007, $350 million revolving credit facility due 2003, $200 million tranche A term loan due 2003, $150 million tranche B term loan due 2005 and $415 million term bank loan B due 2008, raised to BB- from B+, and $150 million 12.25% senior subordinated notes due 2007 and $300 million 9.25% senior subordinated notes due 2011 raised to B from B- and Del Monte Foods Co.'s $125.5 million 12.5% senior discount notes due 2007, raised to B from B-.

S&P said the upgrade is based on the impending closing, assuming current terms and conditions, of its merger with H.J. Heinz Co.'s U.S. seafood, private label soup, and infant feeding operations.

S&P said that for in evaluating the underlying collateral for the credit facility it used an enterprise value approach, given the likelihood that the Del Monte business would retain more value as an operating entity in the event of a bankruptcy. Based on its analysis, S&P said it believes that bank lenders are unlikely to realize full recovery in the event of a bankruptcy. However, meaningful recovery of more than 80% of principal is likely.

Overall the ratings reflect S&P's belief that the company's long-term financial performance will improve to meet expectations for the current rating given the diversity of the product portfolio and expected higher margins, relative to Del Monte's previous business.

The business combination would result in an enhanced business profile for Del Monte, creating a company with a larger portfolio of stronger, higher margin consumer food brands, S&P said.

Following the merger, Del Monte will take on about $1.1 billion of additional debt. Management will be challenged to integrate the new portfolio of brands with minor disruption to the retail trade while operating a company that is about double its current size, S&P said.

Still, S&P said it believes that growth will be the company's biggest challenge. Under Heinz, the brands have not had the level of support behind them in recent years that is necessary to maintain market share against competitors. However, Del Monte's commitment to increasing the promotional and brand spending while forming a core product category for the company should expand its existing product mix and provide long-term growth opportunities.

Pro forma for the transaction, Del Monte Foods will be highly leveraged, S&P said. Lease-adjusted total debt to EBITDA should be about 3x, while EBITDA coverage of interest expense is expected to be more than 4x. The Heinz portfolio of products is more highly margined then Del Monte's. Hence, margins should improve by about 400 basis points following the merger, into the mid-teen percentage area, as a result of the portfolio combination and anticipated operating synergies.

Moody's cuts Delhaize to junk

Moody's Investors Service downgraded Delhaize America, Inc. to junk, affecting $2.9 billion of debt and concluding a review begun on Sept. 26. Ratings lowered include Delhaize America's senior unsecured debentures, global notes, notes and MTN program, cut to Ba1 from Baa3. The outlook is stable.

Moody's said the downgrade reflects the challenges that Delhaize America has faced in reducing leverage following its acquisition of Hannaford in 2000, as well as Moody's expectation that credit statistics are unlikely to improve significantly over the intermediate term given the currently difficult operating environment.

While the acquisition provided Delhaize America with a valuable supermarket franchise in the northeast, it increased balance sheet debt to about $3.9 billion, Moody's said. Funded debt has not been reduced materially since the merger and remains high at $3.76 billion as of Sept. 28, 2002.

Fierce competition from other supermarkets, Wal-Mart Supercenters, and from other retail formats that now sell food has caused cash flow from operations to grow more slowly than expected, the rating agency said.

Competition in the Carolinas and Florida, which account for about 52% of Delhaize America's stores, continues to be especially intense. Additionally, weak local economies, including high unemployment in North Carolina, and food deflation are also making sales growth more challenging, Moody's said.

Although Moody's anticipates that consolidated margins will remain among the highest in the industry, the retail environment and competitive landscape will limit Delhaize America's ability to raise profitability sufficiently in the intermediate term to improve its low fixed charge coverage and high adjusted leverage.

Moody's cuts Legrand to junk

Moody's Investors Service downgraded Legrand SA to junk, affecting $400 million of debt, and kept it on review for downgrade. Ratings lowered include Legrand's senior debt, cut to Ba2 from Baa1.

Moody's said the action follows the announcement by Schneider Electric SA that it will no longer pursue its merger with Legrand and instead has concluded the divestment of its 98.1% stake in Legrand to the KKR/Wendel Investissement consortium.

The ratings are based on the expectation of a significant leveraging of the group to fund the purchase price of €3.6 billion, Moody's said. They also acknowledge Legrand's good market position, its relatively resilient operating profitability against economic deterioration and a stable cash flow stream offering a sizable debt reduction capacity.

