Moody's upgrades Solutia

Moody's Investors Service upgraded Solutia Inc. affecting $1.2 billion of debt. Ratings raised include Solutia's senior unsecured notes and debentures, moved to B2 from B3, senior secured notes to B1 from B2 and secured credit facility to Ba3 from B1.

Moody's said the upgrade completes a review begun on June 13 in response to concerns about Solutia's ability to refinance its maturing $800 million credit agreement.

The upgrade is in response to Solutia's completion of its amended $600 million secured credit facility and receipt of $190 million of proceeds from a senior note issue, Moody's said although it noted the ratings also reflect concern over the limited term of the new credit agreement and uncertainties over the company's liability in litigation related to polychlorinated biphenyl contamination in Anniston, Ala.

Moody's said it believes the short tenor of the current credit facility reflects the perceived uncertainty with regard to Solutia's ultimate liability in Anniston.

In addition, within the next 12-18 months, the company will need to renegotiate the credit facility and set forth a plan to refinance or repay $350 million of debt that will come due in the fourth quarter of 2004 and first quarter of 2005, the rating agency said.

Moody's added that it believes Solutia must demonstrate a sustained improvement in free cash flow generation and that the Anniston liability is manageable.

Moody's rates Isle of Capri loan Ba2

Moody's Investors Service assigned a Ba2 rating to Isle of Capri Casino, Inc.'s $500 million senior secured bank credit facility made up of a $250 million senior secured revolving credit facility maturing 2007 and a $250 million senior secured term loan maturing 2008.

Moody's said the Ba2 rating reflects the secured nature of the loan and its restrictions on Isle of Capri's ability to take on additional debt, make capital expenditures, restricted payments and restricted investments, and pledge assets to other transactions.

The facility is rated one notch above the company's Ba3 senior implied rating to reflect its superior recovery profile relative to other debt in the company's capital structure.

Moody's said its analysis of distressed asset and enterprise values indicate senior secured lenders would be adequately protected under distressed circumstances.

Moody's noted it recently revised Isle of Capri's ratings outlook to stable from negative based on the company's successful de-leveraging and expectation that it will be able to maintain its current credit profile through its recently announced $135 million expansion plan.

Moody's cuts Agere

Moody's Investors Service downgraded Agere Systems, Inc. including cutting its $410 million subordinated convertible debt to B3 from B2. The outlook is stable.

Moody's said the downgrade reflects expectations that Agere is likely to continue incurring operating losses and consuming cash as it contends with the prolonged industry downturn, notwithstanding its good execution so far of its ongoing cost reduction efforts.

Moody's said that there are few signs that indicate a near-term rebound in demand for semiconductors and end electronic equipment.

Consequently, even though Agere achieved very modest sequential revenue growth in the last two quarters, reaching $560 million in the quarter ended June 2002 (with about $64 million related to the

to-be-exited optoelectronics business) it will likely continue to post operating losses over the near to intermediate term, Moody's said. At the same time, it will continue to use cash, both for operations and in order to affect is restructuring actions.

Even though Agere has $1.2 billion of cash on hand at June 2002, and manageable bank debt maturities, the new rating reflects the negative impact of unprofitable operations and negative cash flow from operations for an extended period of time, Moody's said.

Total debt of $832 million at June 2002 includes $410 million of 6.5% cash pay subordinated convertible debt due 2009, about $220 million of secured bank borrowings, and about $165 million of borrowings from accounts receivable securitizations due January 2003. The bank borrowings mature Sept. 30, 2002, unless the company achieves an additional $90 million of fund raising as defined in the bank facility. Should the company not achieve the necessary fund raising, Moody's said it expects the company will pay off the bank facility with cash on hand.

S&P cuts Outsourcing Services

Standard & Poor's downgraded Outsourcing Services Group Inc. and maintained its outlook at negative. Ratings lowered include Outsourcing Services' $70 million revolving credit facility due 2003, cut to B from B+, and its $105 million 10.875% senior subordinated notes due 2006, cut to CCC from CCC+.

S&P said the downgrade is in response to Outsourcing Services' poor operating performance and increased debt leverage.

The company's financial results were weak for the six months ended June 29, 2002, reflecting an 8% decline in revenues (excluding acquisitions) and a 23% drop in operating profit (before depreciation, amortization, and nonrecurring charges), S&P said.

