S&P cuts NorthWestern, still on watch

Standard & Poor's downgraded NorthWestern Corp. and kept it on CreditWatch with negative implications. Ratings lowered include NorthWestern and NorthWestern Energy Montana's senior secured debt, cut to B+ from BBB-, senior unsecured debt, cut to CCC+ from BB, and preferred stock, cut to CCC from BB-.

S&P said the action is the result of NorthWestern's very poor financial performance for the fourth quarter of 2002 and the year as a whole, the company's $890 million write-off associated with its non-regulated businesses, low forecast cash flow coverages, and poor financial flexibility.

The rating action is the culmination of the continued problems associated with the company's Expanets Inc. and Blue Dot Inc. subsidiaries, resulting in an $890 million write-off and also resulting in anemic funds from operation interest coverage ratios for the next several years, S&P said. The utility operations are the primary source of dependable cash flow and must shoulder the vast majority of the debt burden as well as fund utility capital expenditures.

S&P said it is concerned about the company's ability to pay preferred dividends, the reason that the company remains on CreditWatch with negative implications.

Even though NorthWestern intends to divest or dispose of its noncore assets, S&P added that it is also concerned about management's ability to execute this plan in a timely manner. Funds from operations in the fourth quarter were significantly lower than management had previously forecasted.

The company's financial flexibility is constrained. S&P said it does not believe the company could issue additional equity given its low stock price. In December 2002, the company obtained a four-year $390 million credit facility collateralized by the assets of its two utilities. The funds were used to replace existing NorthWestern bank loans and fund capital expenditures at the utilities. However the additional debt further weakened debt coverages and pledged most of the company's remaining collateral. Debt maturities in 2003 and 2004 are manageable at $6 million and $8 million, respectively. In 2005 and 2006, $70 million and $548 million come due. The company is looking to asset sales to help improve its liquidity and to reduce debt.

Fitch cuts WestPoint Stevens

Fitch Ratings downgraded WestPoint Stevens' $1 billion of senior notes to CC from CCC-. The outlook is negative.

Fitch said the downgrade reflects WestPoint Stevens' severely weakened liquidity position and high financial leverage and the difficult retail environment.

The rating also recognizes the notes' subordinated position to two secured bank credit facilities and an off-balance sheet receivables facility.

The negative outlook reflects concerns about WestPoint's ability to continue to finance its operations and remain in compliance with its bank credit facility.

WestPoint experienced a sharp decline in sales and cash flow in the first quarter, creating the need for additional forbearance from its banks, Fitch noted. WestPoint has indicated that sales declined 13% in quarter, and EBITDA totaled $31 million, versus $60 million in the first quarter of 2002. As a result, WestPoint is in negotiations with its lenders and has delayed filing its annual report with the Securities and Exchange Commission until these negotiations are complete.

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