The ratings do not yet reflect the eventual structure of Legrand's debt and the ranking of the rated bonds within that, Moody's added. Moody's will review the senior debt ratings of Legrand with a focus on this aspect, i.e. on the various funding instruments the new owners choose to apply and their impact on Legrand's current debt, and on the company's revised business strategy.

Moody's downgrade review is while it re-assesses the business strategy of Legrand under new ownership and the impact of the refinancing on Legrand's existing bondholder positions. Subject to the ranking of Legrand's debt in the leveraged capital structure the rating for the senior unsecured notes for Legrand could be placed two notches below its senior implied rating.

S&P rates Lamar notes B

Standard & Poor's assigned a B rating to Lamar Media Corp.'s planned $260 million senior subordinated notes due 2012 and confirmed the company's existing ratings including its senior secured debt at BB-, subordinated debt at B and Lamar Advertising Co.'s senior unsecured debt at B. The outlook is stable.

Ratings are based on the consolidated credit quality of Lamar Advertising and reflect the company's significant debt levels, attributable to growth through acquisition over the years, S&P said. Pro forma debt to EBITDA in the low 5x area.

These factors are tempered by the company's strong and geographically diverse market positions and an emphasis on the better margin and more stable local advertising revenues, S&P said. In addition, with EBITDA margins in the mid-40s percentage area, manageable capital expenditures, and minimal cash taxes, Lamar generates healthy levels of free operating cash flow. Recent results have been affected by the impact of the soft economy on advertising revenues, particularly on the general coverage bulletins and posters portions of the outdoor advertising segment.

While the company has grown through acquisitions, Lamar has sold or used common equity in the past to help fund some of these purchases, S&P said. Financial flexibility is provided by availability under the company's revolving credit facility.

Moody's puts Burns Philp on review

Moody's Investors Service put Burns Philp & Co. Ltd. on review for possible downgrade including its $400 million 9.75% senior subordinated notes due 2012 at B2.

Moody's said the review is in response to Burns Philp's announcement that it is pursuing a cash acquisition of Goodman Fielder Ltd. for A$2.2 billion (US$1.2 billion) and may acquire New Zealand Dairy Foods Ltd. from an entity owned by Graeme Hart, who also is Burn's controlling shareholder.

Moody's said it expects the majority of funds for the acquisition to come from net debt, which would increase Burn's pro forma leverage materially.

The GMF acquisition would triple Burns' A$1.3 billion revenues to about A$4.5 billion (US$2.5 billion) and double Burn's approximately A$325 million of run-rate EBITDA to about A$600 million (US$350 million). GMF would add a mature consumer food business with leading brands focused on Australia/New Zealand to Burn's largely non-Australian, global industrial ingredients-oriented platform.

Moody's review will consider Burns' funding for the two acquisitions, should they proceed, the resulting capital structure of Burns, challenges in integrating the large addition of businesses in branded market segments that are new to Burns, the competitive positions of Burns' business segments and their operational plans, Burns' overall pro forma business mix, and the expected levels of cash flow generation going forward.

S&P keeps Elgin National on watch

Standard & Poor's said Elgin National Industries Inc. remains on CreditWatch with negative implications including its corporate credit rating at CCC+.

S&P said it is continuing the watch after Elgin announced it has obtained a wavier to its bank agreement through Jan. 31, 2003.

As a result of weaker-than-expected cash generation, caused by declining industrial markets and soft coal power plant construction markets in the U.S., Elgin was in violation of its financial covenants at the end of the third quarter (ended Sept. 30, 2002), S&P noted.

Elgin has been able to obtain a wavier, through Jan. 31, 2003, at which time the company will need to be in compliance with its bank covenants or need to seek another wavier or amendment, S&P said. If the company is unable to obtain a waiver or amendment its senior lenders may accelerate payment or require the company to restructure its senior unsecured debt, which may restrict the company from making its $4.6 million May 1, 2003, interest payment.

Elgin was able to make its Nov. 1, 2002, interest payment, however, the company's liquidity is extremely limited with about $5 million in total liquidity currently available, S&P said.

Operating income has declined by more than 50% for the first nine months of 2002 (ended Sept. 30, 2002) to $4.7 million from $10.3 million for the same period in 2001, S&P said. Credit protection measures are weak with total debt to EBITDA of about 7.2x and EBITDA to interest coverage of about 1.4x.

