Moody's cuts CMS outlook

Moody's Investors Service lowered its outlook on CMS Energy Corp. to stable from positive, affecting $15 billion of debt. The company's senior unsecured rating is Ba3.

Moody's said the action follows CMS' announcement that its energy marketing unit, CMS-Marketing, Services and Trading had engaged in "round trip" electricity trades with both Reliant Energy

Services, Inc. and Dynegy Power Marketing, Inc. involving the simultaneous purchases and sales at the same price in order to boost overall trading volumes.

As these trades had no margin associated with them, the trades did not impact on the company's earnings, cash flow, or financial condition.

While the contribution from CMS-MST to CMS Energy's operating net income is expected to be less than 15% in 2002, event risks associated with an ongoing Securities and Exchange Commission investigation and the increased risk associated with potential litigation make it highly improbable that an upgrade in the company's rating will occur in light of these current circumstances, Moody's said.

The rating agency said it intends to reevaluate the company's outlook when the current situation clarifies itself.

Moody's lowers Tesoro

Moody's Investors Service downgraded Tesoro Petroleum Corp. The outlook is stable. Ratings affected include Tesoro's $225 million secured bank revolver due December 2006, $250 million secured term loan A due December 2006 and $750 million secured term loan B due December 2007 to Ba3 from

Ba2 and its $450 million of senior subordinated notes, due 2012, $300 million 9% senior subordinated notes due 2008 and $215 million 9.625% senior subordinated notes due 2008 to B2 from B1.

Moody's said Tesoro has faced extremely difficult first quarter refining market conditions that have persisted into May due to high product imports and high inventories.

"The confluence of these weak market conditions with Tesoro's steep leverage upon closing the Golden Eagle acquisition could make targeted debt reduction challenging to achieve," Moody's said.

The stable outlook takes into account the cyclical nature of the refining business and currently weak market conditions, along with Tesoro's actions to adjust the terms of the Golden Eagle transaction, reduce capital spending and increase and accelerate targeted asset sales, the rating agency added.

Moody's said Tesoro has very high debt for its ratings and suffers from the historically high prices paid for acquisitions, resulting high leverage and capital requirements; sector margin cyclicality and seasonality; regional margin risk; and risk associated with Golden Eagle's operating forecast.

The company benefits from the favorable qualities, diversification and scale of its pro-forma business base with Golden Eagle and its potential for deleveraging over time.

S&P puts Young on watch

Standard & Poor's put Young Broadcasting Inc. on CreditWatch with negative implications.

Ratings affected include Young's $125 million 9% senior subordinated notes due 2006, $200 million 8.75% senior subordinated notes due 2007 and $500 million 10% senior subordinated notes due 2011, all at B-, its $250 million 8.5% senior notes due 2008 at B, and its $150 million senior secured revolving credit facility due 2005, $300 million senior secured term loan A due 2005 and $350 million senior secured term loan B due 2006, all at BB-.

Moody's rates Advantica notes Caa1, lowers others ratings

Moody's Investors Service assigned a Caa1 rating to Advantica Restaurant Group, Inc.s new $70.4 million 12.75% senior notes due 2007 offered in an exchange and downgraded the company's existing ratings including lowering its $441.5 million 11.25% senior notes due 2008 to Caa2 from B3 and its $200 million secured revolving credit facility to B2 from B1. The outlook is negative.

The action concludes a review for downgrade begun on Jan. 8, 2002 after Advantica announced the exchange offer.

The Caa1 rating on the new 2007 senior unsecured notes reflects their effective subordination to the bank facility, $39 million of capital leases and $6 million of other secured debt and structurally subordinated to $36 million of trade accounts payable at the operating level, Moody's said. But it added that in a default scenario the note indenture requires the trustee to completely repay the 2007 noteholders before any excess cash is distributed for benefit of the 2008 notes.

The Caa2 rating on the 2008 senior unsecured notes reflects their effective subordinated to significant amounts of senior debt, Moody's said. In a default, Moody's said it expects this class of debt would suffer a material loss.

Moody's said it has a negative outlook on Advantica because its ratings could be lowered again due to uncertainties in making a substantial recovery on the loan to FRD Acquisition Co., currently in bankruptcy, or resolving the pressing liquidity concerns.

A substantial loss on the $49 million loan to FRD or a reversal in the trends of modestly improving operating performance at Denny's would place downward pressure on the rating, the rating agency said. However, ratings could be upgraded once the FRD situation is resolved - particularly if the current plan to settle the FRD loan comes to pass - the bank loan is refinanced and Denny's performance leads to improved debt protection measures.

Moody's lowers Premier International outlook

Moody's Investors Service lowered its outlook on Premier International Foods plc to negative from stable. The £500 million of debt affected includes Premier's B3 senior unsecured rating and Premier Financing Ltd.'s B1 senior secured bank credit facility.

