Moody's cuts US Airways

Moody's Investors Service downgraded some ratings of US Airways Group, Inc. and its subsidiaries affecting $1.7 billion of securities. The outlook remains negative.

Moody's said the action follows US Airways' Chapter 11 filing and the ratings reflect Moody's assessment of recovery.

Ratings lowered are: US Airways Group senior implied rating cut to Caa3 from Caa2 and long-term issuer rating cut to C from Ca; US Airways, Inc. long-term issuer rating cut to Ca from Caa3; equipment trust certificates 1987 Series A through F, 1988 Series A through L and 1989 Series A cut to Caa3 from Caa1, 1990 Series A through D cut to Ca from Caa2, 1991 Series A and B confirmed at Ca and 1993 Series A cut to Ca from Caa2; enhanced equipment trust certificates Series 1996 Class A confirmed at Baa3, Class B cut to Ba3 from Ba2, Class C cut to Caa3 from B3, Series 1998-1 Class A confirmed at Baa3, Class B confirmed at Ba2, Class C confirmed at B3, Series 1999-1 Class A confirmed at Baa3, Class B confirmed at Ba2, Class C confirmed at B3, Series 2000-3 Class C confirmed at B3 and Series 2001-1 Class C confirmed at B3; industrial revenue bonds lowered to C from Ca, Piedmont Aviation passthrough certificates cut to Ca from Caa2 and ETC Repackaging Trust, Series 1998 -1 Class B cut to Caa1 from B3, Class C cut to Caa2 from Caa1 and Class D cut to Ca from Caa3.

Insured EETC's, insured IRB's and some IRB's issued by the Port of New York and New Jersey are not affected.

Moody's rates Service Corp. exchange notes B1, lowers outlook

Moody's Investors Service assigned a B1 rating to Service Corp. International's proposed $300 million 7.7% senior notes due 2009 to be offered in an exchange to holders of the company's 6% senior notes due 2005. Moody's also confirmed Service Corp.'s existing ratings and lowered the outlook to stable from positive. Ratings confirmed include Service Corp.'s $251.3 million 6.3% senior unsecured notes due 2020 putable in 2003 and $.16 billion of various senior unsecured notes due 2004 to 2013 at B1 and its $345 million senior subordinated convertible notes due 2008 at B3.

Moody's said it lowered Service Corp.'s outlook because to reflect its more moderate expectations about Service Corp.'s sustainable cash flow improvements, asset sales/debt reduction and liquidity.

While ratings are appropriate for the category, Moody's said it no longer believes that current trends will allow for a ratings upgrade over the next six to 12 months.

Profitability has come under pressure, as evident in second quarter results in which Service Corp. reported significantly lower profitability, despite having sold or closed several underperforming operations over the last two years, Moody's npted.

In addition, the company has postponed plans to sell its French operations. Moody's said it had anticipated that proceeds from this sale would be used for debt reduction in 2002.

Finally, in July Service Corp. replaced its original $700 million five-year unsecured credit facility which expired in June 2002 with a three-year $185 million senior secured revolving credit facility.

Moody's confirms Alliant Techsystems, outlook still positive

Moody's Investors Service confirmed Alliant Techsystems, Inc. including its $400 million 8.5% senior subordinated notes due 2011 at B2. The outlook remains positive.

Moody's said Alliant Techsystems' leverage continues to improve in line with the rating agency's expectations.

The company's financial performance and cash flow generation continue to be strong and the industry environment is favorable, Moody's added.

Alliant Techsystem's capital structure has been largely restored after the sharp increase in debt in connection with the April 2001 acquisition of Thiokol, Moody's said. Debt-to-capital, peaking at 83% in July 2001, stands at 61% as of June 2002, compared to 58% before the acquisition.

The de-levering was accomplished through both debt reduction and equity issuance in connection with the equity-financed acquisition of the Sporting Equipment Group of Blount International, Inc. in December 2001, the rating agency noted.

Moody's said it considers favorably the company's paying down more than $100 million of debt through internally generated cash over the course of the past year before increasing debt again in May 2002 by $53 million to finance the acquisition of Boeing's Ordnance business.

The positive outlook reflects Moody's expectations of the continuation of existing margin levels and cash flow generation, and steady de-levering of the balance sheet, coincident with the successful integration of Thiokol.

Moody's puts AES Drax on review

Moody's Investors Service put AES Drax on review for possible downgrade including AES Drax Holdings Ltd.'s £200 million and $302.4 million senior secured bonds rated Ba1, Inpower Ltd.'s £905 million senior secured bank debt at Ba1 and AES Drax Energy Ltd.'s £135 million and $200 million notes at B1.

