S&P downgrades WorldCom

Standard & Poor's downgraded WorldCom Inc. and kept it on CreditWatch with negative implications. Ratings affected include WorldCom's notes and bank loan, cut to B+ from BB, and its convertible preferred stock, exchangeable preferred stock and quarterly income preferred securities, cut to CCC+ from B.

S&P said it cut WorldCom because of the delay in obtaining a $5 billion bank facility, increased refinancing risk associated with large debt maturities commencing in 2003 and the continued weak environment for long-distance services.

In addition, WorldCom's confirmation it will further cut capital spending by $1 billion in 2003 and reduce its workforce by 20% could negatively impact future growth prospects, S&P said.

"Even if the bank loan is successfully negotiated, we are concerned about WorldCom's asset valuation in relation to its total debt outstanding, as the demand for long-distance voice and data services continues to be impacted by a slow economic recovery, technology substitution, and competition," S&P said.

S&P said it is concerned about the potential delay in obtaining the new bank facility because of its impact on the company's liquidity position over the next year. Composition of the financial covenants in this facility will be essential to improving the company's liquidity position as debt totaling more than $9 billion over the next three years comes due. The bank facility is also a major factor to reestablishing investor confidence and access to the capital markets.

Moody's puts Steel Dynamics on upgrade review

Moody's Investors Service put Steel Dynamics, Inc. on review for possible upgrade. Affected debt includes its $200 million 9.5% senior unsecured notes due 2009 at B2 and its $350 million senior secured credit facility at Ba3 made up of a $70 million five-year term loan A, a $205 million six-year term loan B and a $75 million revolving credit facility.

Moody's said the action follows Steel Dynamics' announcement that it plans to issue up to $175 million of common stock with proceeds to repay a portion of its senior credit facility, prefund construction and expansion costs at its two Indiana mills, thus reducing dependence on debt financing, and for working capital and acquisitions.

While the equity offering, if completed, will have a favorable near-term impact on Steel Dynamics' balance sheet, Moody's said its review will also examine improving but unsettled steel market fundamentals, the ongoing ramp-up of the Columbia City structural products mill, the company's growth objectives and Steel Dynamics' tolerance for risk.

Although steel prices have increased sharply this year, this was anticipated in Moody's initial ratings for Steel Dynamics, which were assigned on March 5, the same day that Section 201 import tariffs were imposed by President Bush, Moody's said.

Steel Dynamics also appears to be making good progress on the start-up of the Columbia City mill.

However, both these factors - steel prices and the mill ramp-up - carry a high degree of risk, Moody's said.

Furthermore, steel market conditions currently support strategic growth initiatives and Steel Dynamics must be prepared to seize opportunities as they arise. This includes internal expansions, such as the $25-30 million coil coating facility at the Butler mill that was announced in May 2002, and possible acquisitions, the rating agency added.

Moody's puts Yell on upgrade review

Moody's Investors Service put Yell Finance BV on review for possible upgrade including its £250 million 10.75% senior notes due 2011, $200 million senior notes due 2011 and $288 13.5% senior discount notes due 2011 at B2 and £1.05 billion senior bank facilities at Ba3.

Moody's said it began review in response to the potential for material improvements in the Yell's levels of debt and capital structure in connection with its planned initial public offering and flotation on the London Stock Exchange.

Yell expects to raise some £717 million in net primary proceeds which the company intends to use primarily to repay debt, Moody's noted. In particular Yell intends to repay $250 million principal amount and related interest outstanding on a bridge facility used for the recent acquisition of McLeodUSA Media Group, prepay £250 million principal amount outstanding under its senior bank facilities and redeem up to 35% or approximately £174 million of its senior notes and senior discount notes. Yell also plans to prepay £100 million of deeply subordinated vendor loan notes issued to an affiliate of BT in connection with the original buy-out of Yell in June 2001 and intends to convert £653 million of deeply subordinated shareholder loans into common equity.

S&P rates Graham Packaging notes CCC+, loan B

Standard & Poor's assigned a CCC+ rating to Graham Packaging Co.'s planned $100 million senior subordinated notes due 2008 and a B rating to its $550 million term loan due 2009 and $150 million revolving credit facility due 2007. The ratings are on CreditWatch with positive implications as are Graham's existing ratings.

S&P said it would resolve the CreditWatch on successful completion of the IPO. The existing B corporate credit rating will be raised to B+ on completion of the IPO because net proceeds of around $200 million will be used to reduce debt, S&P said.

