S&P downgrades Level 3 bonds two notches, still on watch

Standard & Poor's downgraded Level 3 Communications Inc. - including lowering its bonds two notches - and kept the ratings on CreditWatch with negative implications. Ratings affected include Level 3's corporate credit, cut to CCC+ from B-, its $2 billion 9.125% senior notes due 2008, $834 million (principal) 10.5% maturity value senior discount notes due 2008, $800 million 11% senior notes due 2008, $250 million 11.25% senior notes due 2010, $675 million 10.75% senior discount notes due 2010, €500 million 10.75% senior notes due 2008, and €300 million 11.25% senior notes due 2010, all lowered to CCC- from CCC+; and its $823 million 6% convertible subordinated notes due 2009 and $863 million 6% convertible subordinated notes due 2010, both lowered to CCC- from CCC.

S&P said it lowered Level 3 because of "continued weak industry fundamentals, the company's leveraged balance sheet, potential covenant violations, and the continued decline in asset values in the long-haul sector."

The downgrade in the company's bonds was two notches because of the deterioration in asset value and the level of bank debt in its capital structure, S&P explained.

While Level 3's fourth quarter and year end results demonstrated progress operationally, industry conditions remain challenging, new sales growth is being largely offset by customer disconnects, and the company has indicated that a percentage of its recurring revenue base is still at risk, S&P said.

"More immediately, management has indicated that it may violate a minimum revenue covenant as early as the second quarter of 2002, and is in discussions with its bank group," the rating agency added.

Resolution of the CreditWatch will depend on Level 3 meeting or renegotiating its covenants.

Moody's confirms Beazer

Moody's Investors Service confirmed the ratings of Beazer Homes USA, Inc. Ratings affected include Beazer's $100 million 8.875% senior notes due 2008, $200 million 8.625% senior notes due 2011 and $250 million unsecured revolving credit facility due 2004, all rated Ba2. The outlook is stable.

Moody's announced the confirmation after Beazer said it is acquiring Crossmann Communities, Inc. for $603 million, including $118 million in assumed debt.

Moody's said it confirmed Beazer's ratings because of its "strong revenue and earnings growth, geographic diversification, conservative land policies, rapid asset turnover, healthy interest coverage, and the growth of its equity base."

The acquisition of Crossmann will be financed with 45% equity and 55% debt, including assumed debt, Moody's said.

The acquisition will change Beazer's capital structure "very little," Moody's said, with pro forma total debt/capitalization rising to 53.8% from 53.5% as of Dec. 31, 2001. EBITDA interest coverage remains strong at a pro forma 4.6 times although reduced from the pre-transaction level of 5.0 times for the 12 months to Dec. 31, 2001.

In addition, the acquisition will provide a strong entry for Beazer into solid Midwest markets, as Crossmann has been the number one builder in Indianapolis, Ind. and a top five homebuilder in Cincinnati and Columbus, Ohio, Moody's said. The transaction will also propel Beazer to number one position in Charlotte, N.C. from number four, to number four in Raleigh, N.C. from number six and add Memphis, Tenn. to augment Beazer's existing foothold in Nashville.

Moody's said Beazer intends to refinance the $250 million of bridge financing used to pay the cash portion soon after the transaction closes.

Crown Cork & Seal extends part of term loan

Crown Cork & Seal Co., Inc. said its lenders agreed to extend $225 million of its $400 million term loan to Aug. 4, 2002 from Feb. 4, 2002.

"The company is expecting improving fundamentals in the packaging sector in 2002 and the extension of a portion of the term loan will provide additional flexibility to finance the working capital requirements during the season," said Alan W. Rutherford, the company's vice chairman and chief financial officer, in a news release.

Regal Cinemas emerges from Chapter 11

Regal Cinemas, Inc., said it emerged from its voluntary prepackaged Chapter 11 proceeding.

The Knoxville, Tenn. movie theater chain said the plan was supported by holders representing more than 95% of the debt that was voted and confirmed by the U.S. Bankruptcy Court for the Middle District of Tennessee in Nashville on Dec. 7, 2001.

"The consensual plan of reorganization that became effective today creates a significantly deleveraged Regal Cinemas with sufficient cash to fund its operations and a sound financial structure," said Regal chairman and chief executive officer Michael L. Campbell in a news release.

S&P rates CSG credit facilities BB

Standard & Poor's assigned a BB rating to CSG Systems Inc.'s $400 million senior secured credit facilities. The outlook is stable. Ratings affected include CSG's $125 million term loan A 2007, $175 million term loan B due 2008 and $100 million revolving credit facility due 2007, all rated BB.