Fitch cuts Atlas Air EETCs

Fitch Ratings downgraded Atlas Air, Inc.'s enhanced equipment trust certificates, series 2000-1, 1999-1 and 1998-1 and kept them on Rating Watch Negative. Ratings lowered are Atlas Air 2000-1 class A cut to BBB- from A-, class B cut to BB- from BBB, class C cut to B from BB+, Atlas Air 1999-1 class A-1 cut to BBB- from A, class A-2 cut to BBB- from A, class B cut to BB- from BBB, class C cut to B-, and Atlas Air 1998-1m class A cut to BBB- from A, class B cut to BB- from BBB and class C cut to B from BB.

Fitch said the downgrade reflects its downgrade of Atlas Air, Inc.'s unsecured debt to as well as the deterioration in value of the subject collateral.

The EETC rating actions reflect Fitch's conclusion that the long term value of the Boeing 747-400F aircraft that support all three series has suffered some additional impairment since Fitch last downgraded Atlas Air EETCs on May 17, 2002.

The EETC ratings remain on Rating Watch due to the pending resolution of the unsecured Rating Watch, Fitch said.

Moody's rates Hylsa notes Caa3

Moody's Investors Service assigned a Caa3 rating to Hylsa, SA de CV's $161 million of 10.5% senior unsecured notes due 2010 offered to holders of Hylsa's 9.25% senior unsecured notes due 2007 as part of an exchange offer and consent solicitation. Moody's also confirmed Hylsa's existing ratings including the remaining $139 million of 9.25% senior unsecured notes due 2007 at Caa3. The outlook was revised to stable from negative.

The ratings reflect continuing difficult steel market conditions brought on by excess capacity, weak North American and global economies, and declining spot prices for many of Hylsa's products, Moody's said.

Considering this uncertain operating environment, the fact that Hylsa has emerged from its restructuring with very limited liquidity, $40 million, is a critical factor restraining the ratings, Moody's said.

However, the ratings benefit from the approximately 35% reduction in total debt effected by the debt restructuring, the longer average life of Hylsa's debt, and a recovery in steel prices from very low levels earlier this year, Moody's added.

Moody's rates Boyd Gaming notes B1

Moody's Investors Service assigned a B1 rating to Boyd Gaming Corp.'s proposed $300 million senior subordinated notes due 2012 and confirmed the company's existing ratings and stable ratings outlook including its $400 million secured revolving credit facility due 2007 and $100 million secured term loan facility due 2008 at Ba1, $122.2 million 9.25% senior notes due 2003 and $200 million 9.25% senior notes due 2009 at Ba3 and $250 million 8.75% senior subordinated notes due 2012 and $250 million 9.5% senior subordinated notes due 2007 at B1. The outlook is stable.

Moody's said the ratings reflect Boyd's geographic diversity, regional riverboat focus, positive operating trends, improved financial profile, and Moody's current opinion that the Borgata project will be an overall long-term positive with respect to Boyd's ratings.

The ratings continue to reflect the development and ramp-up risk associated with the Borgata project, as well as Moody's expectation that Boyd would provide its share of financial support to the project if necessary.

Although not currently anticipated, material development and/or ramp-up difficulties could result in a lower rating, Moody's said.

The stable ratings outlook anticipates that Boyd will use its free cash flow to maintain its current credit profile, and that continued EBITDA improvement and lower capital expenditure requirements will further strengthen Boyd's ability to deal with near and long-term challenges, Moody's said. These challenges include the completion and success of the Borgata project, the threat of Native American gaming in New York State, and moderating growth rates across the gaming sector.

On Nov. 5, 2002 Moody's revised Boyd's ratings outlook to stable from negative based on the company's improved free cash flow profile and reduced leverage. Debt/EBITDA is now at a level that Moody's believes is more consistent with Boyd's Ba2 senior implied rating. Debt/EBITDA for the 12-month period ended Sep. 30, 2002 (excluding Borgata related debt) was 4.1x compared to 5.1x at Dec. 31, 2001 and 5.0x at Dec. 31, 2000.

Fitch cuts Pfleiderer to junk

Fitch Ratings downgraded Pfleiderer AG Group to junk, cutting its senior unsecured debt to BB+ from BBB-. The ratings were removed from Rating Watch Negative. The outlook is negative.