The proposed debt refinancing will significantly extend Graham's debt maturities and improve liquidity, the rating agency added.

Pro forma for the proposed transactions, total debt (adjusted for capitalized operating leases) to EBITDA is expected to improve to about 5 times compared with more than 6x for the 12-month period ended March 31, 2002, S&P said. Following four years of negative free cash flows, Graham is expected to generate modest free cash flows (after working capital and capital spending) from 2003 onwards, which should support an improving trend in credit measures.

S&P cuts NextMedia outlook

Standard & Poor's lowered its outlook on NextMedia Operating Inc. to negative from stable. The company's corporate credit rating is B+.

S&P said it revised NextMedia's outlook because of its weak credit measures, negative discretionary cash flow, decreasing liquidity and a soft outdoor advertising environment.

While NextMedia's radio business is showing positive operating trends, the outdoor advertising operations are still suffering from weak industry conditions and a recovery appears to be lagging, S&P added.

Key credit measures are below S&P's expectations for a B+ corporate credit rating and could remain so without sustained advertising improvement or management effort at shoring up the balance sheet, the rating agency added.

S&P rates Dave & Buster's notes B, loan B+

Standard & Poor's assigned a B rating to Dave & Buster's Inc.'s planned $165 million senior secured notes due 2009 and a B+ rating to its planned $30 million senior secured bank loan due 2007. The outlook is stable.

Proceeds from the senior notes will be used to fund the LBO of the company and refinance existing debt.

S&P said the bank loan is rated one notch higher than the corporate credit rating and will have a first priority lien on all assets of the borrower. Considering the stability of the business, it is anticipated that the company would retain value as a business enterprise in the event of a bankruptcy and S&P said that under a simulated default collateral value would provide full recovery of principal despite potentially significant loss exposure.

The ratings reflect the risks associated with the company's small size in the highly competitive out-of-home entertainment business, its vulnerability to changes in consumer spending, and a highly leveraged capital structure, S&P said.

Partially offsetting the negatives are Dave & Buster's unique concept of combining numerous entertainment and restaurant options and an established operating history, S&P said.

Pro forma for the LBO and senior note transaction, the company is highly leveraged with lease-adjusted total debt to EBITDA for the 12 months ended May 5, 2002, of about 5 times, S&P said. Credit protection measures are weak, with pro forma EBITDA coverage of interest at about 2x. S&P added that it expects EBITDA coverage of interest to improve only marginally over the next three years.

Moody's puts Smurfit Capital on review for downgrade to junk

Moody's Investors Service put Smurfit Capital Funding plc's senior unsecured notes guaranteed by Jefferson Smurfit Group plc on review for possible downgrade affecting $540 million of debt.

Moody's said the action follows the announcement of a recommended pre-conditional cash offer for Jefferson Smurfit Group plc by Deutsche Bank on behalf of Madison Dearborn Partners, LLC.

The notes, currently rated Baa2, will be downgraded several notches if the transaction is completed "clearly into speculative grade," Moody's said.

The transaction will have a leveraged start-up capital structure with net debt/EBITDA in the region of 4.5x according to Madison Dearborn Partners compared to Jefferson Smurfit group's year-end leverage of around 2x.

The current notes have no change of control provision but there is a limitation on liens clause, Moody's said.

Moody's rates Graham Packaging notes Caa1, loan B2, raises outlook

Moody's Investors Service assigned a Caa1 rating to Graham Packaging Co., LP's proposed $100 million senior subordinated notes due January 2008 and a B2 to its proposed $700 million secured credit facility. Moody's also confirmed Graham's existing $150 million 8.75% senior subordinated notes due January 2008 and $75 million floating-rate senior subordinated notes due January 2008 at Caa1.

The rating agency also raised the outlook to positive from stable.

Moody's said Graham's ratings reflect its high financial leverage, albeit improved pro-forma for the proposed transactions.

Graham also has weak free cash flow relative to total debt and modest coverage of interest expense on a pro-forma basis, Moody's said. These on-going credit issues overshadow the gains Graham has made improving profitability through margin enhancement and bolstered EBITA returns on the greater of total assets or total liabilities.

Moody's said the proposed transactions are important but not critical to improve Graham's liquidity profile.

The raised outlook acknowledges "some strengthening" in the company's credit profile as the previously implemented cost cutting, process improvements, and overall business re-alignments gain traction, Moody's said.

© 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.