Moody's said the action reflects its concerns about the prospects for U.K. electricity market prices and a number of uncertainties including the hedging contract with TXU Europe, the insurance waiver for units 3 and 4, and the receipt of sufficient cash at AES Drax Energy in time to ensure that the next interest payment due at the end of the month is met in full.

Moody's cuts Petrobras

Moody's Investors Service downgraded Petroleo Brasileiro SA (Petrobras)'s foreign currency bond rating to Ba2 from Ba1, affecting $2.3 billion of debt. The outlook is stable.

Moody's said the downgrade follows the lowering of Brazil's long-term foreign currency ceiling to B2 from B1.

Petrobras' Ba2 foreign currency bond rating is a function of its Baa1 global local currency rating (not changed in the latest action), the high probability of a sovereign default implied by the government's B2 foreign currency bond rating, and the likelihood that the government would impose a moratorium given a default, and, if it did, exempt a strategically important issuer like Petrobras from such a debt moratorium, Moody's said.

Moody's cuts Marlim

Moody's Investors Service downgraded Companhia Petrolifera Marlim (Marlim)'s medium-term notes to B2 from B1, affecting $500 million of foreign currency debt. The outlook is stable.

Moody's said the downgrade follows the lowering of Brazil's long-term foreign currency ceiling to B2 from B1.

Moody's cuts Brazilian banks

Moody's Investors Service downgraded Brazilian banks' foreign currency bank deposit ratings to B3 from B2 and their foreign currency bonds and notes. The outlook is stable.

Moody's said the downgrade follows the lowering of Brazil's long-term foreign currency ceiling for bonds and notes to B2 from B1 and for bank deposits to B3 from B2.

Ratings lowered were:

- Banco Bradesco SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3, from Ba2;

- Banco Bradesco SA Grand Cayman Branch: long-term foreign currency debt cut to Ba3, from Ba2;

- Banco Itau SA: long-term foreign currency deposits cut to B3 from B2;

- Banco Itau SA Grand Cayman Branch: long-term foreign currency debt cut to Ba3 from Ba2;

- Unibanco - União de Bancos Brasileiros SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Unibanco Leasing SA: long-term foreign currency debt cut to Ba3 from Ba2;

- Unibanco SA Grand Cayman Branch: long-term foreign currency debt cut to Ba3 from Ba2;

- Banco ABN Amro Real SA: long-term foreign currency deposits cut to B3 from B2;

- Banco Safra SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Safra Leasing SA: long-term foreign currency debt cut to Ba3 from Ba2;

- Banco Safra Grand Cayman Branch: long-term foreign currency debt cut to Ba, from Ba2;

- BankBoston Banco Multiplo SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- BankBoston N.A.: long-term foreign currency deposits cut to B3 from B2

- Banco Citibank SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Citibank N.A.: long-term foreign currency deposits cut to B3 from B2;

- Banco HSBC SA: long-term foreign currency deposits cut to B3 from B2;

- Lloyds Bank TSB (Brasil): long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Banco Barclays SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Banco Sudameris SA: B3 long-term foreign currency deposits, from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Banco do Estado de Sao Paulo SA: long-term foreign currency deposits cut to B3 from B2;

- Banco Santander Meridional SA: long-term foreign currency deposits cut to B3 from B2;

- Banco Bozano, Simonsen SA: long-term foreign currency debt cut to Ba3 from Ba2;

- Banco Pactual SA: long-term foreign currency deposits cut to B3 from B2;

- Banco do Nordeste SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Banco Votorantim SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to B1 from Ba3;

- Banco de Investimentos CSFB SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Banco Bilbao Vizcaya SA Brazil SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- Banco do Brasil SA: long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to Ba3 from Ba2;

- BNDES Banco Nacional de Desenvolvimento Econômico e Social SA long-term foreign currency deposits cut to B3 from B2, long-term foreign currency debt cut to B2 from B1;

S&P cuts Mrs. Fields

Standard & Poor's downgraded Mrs. Fields Original Cookies Inc. and maintained the outlook at negative. Ratings lowered include Mrs. Fields' $140 million 10.125% senior unsecured notes due 2004, cut to CCC from CCC+.

S&P said it took the action in response to Mrs. Fields' "very constrained liquidity position" and its payment default risk.