The sales decline was the result of extreme softness in Outsourcing Services' Kolmar cosmetics segment, which participates in the highly competitive U.S. beauty business, S&P noted. The operating profit decline was due to lower sales, inefficiencies within the consumer segment, and increased manufacturing and administrative costs.

S&P added that it believes Outsourcing Services will continue to be challenged in the intermediate term by the highly competitive environment in which it operates.

Credit measures for the 12 months to June 29, 2002 continued to weaken. Debt to EBITDA of about 6.8 times rose from 5.7x at year-end 2001, while EBITDA interest coverage of 1.5x also worsened from 1.6x during the same period, S&P said. The rating agency added that it expects credit ratios will remain well below average in the intermediate term due to the company's high debt level and low profitability.

S&P cuts some Acterna ratings

Standard & Poor's downgraded some of Acterna Corp.'s ratings, confirmed others and removed the company from CreditWatch with negative implications. Ratings lowered include Acterna's corporate credit, cut to SD (selective default) from CCC- and its $275 million 9.75% senior subordinated notes due 2008, cut to D from CC. Acterna's $85 million 10.125% senior subordinated notes due 2007 were changed to not rated from CC. The company's $165 million senior bank facilities, $175 million revolving credit facility due 2007, $175 million tranche A term loan due 2007 and $510 million tranche B term loan due 2008 were confirmed at B-.

S&P said the actions follow the completion of the cash tender offer by Acterna and CD&R Barbados for $149,570,000, the principal amount of Acterna's outstanding 9¾% senior subordinated notes, with an aggregate purchase price of approximately $32.9 million. CD&R Barbados is an affiliate of equity sponsor Clayton,Dubilier & Rice Inc.

S&P said that under its criteria an exchange offer at a substantial discount to par value recognizes that in effect the company will not meet all of its obligations as originally promised so the subordinated notes were cut to D and the corporate credit rating to SD. Although the investors technically accept the offer voluntarily and no legal default occurs the rating treatment is identical to a default on the specific debt issues involved.

S&P added that it will reassess Acterna's credit profile and assign a new rating that reflects future prospects for credit quality.

Moody's rates Ball loan Ba2, notes Ba3, lowers outlook

Moody's Investors Service assigned a Ba2 rating to Ball Corp.'s proposed $1.85 billion secured multicurrency credit facility and a Ba3 rating to its proposed $300 million senior unsecured notes due 2012 and confirmed the company's existing ratings including its $300 million 7.75% unsecured notes due 2006 at Ba3 and its $250 million 8.25% senior subordinated notes due 2008 at B1. Moody's also lowered the outlook to stable from positive.

Moody's said the ratings are prospective for Ball's proposed new debt and acquisition of the can and ends manufacturing businesses of Germany-based Schmalbach-Lubeca AG for approximately $900 million cash, including fees, and the assumption of approximately $16 million of debt.

The ratings reflect Ball's strong financial profile on both a stand-alone basis and pro forma for the proposed transactions, its leading position in the North American markets, and its historically proven low cost structure, Moody's said.

Also incorporated in Moody's assessment is Ball's record of successfully integrating acquisitions.

Moody's said it takes a positive view of the strategic rationale behind the proposed acquisition and acknowledges the company's proactive expansion of its core businesses to expand geographic reach and reach new customers. Moody's noted the value of the acquisition is not principally based upon synergies.

However Moody's said the proposed transaction will result in increased financial leverage. The ratings also reflect the absence of tangible equity and the tightening of coverage of pro-forma interest expense.

The relative strain on Ball's pro forma financial profile heightens concern about integration risks - notably the combination of business cultures within senior management and on the board of directors, Moody's said.

Pro forma for the proposed acquisitions, financial leverage increases to approximately 5.0 times EBITA with an estimated $1.8 billion of total pro-forma debt (approximately 3.4 times pro forma EBITDA), Moody's said.

The new $1.85 billion facility, denominated in U.S. dollars and available for multicurrency drawings, consists of a $500 million revolver with a $35 million Canadian dollar tranche, a $250 million term loan A, a $200 million equivalent euro term loan B, a $600 million term loan B and a $300 million C tranche, Moody's said. The C tranche is intended to serve as a bridge in the event that the senior unsecured bond offering does not occur.