Fitch said it lowered Pfleiderer because it expects continued high financial leverage not in line with an investment-grade credit rating while the company is going through a prolonged process of restructuring and repositioning operations and expanding its product range.

The negative outlook reflects the execution risks involved in this process and the maturity of the company's markets, which are characterized by strong margin pressure, Fitch added.

In May 2002, Pfleiderer announced (against the background of weaker than expected results) a new strategy of focused growth aimed at reducing the group's exposure to the ailing German construction sector. After the successful disposals of large parts of the insulation material and the whole structural elements divisions, cash proceeds have strongly improved the pro-forma first half 2002 balance sheet, Fitch said.

However, Fitch expects Pfleiderer's financial profile to deteriorate again amid the need for internal and external growth in a reduced number of core businesses.

Ongoing strong margin pressure in wood-based materials has caused a leveling out of the investments in order to keep gearing and capital ratios at an acceptable level. At year-end 2001 Pfleiderer had a net debt/ adjusted EBITDA of 3.4x. For all future core divisions, the agency believes that Pfleiderer may be forced to reduce its exposure to some markets in order to increase operational focus and thereby improve the overall profitability.

S&P cuts AES Drax

Standard & Poor's downgraded AES Drax Holdings Ltd.'s $302.4 million 10.41% bonds due 2020 and £200 million 9.07% bonds due 2025 to D from CC and InPower Ltd.'s £905 million bank loan due 2015 to D from CC.

S&P raises Actuant outlook

Standard & Poor's raised its outlook on Actuant Corp. to positive from stable and confirmed its ratings including its senior secured bank loan at BB- and subordinated debt at B.

S&P said the revision reflects Actuant's improved financial profile, which is the result of management's continued focus on cash flow generation and debt reduction. Over time, a disciplined approach to acquisitions and further improvement in the financial profile could lead to an upgrade.

High financial risk arises from an aggressively leveraged capital structure and fair cash flow protection, S&P said. Operating results during fiscal 2001 were affected by the sharp decline in production of RVs and the slowing U.S. economy. Despite a rise in RV orders, challenging end-market conditions continued during fiscal 2002.

Nevertheless, Actuant's solid operating margins, low working capital intensity, and modest capital expenditure requirements should allow the company to generate modest free cash flow in the next few years, S&P said.

The company issued 3.5 million shares of common stock in early 2002, generating about $90 million in proceeds used for debt reduction. For the fiscal year ended Aug. 31, 2002, Actuant's financial profile improved, with total debt to EBITDA declining to about 2.5x from 3.8x for the previous year, S&P said.

Nevertheless, S&P said it expects the company to pursue opportunistic acquisitions that could increase debt levels and financial risk. Over the business cycle, funds from operations to total debt is expected to average about 20%.

Moody's rates Iron Mountain notes B2, raises outlook

Moody's Investors Service assigned a B2 rating to Iron Mountain Inc.'s new $100 million senior subordinated noted due 2015, confirmed its existing ratings and raised the outlook to stable from negative. Ratings confirmed include Iron Mountain's $250 million senior secured and guaranteed term B credit facility due 2008 at Ba3 and $405 8.625% guaranteed senior subordinated notes due 2013, $75.2 million 9.125% guaranteed senior subordinated notes due 2007, $250 million 8.75% guaranteed senior subordinated notes due 2009, $150 million 8.25% guaranteed senior subordinated notes due 2011 and $135 million 8.125% guaranteed senior unsecured notes due 2008 at B2.

The outlook change reflects improved cash generation of the company due to lower acquisition spending, which somewhat improved credit statistics, Moody's said. The company reported its first modestly positive free cash flow, as measured by cash flow from operations less capital expenditures, for the first nine months of 2002.

Further improvement in the rating would be predicated on improved cash generation, significant debt reduction and no decapitalization of the company, Moody's added.

The ratings are constrained by the company's high leverage, inclusive of operating leases, of approximately 5.7 times the trailing 12 months ending Sept. 30, 2002 EBITDAR, and over 2 times trailing twelve months revenues; negative tangible equity of over $592 million; and low fixed charge coverage of 1.2 times, inclusive of operating leases and current portion of long term debt, Moody's said.

Moody's does not expect Iron Mountain to use increases in free cash flow to substantially decrease total debt in the near term. To the extent that the company is able to deleverage using internally generated funds, the ratings may be affected positively. However, lack of meaningful free cash flow generation, increased leverage or decapitalization of the company may result in a downgrade.