Mrs. Fields only had $1.9 million in cash and $8.8 million outstanding on its revolving credit facility as of June 29, S&P said. The revolver reduces to $7.0 million on Aug. 31 and $6.0 million on Sept. 30. Moreover, the company has a $7.1 million interest payment due on Dec. 1, 2002.

Mrs. Fields' operating performance has been negatively affected by the general economic downturn, which led to a decrease in mall traffic, S&P added. Most of the Mrs. Fields' stores are located in shopping malls.

Moreover, performance at Wal-Mart locations has been well below expectations, causing the company to enter into discussions with Wal-Mart to obtain a release from its locations, S&P said. The company expects to incur significant costs associated with the closing and exiting of these locations.

Moody's rates Emmis Operating's loan Ba2

Moody's Investors Service rated Emmis Operating Co.'s new $500 million term loan B due 2009 at Ba2. Furthermore, Moody's confirmed the company's $220 million senior secured revolving credit facility due 2009 at Ba2, $204.8 million senior secured Tranche A term loan due 2009 at Ba2 and $300 million 8.125% senior subordinated notes due 2009 at B2. Ratings confirmed for Emmis Communications Corp. include its $286.3 million 12.5% senior discount notes due 2011 at B3, $143.8 million 6.25% cumulative convertible preferred stock at Caa1, senior unsecured issuer rating at B3 and senior implied rating at Ba3. The outlook remains negative.

Ratings reflect high financial leverage and modest cash flow coverage of interest, financing and integration risks associated with potential future acquisitions, risks due to the company's exposure to the New York economic environment, exposure to cyclical advertising environment, television broadcast cash flow margins that fall below the company's industry peer group and highly competitive nature of radio markets, Moody's said.

Ratings are supported by the high underlying asset value of the company's station portfolio, Moody's said.

The negative outlook reflects Emmis' continued operation at the edge of the rating category, Moody's said. If Emmis pursues a sizable acquisition of challenged properties that are not financed with a prudent mix of debt and equity, a ratings downgrade could be warranted. If the company remains focused on improving its balance sheet through asset sales and the application of free cash flow to debt reduction, ratings stabilization could occur.

For the 12 months ended May 31, total debt to EBITDA was 8.6 times and cash flow coverage of interest was 1.4 times.

Moody's puts Magellan Health on review

Moody's Investors Service put Magellan Health Services on review for possible downgrade, affecting $1 billion of debt including its bank facilities at B2, senior unsecured notes at B3 and senior subordinated notes at Caa1.

Moody's said it began the review because of heightened concerns about the financing capabilities of the company, the near-term potential for a covenant breach on its bank facility, as well as membership declines which have been slightly worse than anticipated.

The existing ratings assume Magellan will successfully complete the refinancing of its bank facility, Moody's noted.

Based on management's revised expectations for year-end 2002 EBITDA, there is likely to be a covenant breach by Sept. 30 under the existing agreement. While the company is actively pursuing refinancing alternatives, Moody's said it believes the timing between potential completion of this refinancing and breach of covenants is extremely tight.

In addition, although not a primary reason for the ratings review, membership declines associated with the Aetna contract have been somewhat worse than anticipated.

Moody's upgrades TV Azteca

Moody's Investors Service upgraded Azteca Holdings, SA de CV and TV Azteca, SA de CV including raising Azteca Holdings' $179 million senior secured notes due 2003 and 2005 to B2 from B3 and TV Azteca's $425 million senior unsecured notes due 2004 and 2007 to Ba3 from B1. The outlook is stable.

Moody's said the upgrade in ratings reflects the material improvement in Azteca's financial performance, particularly the reduction in leverage to approximately 3 times and an increase in interest coverage to about 2.5 times after capital expenditures.

In addition, the company is benefiting from its focus on expense reduction, ratings-driven pricing, general price increases, as well as the development of local advertising - a practice that had been unattainable in the past due to technological constraints, Moody's said.

Azteca has meaningfully reduced its expenses as well as the capital contributed to some of its more speculative ventures, primarily Unefon, the rating agency added. Moreover, whether Azteca continues to own Unefon or not, it is likely to have a smaller impact on the company's performance given the sizable increase in total cash flow and Unefon's cash flow neutral position.

However, Moody's said Azteca's ratings continue to be constrained by the potential for the company to make investments outside its Mexican broadcasting base, including the development of the Azteca America network which received $100 million in capital despite previous announcements that equity contributed would be solely in the form of programming. Moreover, Azteca America will face increasing competition as it attempts to broaden its coverage of the US-Hispanic market.

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