Moody's said the negative outlook reflects the risks associated with the announced debt-financed acquisition of some UK grocery businesses from Nestle for a total consideration of £135 million, according to market estimates.

Premier's credit measures will be temporarily somewhat strained by the increased bank debt although the acquired businesses are expected to generate significant cash-flows and also synergies amounting to at least £5 million a year, Moody's said.

The EBITDA margin of the acquired businesses is high at close to 20% but it could be challenging for Premier to improve further the operating performance of these mature businesses and to a certain extent fully achieve the expected synergies, the rating agency commented.

The negative outlook also reflects that the exposure of Premier to the very competitive private label market will remain significant despite this acquisition, Moody's added.

S&P cuts Roma Restaurant

Standard & Poor's downgraded Roma Restaurant Holdings Inc. and Romacorp Inc. and put them on CreditWatch with negative implications. Ratings affected include Romacorp's $75 million 12% senior unsecured notes due 2006, cut to CC from B, and $25 million senior secured revolving credit facility bank loan due 2003, cut to CCC+ from B+.

S&P said its action follows Romacorp's announcement it will exchange $57 million of existing 12% senior unsecured notes due July 1, 2006 for up to $45 million of 12% senior secured notes due April 1, 2006; each $1,000 in principal will be exchanged for $790 in principal.

On completion of the transaction, S&P said it expects to lower the rating on the notes to D.

Under S&P criteria, a default includes an exchange offer in which the total value of securities and cash offered is materially less than the originally contracted amount. In addition, this offer is deemed coercive because the unexchanged old notes will be structurally subordinated to the new notes.

Moody's lowers Choice One

Moody's Investors Service downgraded Choice One Communications Inc. Lowered ratings include its $350 million senior secured credit facility to Ca from B3, senior implied to Ca from B3 and senior unsecured to C from Caa2. The outlook is negative.

The downgrade reflects concern over the company's deteriorating liquidity, Moody's said.

At the end of March, the company's liquidity was approximately $37 million to support estimated cash interest expense of $21 million and capital expenditures of $36 million for the remainder of 2002. Capital assets of $354 million were available to support $500 million in debt obligations at the end of March.

During the first quarter, a cash burn of about $33 million was recorded that benefited from reduced cash interest expense and reduced capex spending. "Management expects the company to attain positive EBITDA by mid 2002, however Moody's does not consider this will provide timely relief to Choice One's pressured liquidity position," Moody's said.

Fitch rates PacifiCare notes B+

Fitch Ratings assigned a B+ to PacifiCare's proposed $200 million senior unsecured notes due 2009. The outlook is evolving.

PacifiCare is expected to use the full proceeds of the note issuance to pay down a portion of its bank term loan, which will be used to satisfy the conditional requirement in its agreement to extend the maturity of its existing facility by two years to January 3, 2005, Fitch said.

PacifiCare's current debt structure is viewed as unfavorable, Fitch said, since the company is potentially within 12 months of a major maturity.

Fitch added that it views the conditional extension as positive, believing it will provide the company time to explore a more permanent and favorable capital structure.

PacifiCare's ratings continue to reflect the large exposure to the troubled Medicare+Choice market and operational challenges associated with the company's movement away from capitated contracting and the shift towards shared-risk reimbursement arrangements, Fitch said. The ratings also consider the company's well-established competitive position in several major markets and positive steps taken over the past one to two years to strengthen the management team.

The evolving outlook reflects the uncertainty in meeting the conditions under the agreement, and the resulting risk that the company would be unable to refinance its indebtedness by the Jan. 2, 2003 maturity date, Fitch added.

If the company is successful in extending the maturity of its senior credit facility, Fitch expects PacifiCare's existing senior debt ratings will likely be upgraded one notch to BB and the senior unsecured rating upgraded one notch to BB-.

S&P downgrades Aurora Foods

Standard & Poor's downgraded Aurora Foods Inc. and put the company on CreditWatch with negative implications. It had previously had a positive outlook. Ratings affected include Aurora's $100 million 9.875% senior subordinated notes due 2007 and $200 million 8.75% senior subordinated notes due 2008, both lowered to CCC from CCC+, and its $225 million term loan due 2005 and $175 million revolving credit facility due 2005, both lowered to B- from B.

S&P said the action is in response to Aurora's weak near-term liquidity. The company is seeking alternative funding sources, including a possible equity infusion and the sale of certain assets.

The company has a total of $9.3 million of cash and availability under its revolving credit facility to meet debt service obligations for the remainder of the year, S&P noted

The company has been undergoing a major restructuring program and other cost cutting actions during the past fiscal year in an effort to strengthen its operating performance. Although implementation of these programs has been on schedule, in March of 2002 Aurora was required to amend its senior secured debt agreement to deal with expected financial covenant violations, S&P said. These arose from weaker then planned operating results as a result of increased expenses in the first quarter of 2002 and accounting adjustments.