S&P said its assessment of CSG reflects the company's "growing installed base, recurring revenues, and prospects for moderate-size, but predictable, earnings and cash flow."

Negatives are CSG's "vulnerability to competitors, which are substantially larger, and its concentrated client base, with one customer that represented more than one-half of revenues in 2001," S&P added.

S&P also noted the company faces the challenging of integrating the recently purchased billing and customer care assets of Lucent Technologies Inc. for about $300 million in cash and restoring profitability in this under-performing unit.

S&P keeps DTE Burns Harbor on watch

Standard & Poor's said its BB rating DTE Burns Harbor LLC's $163 million senior secured notes remains on CreditWatch with negative implications where it was placed on May 4, 2001.

S&P said the rating remains on watch because of DTE's reliance on sales of coke to Bethlehem Steel for a portion of its cash flow.

Although it is in Chapter 11, Bethlehem Steel has not sought to vacate the contract and remains current in its payments except for an outstanding receivable for 1½ months leading up to the filing, S&P said.

Since it has a six-month debt service reserve and the notes mature in January 2003, only one more debt service payment needs to be funded from project cash flows to ensure full and timely repayment of the notes, S&P said.

But the rating agency said it will keep DTE on watch because Bethlehem Steel's status could change rapidly.

S&P puts Wolverine Tube on negative watch

Standard & Poor's put Wolverine Tube Inc. on CreditWatch with negative implications. Ratings affected include Wolverine Tube's $200 million revolving credit facility due 2002 and $150 million 7.375% senior notes due 2008, both at BB+.

S&P said the watch listing follows Wolverine's announcement that it expects a fourth-quarter loss from operations in the range of 23 cents to 28 cents per share.

Wolverine's earnings have been "severely affected by the deterioration in global economic conditions," S&P said, adding: "the magnitude of customer sales deferrals and plant shutdowns in the latter part of the fourth quarter were unexpected."

For the 12 months to Sept. 30, 2001, total debt to EBITDA was "aggressive" for the ratings at 4.2 times and EBITDA interest coverage had eroded to 3.7 times, S&P said.

It warned Wolverine could be in violation of financial covenants on its revolving credit facility because of the fourth-quarter results. "Wolverine is expected to remedy any financial covenant violation in conjunction with a refinancing that is expected to be completed prior to the facility's maturity on April 30, 2002," S&P added.

S&P cuts Wellman to junk

Standard & Poor's downgraded Wellman Inc. to BB+ from BBB-. The outlook is stable.

S&P said the cut follows Wellman's announcement that it will report a weaker-than-anticipated fourth quarter as a result of "unfavorable economic conditions, competitive pressures on margins in the PET resins business, and lower production volumes in both the fibers and resins businesses."

The rating agency said these problems and the expectation business conditions may prove more difficult than previously anticipated indicate Wellman will be challenged to improve its financial profile over the near term.

The company's finances have been stretched by significant capital outlays during recent years that have elevated debt and resulted in heightened pressure to extend credit arrangements that terminate over the next couple years, S&P said.

Moody's downgrades International Shipholding

Moody's Investors Service downgraded International Shipholding Corp. including lowering its $38.6 million 9% senior unsecured notes due 2003 and its $82.9 million 7¾% senior unsecured notes due 2007 to B1 from Ba3. The outlook is stable.

Moody's said it lowered International Shipholding's ratings because of poor operating performance during the several quarters through year-end 2001, its weakened balance sheet due to the substantial decrease in vessel values reflected in a major write-down of asset carrying value, and the operational uncertainty and expected smaller revenue base associated with the company's strategic decision to shortly phase-out its U.S. Flag LASH (Lighter Aboard Ship) Waterman Steamship liner service and, by 2006, its foreign flag LASH TransAtlantic Forest Lines service.

For the fourth quarter, International Shipholding's operating income fell again, dropping to $3 million from $8.4 million for the same period of 2000 as total revenue decreased to $69 million from $93 million, Moody's said. For 2001 as a whole, operating income was negative $74 million compared to positive $33 million in 2000.

S&P downgrades Viasystems

Standard & Poor's downgraded Viasystems Group Inc. and kept it on negative outlook.

Ratings affected include Viasystem's $400 million 9.75% senior subordinated notes due 2007 and $100 million 9.75% senior subordinated notes series B due 2007, both lowered to CC from CCC, and its $628.1 million senior secured credit facility, lowered to CCC from B-.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.