S&P cuts Dobson, on watch

Standard & Poor's downgraded Dobson Communications Corp. and kept it on CreditWatch with negative implications and lowered American Cellular Corp. and kept it on CreditWatch with negative implications. Ratings lowered include Dobson's $300 million 10.875% senior notes due 2010, cut to CCC+ from B-, Dobson Operating Co. LLC's $925 million senior secured bank loan due 2008, cut to B from B+, and American Cellular's $300 million revolver due 2007, $350 million term loan B due 2008, $400 million term loan C due 2009 and $700 million term loan A due 2007, cut to CC from CCC-. American Cellular's subordinated debt remains at C.

S&P said it cut Dobson because of the impact of lower roaming yield on revenue growth, lower net customer additions compared with guidance for full-year 2002, and overall slower industry growth.

The watch listing reflects the uncertainty related to the Dobson family loan with Bank of America that matures on March 31, 2003, unless extended.

Over the past year, Dobson Communications' revenue growth has been impacted by the decline in roaming yield and overall slower industry growth, S&P said. This has been offset somewhat by cost controls and aggressive marketing of local and preferred national plans.

However, in the third quarter of 2002, Dobson Communications' revenue growth declined to 6% compared with the second quarter of 2002, which experienced a 12% growth rate sequentially, due to lower net customer additions and lower roaming revenue growth. Roaming revenue had comprised about 40% of total revenue.

Total debt to EBITDA on an annualized basis was about 4.9x, while EBITDA interest coverage was about 2.1x. Debt per subscriber was approximately $1,700, about average for the rating, S&P said.

Favorable resolution of the Dobson family loan with Bank of America is essential to the rating, S&P added. If required payment requirements are not met, Bank of America could foreclose on the collateral triggering a change of control under Dobson Communications' note indenture. This would result in an acceleration of the payment of the company's senior notes at 101% of the principal amount plus accrued and unpaid interest.

The downgrade to American Cellular indicates the potential for debt restructuring in the near term.

American Cellular has not met its second and third quarters 2002 total debt leverage ratio for its $1.34 billion secured bank facility and is continuing negotiations with its banks, S&P noted.

S&P cuts Legrand, rates loan BB

Standard & Poor's downgraded Legrand SA, removed it from CreditWatch with negative implications and assigned a BB rating to its new €2.08 billion bank loan due 2009. Ratings lowered include Legrand's $400 million 8.5% debentures due 2025, cut to B+ from A-.

S&P said the downgrade follows the completion of the LBO of Legrand by a consortium led by Wendel Investissement and Kohlberg Kravis Roberts & Co. LP.

The action reflects the aggressive leverage put in place and the sharp subsequent weakening of credit measures, S&P said.

While Legrand's credit measures are expected to be weak for the rating category at year-end 2002,

S&P said it believes that the group's strong business profile will likely allow consistent improvement in credit quality in the future.

Moody's rates Sinclair loan Ba2, notes B2

Moody's Investors Service assigned a Ba2 rating to Sinclair Broadcast Group Inc.'s incremental term loan due 2009 and a B2 rating to its add-on senior subordinated notes due 2012 and confirmed its existing ratings including its $600 million senior secured credit facilities at Ba2, $735 million senior subordinated notes and $200 million Hytops at B2 and $173 million of convertible preferred stock at B3. The SGL-2 speculative grade liquidity rating was also confirmed and the B2 rating on its $250 million 8.75% senior subordinated notes due 2007 withdrawn. The outlook is stable.

Moody's said Sinclair's ratings continue to reflect the risks posed by its high leverage and thin cash flow coverage of interest and dividends after capital expenditures; high planned capital investment; acquisition risk; the proportion of weaker ranked stations in the company's markets; and exposure to the cyclical advertising environment.

Positives are the size and geographic diversity of the company's station portfolio; the more-than-ample collateral coverage provided to creditors; margin levels that are at or above its industry peer group; and the company's focus on more durable, local advertising revenue.

The ratings also reflect the company's good liquidity position. Moody's expects Sinclair to produce positive free cash flow through the rating horizon and believes that the company's $225 million revolving credit facility is amply sized and will rarely be drawn upon for normal working capital activity exclusive of the financing of potential future acquisitions.