S&P raises outlook on O'Sullivan Industries

Standard & Poor's raised its outlook on O'Sullivan Industries Holdings Inc. and its subsidiaries to stable from negative. In addition, the company's corporate credit and bank loan ratings of B+ and subordinated debt rating of B- were affirmed.

"Standard & Poor's expects that recent cost reductions that have yielded improved profitability will be sustainable, and will allow O'Sullivan Industries to maintain credit ratios appropriate for the ratings," S&P said.

Negative influences on the ratings include high leverage, the volatile nature of the industry and customer concentration. However, the company's solid market position supports the assigned ratings.

For the third quarter ending March 31, 2002, EBIDTA rose to $19.4 million, a 32% increase from the same period of the previous year. For the 12 months ended March 31, EBIDTA coverage was 2.2 times compared to 1.7 times for the same period in 2001. Total debt to EBIDTA was 4.2 times down from 5.0 times during the prior year.

S&P puts Metaldyne on positive watch

Standard & Poor's put Metaldyne Corp. on CreditWatch with positive implications. Ratings affected include Metaldyne's $345 million 4.5% convertible subordinated debentures due 2003 at B and its various bank facilities at BB-. Total debt is $1.4 billion.

S&P said its action follows Metaldyne's announcement that it has reached an agreement to sell a 66% stake in its wholly owned subsidiary TriMas Corp. for $840 million in cash and debt reductions.

Metaldyne intends to use proceeds from the sale to reduce debt and for other corporate purposes, which will improve the company's currently stretched financial profile, S&P said.

Pro forma for the transaction, total debt (including operating leases and sold accounts receivable) to EBITDA will decline to about 4.3 times from 5.3x, S&P said. At the same time, the sale would also somewhat weaken Metaldyne's business profile by reducing the company's product, customer and end market diversity.

Metaldyne's credit quality could improve modestly or remain the same depending on potential changes to management's business strategies and financial policies, S&P said. Metaldyne intends to aggressively pursue acquisitions to expand its positions in automotive-based components, assemblies and modules.

S&P raises Shoppers Drug Mart

Standard & Poor's upgraded Shoppers Drug Mart Corp. to investment grade from junk. The outlook is stable.

Ratings affected include Shoppers Drug Mart's corporate credit rating, raised to BBB from BB and its CAD350 million secured revolving bank loan due 2007, CAD350 million senior secured amortizing bank loan due 2007, $236 million senior secured bank loan due 2008 and $236 million senior secured bank loan due 2009, all raised to BBB+ from BB.

S&P puts Pegasus on watch

Standard & Poor's put Pegasus Media & Communications Inc. on CreditWatch with negative implications. Ratings affected include Pegasus Media's $83.2 million 12.5% notes due 2005 at CCC+, its $275 million senior secured bank loan due 2004 and $225 million senior secured term loan B due 2005, both at B+, Pegasus Communications Corp.'s $300 million 6.5% convertible preferred stock at CCC, and Pegasus Satellite Communications Inc.'s $115 million senior notes due 2005, $100 million 9.75% senior notes due 2006, $155 million 12.5% notes due 2007, $195 million 12.375% senior unsecured notes due 2006, $192.835 million 13.5% senior subordinated notes due 2007 and $175 million notes due 2010, all rated CCC+.

The action is based on the company's rising financial risk and operating challenges, S&P said. "The company continues to operate with heavy subscriber acquisition costs and high leverage, and recorded a net reduction in subscribers in the first quarter of 2002," S&P said. In addition, negative factors influencing the ratings include the high competitiveness in the pay TV market, the pressure on liquidity due to the scheduled payments of cash dividends on 12¾% debt-like preferred stock and the affect the potential merger of EchoStar and DirecTV may have on the company's future competitive position.

At March 31, Pegasus had about $40 million in cash and about $131 million in available borrowings under its revolver.

S&P lowers GenTek

Standard & Poor's downgraded GenTek Inc. and kept the company on CreditWatch with negative implications. Ratings lowered include GenTek's $300 million revolver due 2005, $150 million term A loan due 2005, $200 million term C loan due 2007 and Noma Acquisition Corp's $150 million term loan due 2007, all cut to CCC from B-, and its $200 million 11% subordinated notes due 2009, cut to CC from CCC.

S&P said its action was in response to increasing financial risk including GenTek's recent announcement that that it has received a notice of default from its senior lenders.

GenTek is not in compliance with its bank covenant and its senior lenders now have the right to accelerate payment on more than $700 million in bank debt, S&P noted. If GenTek faced an acceleration of payment, the company would likely be unable to meet its payment obligations.

GenTek is in negotiations with its senior lenders to resolve the default. Given the large amount of senior debt outstanding relative to the total capital structure, significant deterioration in cash generation, and that this will be the third amendment, bank negotiations may prove to be challenging, S&P said.

During the first quarter of 2002, the company drew down fully on its bank facility, expecting bank covenants violation, S&P added.

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