S&P lowers Insight Communications outlook

Standard & Poor's lowered its outlook on Insight Midwest LP and related entities, including manager Insight Communications Co. Inc., to negative from stable and confirmed its ratings including Insight Midwest's senior unsecured debt at B+, Insight Midwest Holdings LLC's $1.975 billion secured bank loan at BB+ and Insight Communications' senior unsecured debt at B-.

S&P said the outlook revision reflects the heightened business risk facing Insight Midwest, given the introduction of local-into-local services by satellite competitors in additional Insight Midwest markets during 2003, with local into local currently covering about 60% of their subscribers.

Largely due to expansion of satellite operators' local-into-local footprint, Insight Midwest lost some 2,200 basic cable subscribers in the third quarter on a sequential basis. While this represents only about a 0.2% sequential loss of subscribers from its nearly 1.3 million base, this loss is exacerbated by the fact that the company had incurred a 13,000 loss of basic subscribers in second-quarter 2003, S&P said. The second-quarter decline was largely related to a seasonal loss of college students leaving for the summer, yet were not materially recovered in the third quarter with the return of the college population.

Going forward, S&P expects satellite competition to continue to challenge Insight Midwest's ability to grow its overall cable operating cash flows.

Insight Midwest is relatively highly leveraged for the current BB rating, S&P noted. Debt to annualized EBITDA for the nine months ended Sept. 30, 2003, was about 6.9x, excluding inter-company debt, but including management fees. Excluding management fees paid to Insight Communications, this metric is slightly lower, at 6.4x.

S&P puts Plains All American on positive watch

Standard & Poor's put Plains All American Pipeline LP on CreditWatch positive including its $200 million 7.75% senior notes due 2012 at BB+.

S&P said the watch placement follows Plains' announcement that it intends to replace its senior secured credit facilities with new senior unsecured credit facilities totaling $750 million and a $200 million secured working capital facility.

As a result of the elimination of a large tranche of secured debt, senior unsecured creditors would be in a more favorable position for recovery of principal if Plains were to default, S&P said.

At closing and following a review of all relevant terms and documentation of the bank loan, S&P said it likely would raise its senior unsecured debt rating on Plains to BBB- from BB+.

S&P says Tesoro unchanged

Standard & Poor's said Tesoro Petroleum Corp.'s ratings are unchanged including its corporate credit at BB- with a stable outlook on the announcement that it is selling its marine services assets for approximately $32 million and expects to realize an additional $20 million through the liquidation of associated working capital.

The marine services operation was a non-core activity for Tesoro and generated a minimal level of cash flow, S&P noted.

The expected closing of this transaction by Dec. 31, 2003 should allow Tesoro to achieve its stated objective of reducing debt by $500 million from June 2002 through year-end 2003.

Future rating improvement largely hinges on Tesoro's ability to continue to reduce debt, S&P said.

S&P confirms Atrium

Standard & Poor's confirmed Atrium Cos. Inc. including its senior secured bank debt at B+ and subordinated debt at B-. The outlook is stable.

The confirmation follows the company's announcement that its parent company, Atrium Corp., will be sold to Kenner & Co., Inc. for about $610 million.

Under the proposed structure, the transaction should not materially increase Atrium's debt leverage.

S&P said it expects total debt to increase by about $20 million to $470 million (including accounts receivable sold and debt-equivalent operating leases), and equity to increase to $255 million from $209 million. Debt to EBITDA is expected to be 5.6x, about the same as the actual Sept. 30, 2003 ratio.

S&P also expects Atrium's growth objectives will continue to be financed in a manner that does not harm credit quality, including equity sponsor contributions for sizable transactions.

Atrium's ratings reflect its very high debt leverage, an aggressive acquisition strategy, its position as a leading, low-cost manufacturer of aluminum and vinyl windows and substantial sales to the less cyclical replacement market, S&P said.

S&P cuts Wolverine Tube

Standard & Poor's downgraded Wolverine Tube Inc. including cutting its $120 million senior unsecured notes due 2009 and $150 million 7.375% senior notes due 2008 to B+ from BB-. The outlook is negative.

S&P said the action reflects Wolverine Tube's recent weak earnings performance, which is affecting its already depressed financial profile. The difficult business environment has reduced earnings predictability, and the recovery of credit quality measures to appropriate levels appears distant.

Wolverine Tube's ratings reflect its narrow product line, cyclical markets, significant customer concentration, profitability at sharply depressed levels and aggressive use of debt, slightly offset by a business profile with defensible positions in niche segments and reasonable near-term liquidity.