As of September 30, 20002 Sinclair's leverage is high with (debt + convertible preferred + Hytops)/EBITDA of approximately 7.6 times and cash flow coverage is modest with (EBITDA-capex)/(interest + dividends) of 1.2 times.

Moody's noted the company's ratings have benefited from the expectation that assets would be sold to help repair the company's balance sheet. After the impact of the Indianapolis sale and the improved operating performance, it is unlikely that the company will continue to actively pursue asset sales and is likely to be more opportunistic regarding acquisitions and divestitures. In addition, high planned capital expenditures for digital conversion will limit improvements in cash flow coverage through 2003. However, Moody's does expect additional near-term improvements in the company's credit statistics due to strong political advertising early in the fourth quarter.

S&P rates Iron Mountain notes B

Standard & Poor's assigned a B rating to Iron Mountain Inc.'s new $100 million senior subordinated notes due 2015 and confirmed its existing ratings including its senior secured debt at BB and subordinated debt at B. The outlook is stable.

The ratings reflect Iron Mountain's leading position as the world's largest records management company, its reliable internal growth generated from existing customers, its outsourcing of new customers' in-house storage operations, and modest debt capacity within the ratings to accommodate capital spending and acquisition activity, S&P said. These factors are offset by fairly aggressive, although moderating, financial policies regarding its growth strategies.

Operating performance is relatively recession-resistant due to low customer attrition, a diverse client base, and annual and multiyear contracts that provide recurring monthly storage fees. Internal growth is expected to be in the 8% to 11% range in 2002, S&P said. Revenue growth could be vulnerable to a slowdown in North American storage revenues, volatile recycled paper prices, and near-term foreign currency fluctuations.

The company generates negative discretionary cash flow as a result of heavy capital investment, S&P added. Capital spending requirements for maintenance are not onerous, and there is a discretionary element to the company's growth-related capital spending. Digital initiatives are consuming small amounts of capital, and have yet to gain traction.

For the 12 months ended September 2002, EBITDA plus rent expense coverage of interest plus rent expense was about 1.8x, S&P said. Lease-adjusted total debt, including synthetic leases, to EBITDA plus rent expense was about 5.9x at Sept. 30, 2002. The company generates a healthy EBITDA margin of about 27% and some positive discretionary cash flow.

Moody's rates United Rentals notes B1

Moody's Investors Service assigned a B1 rating to United Rentals (North America), Inc.'s new $200 million senior unsecured notes due 2008 and confirmed its existing ratings including its $650 million senior secured revolving facility due 2006 and $643 million senior secured term loan due 2007 at Ba3, $450 million 10.75% senior unsecured notes due 2008 at B1, $300 million 9.25% senior subordinated notes due 2008, $200 million 9.5% senior subordinated notes due 2008, $202 million 8.8% senior subordinated notes due 2008 and $250 million 9% senior subordinated notes due 2009 at B2 and $275 million of Quarterly Income Preferred Securities due 2028 at B3. The outlook remains stable.

Moody's said the ratings continue to reflect United Rentals' substantial debt and leverage, its exposure to the highly cyclical construction and industrial end-markets, significant on-going capital spending requirements, and intense competition and over-capacity in the equipment rental industry.

The ratings also reflect the currently challenging economic environment and continued weak demand for rental equipment, Moody's added.

Positives include United Rentals' leading and growing market position, superior operating and fleet management, extensive branch network and geographic reach, and strong management team, Moody's said. In addition, the company's financial flexibility benefits from its ability to scale back capital expenditures through fleet aging during an economic downturn.

The stable rating outlook reflects Moody's expectation of a flat to slightly down non-residential construction market in 2003 and a gradual pick-up in 2004. The rating outlook also considers the flexibility the company has in further cutting down capex over the next 12-18 months without compromising its operations and fleet quality. However, to the extent that weakness in non-residential construction spending persists beyond expectations, due to either a sustained decline in the economy or external events, the ratings and outlook would be under downward pressure.