Fitch rates Illinois Power bonds BB-

Fitch Ratings said it expects to assign a BB- rating to Illinois Power Co.'s proposed $500 million mortgage bonds due December 2010. The rating is currently on Rating Watch Negative, as are Illinois Power's B senior unsecured and CCC preferred stock ratings.

Illinois Power's ratings reflect the structural and functional ties between the company and its parent Dynegy Inc.

Dynegy is currently in the process of renegotiating $1.6 billion of bank credit facilities that mature in the second quarter of 2003.

If Dynegy is successful in renewing its bank facilities on a secured basis, unsecured creditors will become structurally subordinated. As a result, Fitch would lower the senior unsecured ratings of Dynegy and Dynegy Holdings by one or more notches. Due to the relationship between Dynegy and Illinois Power, the ratings of Illinois Power, including the new mortgage bonds, would also likely be reduced.

S&P lowers Teekay outlook

Standard & Poor's lowered its outlook on Teekay Shipping Corp. to stable from positive and confirmed its existing ratings including its BB+ corporate credit rating.

S&P said the revision follows Teekay's acquisition of Statoil ASA's shipping subsidiary, Navion ASA.

The outlook revision reflects the company's increased debt burden after the $800 million cash acquisition of Navion, S&P said.

Pro forma for the acquisition, Teekay's lease-adjusted debt to capital ratio will be approximately 56%. Before this acquisition, Teekay's credit ratios were strong for the rating, and the company has successfully paid down debt from major acquisitions in 1999 and 2001.

In 2003, Teekay's financial flexibility will be reduced somewhat with almost $250 million due on ships under construction. EBITDA coverage of interest will be slightly less than 4x after the acquisition, similar to that in the weak year of 1999, and significantly lower than the 8x for 2001, S&P said. However, the acquisition of Navion increases the percent of fixed charter business to Teekay, which represents more stable earnings and cash flow, supporting the company's financial profile.

Moody's raises Willis North America outlook

Moody's Investors Service raised the outlook on Willis North America Inc., a subsidiary of

Willis Group Holdings., to positive from stable.

Moody's said improved earnings, future prospects and reduced financial leverage combine to generate a positive outlook.

The ratings reflect the company's franchise as the third largest insurance broker worldwide, its good international competitive position - particularly in the U.K. - its geographical diversification, and the strength of many of its long-standing client relationships, Moody's said. The group has focused on developing a sales culture, generating revenue growth and gaining acceptance as a trading partner by clients and insurance carriers.

In addition, over the medium term, the current hard market is benefiting the insurance brokerage industry, and in particular, Willis since a large portion of its revenue is commission based.

Moody's believes that the group maintains significant financial leverage despite its IPO and the subsequent reduction in its outstanding debt. This concern largely reflects the company's historically volatile earnings as well as its effective financial leverage. Further, the company has limited diversification of earnings outside of insurance brokerage.

Fitch cuts Eletropaulo

Fitch Ratings downgraded Eletropaulo Metropolitana Eletricidade de Sao Paulo SA's local and foreign currency ratings and Brazilian national scale rating to DDD from C following the company's default on $100 million of euro commercial paper due this week.

The company had previously issued three options for an exchange offer to the holders of the commercial paper but has not received sufficient participation, Fitch said. Eletropaulo has extended the offers to Dec. 18.

Separately, Eletropaulo recently signed a definitive agreement with the JP Morgan bank syndicate under which the company repaid 15% of the $225 million loan and agreed to amortize the balance over a 24 month period (with grace period of 11 months) at a higher interest rate; Eletropaulo has the waiver of the non-payment of the CP from JP Morgan as well, Fitch said.

It is expected the company will negotiate similar terms with its other lenders. The company is currently in technical default (not payment default) on a number of its bank loans related to violation of financial covenants, although no loans have been accelerated.

Fitch said it does not expect Eletropaulo to be able to meet its upcoming debt maturities absent a restructuring of its other bank loans under similar terms of the JP Morgan loan. The company has said its intention is to honor 100% of its obligations, but Eletropaulo's refinancing options are currently limited to rolling over existing local and international bank transactions and commercial paper given the company's strained cash position and AES management's intention to not invest additional funds into Brazil.

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