S&P cuts Ball outlook

Standard & Poor's lowered its outlook on Ball Corp. to negative from positive and confirmed its ratings including its senior secured bank debt at BB+, senior unsecured debt at BB and subordinated debt at BB-.

S&P said its actions follow Ball's announcement it has agreed to acquire Schmalbach-Lubeca AG for about $885 million (€900 million) in cash, and the assumption of about €16 million of net debt.

S&P added that it revised Ball's outlook because of the increased risks associated with the transaction, including the meaningful increase in Ball's debt levels and the challenges in integrating a large-scale manufacturing business.

Total debt pro forma for the acquisition at June 30, 2002, will climb to about $2 billion from about $1.1 billion, S&P said, adding that it will evaluate the proposed financing plan and any rating implications for existing senior noteholders, upon availability of updated terms and conditions.

Following the completion of the Schmalbach-Lubeca acquisition, Ball will become the largest global beverage can producer, having leading shares in the two largest can markets, North America and Europe, S&P noted. The acquisition will also improve Ball's geographic diversity and modestly reduce its high customer concentration.

Ball should also benefit from better growth prospects, as the European market is still growing in the mid-single-digit percent area, unlike the mature North American market, S&P said.

Still, competition is intense, stemming from large global rivals and inter-material substitution, S&P noted. Although management has a good track record of buying and integrating businesses, the Schmalbach-Lubeca acquisition will be challenging both in its scope and because it will be the company's first foray into Europe. In order to counter potential difficulties, Ball plans to retain Schmalbach-Lubeca's experienced management team.

S&P raises ConMed outlook

Standard & Poor's raised its outlook on ConMed Corp. to stable from negative and confirmed its ratings including its senior secured bank loan at BB- and subordinated debt at B.

S&P said the revision follows ConMed's successful refinancing of its credit facility.

The new facility extends ConMed's maturities and increases its liquidity, as about $90 million will be available for use by the company, S&P noted.

S&P said its assessment of ConMed reflects concern that the company, though well established in its niche surgical markets, faces the ongoing challenge of competing with larger, better-financed companies in all of its markets.

Margins remain within the average range for the industry, and lease-adjusted EBITDA interest coverage of 3 times is consistent with the rating, S&P said. Moreover, debt has been reduced using a combination of proceeds from a $70 million equity offering in early 2002 and some cash from operations, which has contributed to a decline in debt to capital to 41% from 55% at the end of 2001. Credit measures of funds from operations to lease-adjusted debt of 20% and total debt to EBITDA of about 3x are also well within the rating category.

Moody's rates Clean Harbors loan B2

Moody's Investors Service assigned a B2 rating to Clean Harbors, Inc.'s proposed $100 million guaranteed senior secured revolving credit facility maturing 2005 and its up to $125 million guaranteed senior secured term loan maturing 2005. The outlook is stable.

Proceeds from the new debt will be used to finance the acquisition of some assets of Safety-Kleen Corp.'s Chemical Services Division for $46.3 million in cash and the assumption of $265.4 million in environmental liabilities, to retire Clean Harbor's existing $54.0 million of debt and to pay $30 million in deal expenses and financing fees.

Moody's noted it relied on due diligence reports provided by the company since there are no audited financial statements available for the Chemical Services business for fiscal 2001.

The acquisition multiple varies depending upon estimated EBITDA numbers for 2001. Based on management's due diligence, the acquisition cost of $311.7 million is 6.7 times Chemical Services' fiscal 2001 EBITDA excluding synergies, Moody's said. The company plans to achieve close to $67 million in synergies over a three-year period.

The ratings reflect the modest return on assets of the acquiring company; the acquisition risk associated with integrating a company of almost twice its size with underperforming assets; the high multiple paid for the assets with a very large assumption of deferred cash environmental liabilities and the related imputed increase in leverage, Moody's said.

The ratings also incorporate management's endeavor to quickly drive up operating margins in part through the achievement of almost $67 million in synergies and the challenge to grow the top line in a declining price environment with reliance on taking market share, the rating agency added.

Moody's noted that the sum of the committed secured loans plus the assumed environmental liabilities is similar to the amount of current assets and net property book value. This underscores the need for clarity as to whether the priority of claim on assets in distress would be for the benefit of the lenders or governmental authorities overseeing the environmental liabilities.

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