S&P says Sonic Automotive unchanged

Standard & Poor's said Sonic Automotive Inc.'s ratings are unchanged at a BB corporate credit rating with a stable outlook following the announcement that it has revised 2002 and 2003 earnings guidance. Fourth-quarter 2002 earnings targets were lowered 20% to 48 cents-52 cents from 62 cents-66 cents, and full-year 2002 earnings targets were lowered to $2.44-$2.48. Fiscal 2003 earnings target were lowered 8% to $2.70-$2.80.

The reduced earnings expectations are based on weaker-than-expected vehicle sales during recent months, S&P noted.

Sonic is taking actions to reduce new vehicle inventory levels and variable costs to partially offset the softer market conditions.

Despite weaker demand, the company should generate earnings per share growth of over 25% in 2002, S&P said.

Sonic is expected to slow its acquisition pace during the next few quarters to integrate recent dealership acquisitions, S&P added. Nevertheless, future purchases are expected to result in continued aggressive debt use.

Moody's rates Gate Gourmet credit facility B1

Moody's Investors Service assigned a B1 rating to Gate Gourmet Borrower LLC's new credit facility. The outlook is stable.

Moody's said the ratings reflect Gate Gourmet's dependence on the airline industry which has reported substantial declines in passenger volume and food service expenditure over the past two years resulting in a significant deterioration in Gate Gourmet's financial performance over this period; on-going exposure to potential adverse events (e.g. war in Iraq) that could negatively impact the airline industry; the company's high customer concentration, including material exposure to United Airlines, which filed for bankruptcy protection on Dec. 9; the company's limited last-12 months pro-forma free cash flow generation and somewhat modest pro-forma liquidity cushion of CHF100 million; the competitive marketplace in which Gate Gourmet operates; and broad-based country risks related to the company's multinational operations, including potentially adverse currency exchange, local economic, competitive, and political and regulatory conditions.

Positives include Gate Gourmet's strong market position as the second largest airline caterer in what is essentially a market duopoly; the reduced capacity for further spending reductions (in airline catering services) following the significant declines that have already occurred and given the limited food service already provided on routes where food service expenditures are most discretionary (e.g. U.S.

short-haul routes); the company's relatively conservative capital structure, pro-forma for the transaction; the company's highly contracted revenue base and historic success in renewing expired contracts; a highly flexible cost structure with an estimated 85% of the company's cost base being variable; structural benefits afforded to the senior credit facility by virtue of their contractual seniority over the company's mezzanine debt; an experienced management team; and sizeable junior capital contributions from reputable shareholders (Texas Pacific Group) with strong experience in the airline industries, Moody's said.

Adjusted EBITDA for year-end 2000, year-end 2001, and forecasted 2002 amount to CHF369 million, CHF263 million and CHF233 million respectively, Moody's said. Nonetheless, the proposed capital structure would represent relatively moderate leverage with pro-forma gross debt /last 12 montsh adjusted EBITDA of 3.1x (4.4x using reported EBITDA) and adjusted debt (adding 8x rents)/adjusted EBITDAR of approximately 4.2x (5.5x using reported EBITDA).

Fitch rates Ericsson BB

Fitch Ratings assigned a BB senior unsecured rating to Telefonaktiebolaget LM Ericsson. The outlook is negative.

The rating reflects the extremely difficult demand conditions currently faced by Ericsson, the significant losses incurred over the past two years and sizable cash restructuring costs the company has yet to absorb, Fitch said. While the recently completed rights issue has improved liquidity and helped restore the company's equity base, the absence of signs of a recovery in the company's core mobile systems markets, coupled with significant ongoing cash restructuring costs, will continue to affect Ericsson's operating cashflow and debt profile.

Ericsson, along with all of the major telecom equipment manufacturers, has seen its markets collapse over the past 18 months, Fitch noted. Revenues, which grew by 27% in 2000, contracted by 15% in 2001, and have fallen by a further 28% in the first nine months of 2002. With revenues from mobile systems already lower by 23% so far this year, sizable order cancellations and delivery deferrals, relating to 3G equipment in particular, have severely undermined the company's order intake, which was down by 42% for the first 9 months of the year (including cancellations).

