Fitch raises United Defense outlook

Fitch Ratings raised its outlook on United Defense Industries to positive from stable and confirmed its ratings including its senior secured credit facilities at BB.

Fitch said the outlook revision assumes future acquisitions will be modest relative to United Defense's existing business.

The revision also assumes that United Defense will continue to reduce debt in the near term.

United Defense generated particularly strong free cash flow of $157 million in 2002 benefiting from a reversal of a $50 million deferred tax valuation allowance and improvements to working capital, Fitch noted. This trend continued into the first quarter of 2003 with United Defense generating $47 million of free cash flow.

This strong cash flow generation has allowed United Defense to continue to accelerate debt reduction. Since the July 2002 acquisition of USMR, United Defense has paid down $133 million of bank debt while still increasing cash on the balance sheet. However, Fitch notes that in the first quarter of 2003, United Defense accumulated cash as opposed to reducing debt. Despite the run off of net operating loss carry forwards which have historically offset cash tax payments for United Defense, Fitch expects United Defense to continue to generate solid free cash flow going forward.

S&P puts AFC on watch

Standard & Poor's put AFC Enterprises Inc. on CreditWatch negative including its $75 million revolving credit facility due 2007, $75 million term A loan due 2007 and $125 million term B loan due 2009 at BB.

S&P said the action follows AFC's announcement that it would miss the Nasdaq's July 16 deadline for filing its 2002 10-K annual report.

S&P said it is concerned that a further delay by AFC in filing its financial statements could result in a violation of its debt agreements.

The company will miss the deadline in part because its auditors are expanding the scope of their inquiries into AFC's financial statements related to quarter-end adjustments of reserve and accrual accounts, S&P noted. AFC, which announced in March that it will restate earnings for 2001 and the first three quarters of 2002, has not reported earnings since the third quarter of 2002.

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