Capital outlays are now much lower than they were a few years ago. Still, given the current earnings environment, reducing debt from the current aggressive level to any meaningful extent will be difficult in the near term, S&P said. Consequently, an earnings recovery is likely to be the main driver of the anticipated strengthening of funds from operations to total debt, which is expected to be at the lower end of the 5%-10% range near term, to the appropriate 15% area. Total debt to EBITDA also is expected to rebound from aggressive levels above 6.0x to the 4.0x area, an appropriate level for the rating.

Moody's puts Hollinger on review

Moody's Investors Service put Hollinger Inc. and its indirect majority-controlled subsidiary Hollinger International Publishing Inc. on review for possible downgrade including Hollinger's $120 million senior secured notes due 2011 at B3 and Hollinger International Publishing's $45 million senior secured revolving credit facility due 2008, $45 million term loan A due 2008 and $220 million term loan B due 2009 at Ba2 and $300 million 9% senior unsecured notes due 2010 at B2. Hollinger Participation Trust debt is not affected by the action.

Moody's said the action reflects its heightened concern regarding the ability of Hollinger Inc. to adequately service its debt and preferred stock obligations in the near term. In addition, the rating reflects the overhang placed on the ratings for Hollinger International Publishing by the liquidity problems of Hollinger Inc. (Hollinger International Publishing's controlling shareholder), the questionable corporate governance practices of both the Hollinger Inc. and unrated Hollinger International Inc. (the sole owner of Hollinger International Publishing) boards of directors, and the potential risk that the recommendations of the special committee of the Board of Hollinger International, Inc. may have an adverse impact on the credit profiles of both companies.

The rating for Hollinger Inc.'s senior secured notes is heavily supported by structural merits, including a pledge of stock originally valued at $240 (and currently valued at approximately $340 million), a support agreement from Ravelston Management, Inc. (the recipient of approximately $24 million in annual management fees from Hollinger International Publishing by the liquidity problems of Hollinger Inc. (Hollinger International Publishing's controlling), and a contribution agreement from Ravelston which guarantees payments under the support agreement.

Moody's said it is not in a position to assess the financial health of the guarantor, and consequently the rating does not incorporate any benefit from the contribution agreement.

S&P says Terra unchanged

Standard & Poor's said Terra Industries Inc.'s ratings are unchanged including its corporate credit at B+ with a negative outlook after the announcement of a third-quarter loss from continuing operations of almost $5 million, larger than the $2 million in the same period the year before.

The earnings decline primarily resulted from elevated natural gas costs and lower methanol sales volumes, offset somewhat by higher selling prices for both nitrogen and methanol products.

Still, operating performance was better than the company expected, considering the poor results in the second quarter, S&P said.

Looking ahead, the company highlights a favorable demand and pricing environment for nitrogen, although higher feedstock costs and a drop in demand are concerns. Importantly, the company's liquidity position improved in the third quarter: at Sept. 30, 2003, the company had no borrowings under its revolving credit facility.

S&P says FMC unchanged

Standard & Poor's said FMC Corp's ratings are unchanged including its corporate credit at BBB-with a negative outlook after the announcement of a $3.4 million net loss for the third-quarter 2003 and still-challenging industry conditions.

The net loss includes after-tax charges of $20 million relating primarily to the previously announced Astaris restructuring program.

Importantly, FMC outlined during its earnings teleconference call today a number of favorable developments in connection with the Astaris venture, including a meaningful improvement in phosphorus operating rates following the restructuring actions, the expected annual savings of approximately $40-50 million at the venture, and indications that the Astaris' debt is likely to be refinanced on a stand alone basis (thereby providing relief from current keep-well obligations), S&P said.

Overall, the results confirmed the benefits of a well-diversified business profile, as FMC's specialty and agricultural product segments posted positive year-to-date comparisons, S&P added.

S&P says PolyOne unchanged

Standard & Poor's said PolyOne Corp.'s ratings are unchanged including its corporate credit at BB- with a negative outlook following the announcement of a loss of $43 million in the third quarter of 2003, compared with net income of $10 million in the third quarter of 2002.

The loss includes a $9 million non-cash income tax expense to reduce the value of its tax credits, and reflects a 3% decline in sales because of weak demand, especially in July and August.

Still, the company notes that sales demand strengthened in September and into the fourth quarter, and that it expects positive cash flow in the fourth quarter.

S&P said ratings could still be lowered if the firm is unable to restore credit protection measures to targeted levels in the intermediate term. Nevertheless, ratings are supported by the company's good market positions in vinyl plastic and rubber compounding, color and additive concentrates, and plastic resin distribution.

S&P upgrades United Surgical

Standard & Poor's upgraded United Surgical Partners International Inc. including its subordinated debt to B from B-. The outlook is stable.