Current liquidity is good, with cash balances of SEK74 billion (€8.2 billion), offsetting total debt of SEK69.2 billion at September 2002, Fitch said. Cash balances are expected to cover debt maturities of about SEK22 billion over the next five quarters and afford some protection to a further SEK8 billion of long term maturities in 2004. The cost of restructuring and funding of ongoing operating losses are however expected to erode the strong cash position, while trading visibility, particularly in the company's core mobile systems markets, is extremely limited.

Moody's rates Huntsman's revolver B2, term loans B3

Moody's Investors Service rated Huntsman LLC's $275 million senior secured priority revolver due 2006 at B2, $938 million secured term loan A due 2007 at B3 and $450 million secured term loan B due 2007 at B3. The revolver is rated higher than the term loans due to its first priority security interest in substantially all assets, ranking ahead of the security interest of the term loans.

Furthermore, the company's senior implied rating was upgraded to B3 from Caa2 and the subordinated notes rating was withdrawn due to the reduced amounts outstanding and the modification of the covenants of the indentures. The rating outlook is stable.

The senior implied rating upgrade reflects the reduction of debt by $763 million through a financial restructuring in which subordinated notes were exchanged for equity and the credit facility was extended through 2006 and 2007, Moody's said.

Positive factors influencing the rating include the company's established market positions, vertical integration in a broad range of chemical products, relatively low-cost production and recognized operating capabilities.

Ratings also reflect the company's remaining significant debt burden, uncertainties regarding timing of a cyclical upswing that would improve its earnings and debt service capability, modest equity to cushion bondholders, limited liquidity and the unresolved claims of Imperial Chemical Industries PLC against valuable company assets, Moody's said.

At Sept. 30, post restructuring, the company had total debt of $1.6 billion, and adjusted debt of $1.8 billion. Using EBITDA for the 12 months to Sept. 30 of $283 million, pro forma debt/EBITDA is 5.6 times and adjusted debt/EBITDA is 6.2 times.

S&P cuts Avado

Standard & Poor's downgraded Avado Brands Inc. including cutting its $100 million 11.75% senior subordinated notes due 2009 and $125 million 9.75% senior notes due 2006 to D from CC.

S&P said it lowered Avado after it failed to make interest payments due Dec. 1 and Dec. 15.

As of Sept. 29, 2002, the company was not in compliance with certain EBITDA requirements contained in its credit facility and master equipment lease, S&P noted. Under the terms of the credit facility, the company is not permitted to make interest payments on its bonds while it is in violation of financial covenants.

S&P raises DRS outlook

Standard & Poor's raised its outlook on DRS Technologies Inc. to positive from stable and confirmed its ratings including its senior secured debt at BB-.

S&P said the revision follows DRS' sale of 4.75 million shares of common stock for net proceeds of $115 million.

The equity sale improves DRS's capital structure after the recent partially debt-financed purchase of Paravant Inc., S&P said. Total debt to capital is estimated to decline to below 45% pro forma for the equity sale from over 50% after the Paravant acquisition.

DRS' ratings reflect its good niche positions in the defense industry and a somewhat above average financial profile, offset by the risks inherent in an active acquisition program, S&P said.

Acquisitions are an important element of management's growth strategy. In September 2001, DRS acquired the systems and sensors business of Boeing Co. for $67 million, financed by debt, and in July 2002 acquired the assets and assumed certain liabilities of the Navy Controls Division of Eaton Corp. for $92 million using cash on hand, S&P said. Recently, DRS completed the acquisition of Paravant Inc. for $92 million plus $13 million in assumed debt.

The current equity offering follows a similar-sized sale in December 2001, giving DRS financing capacity for small to moderate-size acquisitions, S&P said.

Credit protection measures are expected to improve due to the earnings contribution of acquired operations, with total debt to EBITDA in the 2.5x to 3.0x range and EBITDA to interest expense about 4.0x, S&P added.

S&P cuts Key3Media notes

Standard & Poor's downgraded Key3Media Group Inc.'s $300 million 11.25% notes due 2011 to D from C. The senior secured debt remains at CCC on CreditWatch with negative implications.

S&P said the downgrade follows Key3Media's failure to make the scheduled interest payment on its $300 million 11.25% senior subordinated notes due 2011.

Los Angeles, Ca.-based Key3Media had $370 million in total debt on Sept. 30, 2002.

Key3Media's senior secured debt rating remains on CreditWatch with negative implications.

S&P upgrades Owens & Minor

Standard & Poor's upgraded Owens & Minor Inc. including raising its $225 million senior unsecured revolving credit facility due 2003 to BB+ from BB, $200 million 8.5% senior subordinated notes due 2011 to BB- from B+ and $120 million term convertible securities series A to B+ from B. The outlook was revised to stable from positive.

S&P said the upgrade reflects Owens & Minor's improved operating efficiency and continued debt reduction.

A new receivables system and increased internal credit requirements for customers have allowed for faster collections and the reduction of bad debt, S&P noted. Furthermore, ongoing process improvements at the warehouse level have continued to drive productivity and raise levels of customer satisfaction.

Nevertheless, strong pricing pressures limit improvement in profitability, S&P said. The company also faces risks presented by the considerable consolidation in the industry and the presence of well-entrenched manufacturer/distributors in the related pharmaceutical-supply business.

Still, Owens & Minor has been able to raise its return on capital to 16% from 12% three years ago, reduce lease-adjusted debt to capital to about 41% from 52% in 1999, and increase EBITDA coverage of interest to about 4.9x from 3.5x during the same period, S&P added.

S&P rates Salem notes B-

Standard & Poor's assigned a B- rating to Salem Communications Corp.'s $100 million 7.75% senior subordinated notes due 2010 and confirmed its existing ratings including its senior secured debt at BB- and senior subordinated debt at B-. The outlook is negative.

Salem's ratings reflect increasing scale from its expanding large-market radio station clusters, stable cash flow from block programming time sales, and good asset value, S&P said. Offsetting factors include high financial risk from ongoing debt-financed radio station acquisitions, negative discretionary cash flow, and the limited audience potential of Salem's niche religious programming focus.

Salem's financial policy is aggressive, and debt-financed acquisitions have restrained profitability and free cash flow, S&P said.

At the time of purchase, stations usually are not broadcasting the company's primary religious or family-issue programming, S&P noted. Reprogramming a station to one of Salem's target formats generally results in weak cash flow until the station's audience levels improve. Several station purchases have also required capital spending for studio and transmission facilities. Still, many of the newly acquired stations are located in Salem's existing markets, providing sales and overhead cost benefits that have made station integration and reformatting economical.

Additional acquisitions are likely, either in large metropolitan markets or in existing markets with clustering opportunities, S&P said.

Salem's EBITDA margin is below average, at less than 25%, due to underperforming, developing stations, S&P added. The stations' narrower audience focus may also limit longer-term margin potential.

In the third quarter of 2002, Salem delivered above industry average same-station revenue and broadcast cash flow growth of 15% and 25.5%, respectively, S&P said. Positive momentum is expected to continue into the fourth quarter of 2002, with same-station revenue growth expected to be in the mid-teens percentage area. Pro forma EBITDA coverage of interest expense was around 1.3x for the 12 months ended Sept. 30, 2002. Pro forma total debt to EBITDA was about 9.8x as of the end of the third quarter of 2002.

Moody's upgrades Meritage notes

Moody's Investors Service confirmed Meritage Corp.'s senior implied rating at Ba3 and upgraded its $165 million 9.75% senior unsecured notes due 2011 to Ba3 from B1. The outlook remains stable.

Moody's said it upgraded the notes because of a shift in the company's capital structure away from one that consisted of substantial secured debt issued at the operating company level to one comprised largely of unsecured debt issued by the parent company Meritage Corp.

This was accomplished by means of the company's recent replacement of two separate secured bank credit facilities aggregating $190 million that were issued by Texas and Arizona operating subsidiaries by a new three-year $250 million unsecured bank credit facility entered into by Meritage.