S&P said the action reflects United Surgical's consistently favorable operating performance and its commitment to maintaining a manageable debt level while executing its growth strategy. S&P expects the company to be able to fund its growth investments from operating cash flow within the next few years.

United Surgical's ratings continue to reflect the company's narrow operating focus, its aggressive growth strategy and third-party reimbursement risks, S&P added. Attractive industry demand characteristics, disciplined operating performance, and a diverse payor base partly offset these risks.

Near-term sales growth is expected to continue to reflect the addition of new centers and higher same-facility volumes as centers achieve increasingly strong capacity utilization levels, S&P said. Growth rates are especially strong at domestic facilities. This is due in part to staffing, scheduling, and clinical protocols that promote both productivity and the professional/financial success of physicians by offering them equity interests. The company's future expansion will likely take advantage of this platform.

At June 30, 2003, United Surgical's capital structure was somewhat stronger than it had been in the past, with total debt to EBITDA (less minority interest) of 3.1x, compared with 4.6x at year-end 2001, S&P said. The improvement reflects handsome growth in EBITDA levels and $49 million of common equity sold in late 2002. The new equity let the company reduce debt, fund then-pending acquisitions, and build cash to fund future growth.

Moody's rates North American Van Lines loan Ba3

Moody's Investors Service assigned a Ba3 rating to North American Van Lines, Inc.'s proposed $175 million revolving credit facility due 2009 and $425 million term loan due 2010. The outlook is stable.

Moody's said the rating anticipate successful completion of a planned refinancing of the company's debt, including a $250 million IPO by North American Van Lines' parent company, Sirva, with at least $100 million of such proceeds contributed to North American Van Lines' equity, the closing of the proposed new senior secured facilities transaction and simultaneous repayment of all existing senior secured facilities, and the retirement of seller subordinated notes and at least 90% of the company's existing $150 million 13.38% senior subordinated notes.

Upon successful completion of the re-capitalization, Moody's anticipates that any remaining notes will be raised to B2 from B3 and the senior implied rating will be upgraded to Ba3 from B1.

The prospective ratings upgrade reflects lower debt and improved credit fundamental following the re-structuring of North American Van Lines debt upon close of the proposed $250 million IPO, and continues to recognize the company's leadership position in the relocation services sector, worldwide, Moody's said.

However, the ratings also take into account the company's relatively high lease levels, lack of substantial collateral on the company's balance sheet as a consequence of its "asset-light" business strategy, and reliance on businesses ancillary to its traditional moving services for the success of its global relocation services enterprise.

The stable ratings outlook reflects expectations that the company can maintain or improve its revenue base and operating margins in the near term.

As a result of North American Van Lines' re-capitalization, the company's credit fundamentals will improve materially. Leverage will decrease, as debt will be reduced from $586 million as of Sept. 2003, representing 3.3x last 12 months EBITDA, to pro forma $482 million, or 2.8x last 12 months EBITDA. With the injection of equity in North American Van Lines, the debt-to-total capital ratio, while still high, will be reduced from approximately 70% to 57%.

Moody's rates Itron notes B2, loan Ba3

Moody's Investors Service assigned a B2 rating to Itron, Inc.'s proposed $125 million senior subordinated notes due 2011 and a Ba3 to the proposed $55 million senior secured revolving credit facility due 2007 and $185 million senior secured term loan B due 2009.

Proceeds will be used to fund the acquisition of SEM, a major manufacturer of electricity meters, from Schlumberger Limited for $255 million, to repay $42 million of existing debt (as of Sept. 30, 2003), and to pay fees and expense of $15.5 million.

The acquisition combines Itron's leading market share in automatic meter reading (AMR) technology with SEM's strong position in electric meters, including the emerging solid state meter technology, Moody's noted.

However, the ratings are constrained by the significant substitution risk posed by the new generation of electricity meters to Itron's existing electric AMR module products, and thus the potential erosion of the company's hitherto strong market position in the AMR technology.

The ratings also consider Itron's sizable customer concentration, large project-based sales and somewhat uneven operating results, costly acquisitions made in recent years, and the integration challenges associated with the SEM acquisition. On the other hand, the ratings are supported by favorable industry trends and growing demand for the AMR technology, Itron's still strong market position, first mover advantage in the solid state meter technology, and demonstrated cash flow generating capabilities.

Pro-forma for the transaction, for the 12 months to June 2003 combined revenue and EBITDA were $580 million and $91.4 million, respectively. The combined company will be levered with pro-forma debt of $315 million or approximately 3.4x EBITDA, Moody's said.

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