The ratings reflect the financial and integration risks associated with an acquisition-based growth strategy, modest size, dual corporate structure in Arizona and Texas, each led by a co-chairman, that may give rise to potential inefficiencies, heavy reliance on land bank options, and the cyclicality of the homebuilding industry, Moody's said.

At the same time, the ratings consider the company's profitable track record to date (with 14 consecutive years of record revenues and profits for the company and its predecessor operations), the current strength of Meritage's markets (Arizona, Texas, and California, and the recently-entered Las Vegas, Nevada market), improved credit profile since the time of the company's initial rating in May 2001, and the company's modest owned lot inventory, the rating agency added.

Moody's puts Omnicare on review

Moody's Investors Service put Omnicare, Inc. on review for possible downgrade including its $500 million senior unsecured revolving credit facility due 2004 at Ba1, $375 million 8.125% senior subordinated notes due 2011 at Ba2 and $345 million 5% convertible subordinated notes due 2007 at Ba3.

Moody's said the review follows recent developments which greatly increase the likelihood Omnicare will be acquiring institutional pharmacy provider NCS HealthCare, Inc. The potential downgrade reflects the significant increase in leverage which will likely occur as a result of the acquisition.

The addition of NCS to the Omnicare network will fortify Omnicare's coverage and penetration nationally and strengthen the company's leading market position, Moody's noted.

However, while the current ratings reflect the company's positive operating trends and its ability to generate consistent cash flow, the potential increase in leverage and the integration issues related to the proposed transaction may offset the positive factors, Moody's said.

Moody's review will focus on the structure of the acquisition financing and the anticipated increase in leverage, the company's integration plans and its acquisition strategy going forward.

Moody's will also look at the proposed benefits and the expected synergies and will assess the likelihood of their realization over the near to intermediate term.

Moody's lowers Cole National outlook

Moody's Investors Service lowered its outlook on Cole National Group to negative from stable and confirmed its ratings including its $75 million senior secured revolving credit facility due 2006 at Ba2 and $125 million 8.625% senior subordinated notes due 2007 and $150 million 8.875% senior subordinated notes due 2012 at B2.

Moody's said the outlook change reflects its concerns about the profitability of Cole National's vision segment following Cole's announcement of a pending restatement of its historical financials.

Margin improvement in these segments may have been overstated due to Cole's historical practices related to the revenue recognition of its warranty income, Moody's said.

Importantly, Moody's recognizes that the restatements currently contemplated will not impact Cole's cash flow. Nonetheless, the growth of this high-margin activity may have masked slower improvement in other aspects of the business, and could reveal that an excessive portion of the company' profits are generated by the volatile Things Remembered segment.

Heightened price competition, declining same store sales trends at Pearle franchisees, investments in unaffiliated retailers in its managed care network (made by parent, Cole National Corp.), and the launch of a Pearle credit card with delayed terms (through GE Capital), present additional concerns regarding the stability of Cole's cash flows and profitability over the near-to-intermediate term, Moody's added.

Moody's cuts Avecia

Moody's Investors Service downgraded Avecia Group plc including cutting its $540 million senior notes to Caa1 from B3, $45 million PIK preference shares to Caa2 from Caa1 and Avecia Investments Ltd.'s bank debt to B1 from Ba3. The action concludes a review begun on Nov. 11. The outlook is negative.

Moody's said the downgrade reflects its concerns about Avecia's weak cash flow generation relative to its debt level and Moody's expectations that Avecia's credit metrics will further deteriorate in the coming twelve months as a result of elevated capex, limited operating cash flow generation and charges arising from restructuring.

The group's leverage ratio was 9.3x on a Net Debt/(EBITDA-capex) basis for the 12 months ending Sept. 30, 2002.

Moody's said it anticipates that debt/cashflow leverage and interest coverage metrics are likely to remain under pressure in 2003 due to an expected weak economic environment generally, the loss of business and cash flows resulting from the US launch delay of a principal customer's drug, and due to the restructuring cash charges Moody's understands the Avecia will take in 2003. Moody's also notes that the group's capex spending will be significant given the remaining investments they have to make in their biotechnology plant in Billingham.

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