S&P cuts Sanmina-SCI, rates loan BB, notes BB-

Standard & Poor's downgraded Sanmina-SCI Corp. and assigned a BB rating to its planned $250 million senior secured credit facility due 2007 and a BB- rating to its proposed $450 million of senior secured notes due 2009. Ratings lowered include Sanmina-SCI's $1.66 billion zero-coupon subordinated notes due 2020 and $300 million 4.25% convertible subordinated notes due 2004, cut to B from B+. The outlook is stable.

S&P said the rating action is based on Sanmina-SCI's weak credit measures for the rating and the likelihood that profitability will remain depressed over the intermediate term, largely due to sluggish demand in major end markets.

Credit measures deteriorated over the past year as manufacturing overcapacity arising from a severe and prolonged industry downturn caused capacity utilization to fall well below desired levels, S&P said. This downturn has been particularly pronounced in Sanmina's printed circuit board fabrication business, which had been a major contributor to profitability and cash flow generation.

S&P said it recognizes that the new debt issues offer the benefits of enhanced liquidity and extension of near- to intermediate-term debt maturities.

In addition, the most recent restructuring actions are expected to improve capacity utilization while reducing operating costs by about $200 million annually, S&P noted. These actions as well as potential new business should improve operating performance in 2003.

Operating margins for fiscal 2002 were depressed at about 4%, below the 5% to 8% norms for top-tier EMS providers and well below Sanmina-SCI's historic levels, S&P said. Lagging sales and sub-par capacity utilization in its higher-margin printed circuit board fabrication sales hurt profitability. EBITDA interest coverage declined to about 3 times in fiscal 2002 from more than 5x in prior years. Adequate cash flow generation somewhat offset weaker credit metrics, as the company generated more than $800 million of cash flow from operations in fiscal 2002. Pro forma for the debt issue and term loans, and anticipated debt repayment, total debt to last 12 months EBITDA exceeded 4x.

Moody's puts Hollywood Entertainment on upgrade review, rates loan Ba3, notes B3

Moody's Investors Service put Hollywood Entertainment Inc. on review for upgrade and assigned a prospective B3 rating to its proposed $200 million subordinated notes and a prospective rating of Ba3 to its proposed secured $200 million term loan and $50 million revolving credit facility, both due 2007. Ratings under review include the company's $250 million senior subordinated notes due 2004 at Caa1.

Moody's said the proposed debt will extend the maturity profile of Hollywood's capital structure and improve the company's medium-term liquidity position, while modestly increasing the amount of debt on its balance sheet over the near term.

The review for upgrade is focused on Hollywood's ability to complete the proposed refinancing transactions essentially as described, Moody's said.

In addition to reflecting the improvement to Hollywood's capital structure from the proposed financing, Moody's said the review also incorporates Hollywood's ability to generate positive net cash flow and maintain appropriate coverage ratios while it continues to invest in growth. The increased revolver also increases Hollywood's access to liquidity.

Lease-adjusted debt to adjusted EBITDAR (adjusted for purchases of capitalized rental product) will remain high for the rating category at more than 5.0 times, Moody's said. Fixed charge coverage levels are expected to remain appropriate for the rating category, with a target of adjusted EBITDAR to fixed charges of 1.5 times, and adjusted EBITDAR less capex to fixed charges of about 1.3 times.

S&P cuts United Airlines

Standard & Poor's downgraded UAL Corp. and United Airlines Inc. including cutting UAL's corporate credit rating to D from CCC-, United Airlines' corporate credit rating to D from CCC- and senior unsecured debt to C from CC. The senior unsecured debt was put on CreditWatch with negative implications. United's senior secured debt remains on CCC- but is put on CreditWatch with negative implications.

S&P said the action follows the rejection by the Air Transportation Stabilization Board of United's application for a federal loan guaranty.

The ATSB's decision will almost certainly lead to a Chapter 11 bankruptcy filing by UAL and United as soon as United has completed arrangements for debtor-in-possession financing, S&P said.

The downgrade of UAL's and United's corporate credit ratings to D reflect United's continuing payment default on about $920 million of debt and, with the ATSB's action yesterday, the disappearance of any realistic possibility of the defaults being cured before grace periods expire on the debt.

Although the ATSB described the loan guaranty rejection as not being final, United does not have time to develop and secure approval for more substantial cost reductions before it runs short of cash and grace periods on deferred debt payments expire, S&P said.

The senior unsecured debt will be lowered to D on a bankruptcy filing. Ratings of aircraft-backed debt and airport revenue bonds are being reviewed and may be lowered before or upon bankruptcy, depending on prospects for continued payment and recovery for each debt issue.

S&P rates Hercules' loan BB

Standard & Poor's rated Hercules Inc.'s proposed $350 million senior secured credit facilities at BB and affirmed the corporate credit rating and senior secured debt rating at BB and the senior unsecured debt rating at BB-. The outlook remains positive.

The facilities will provide funds to repay $125 million in notes scheduled to mature early next year. The revolver is expected to be unused at closing and should provide ample liquidity for the foreseeable future.

The new revolver replaces the company's existing $200 million revolver that matures in 2003.

Security for the facilities is a first-priority security interest in substantially all domestic assets, including accounts receivables and inventory, property plant and equipment, and a pledge of intercompany notes due from a material foreign subsidiary.

"The bank facilities' first-priority lien on domestic assets, and substantive debt cushion (including $400 million of unsecured notes and trust preferreds), should provide for a moderate recovery in the event of default or bankruptcy, but will not likely be sufficient to ensure full recovery of principal and interest," S&P said.

The sale of BetzDearborn's water business earlier in the year has heightened reliance on the company's remaining businesses and will increase exposure to the mature and cyclical pulp and paper sector. However, the company's paper chemical business is well-positioned for success because of dominant market share, size of specialty product offerings, service orientation and diversity across geographic regions, according to S&P.

Total debt to EBITDA is expected to improve toward four times over the next year, from above 5.5 times at year-end 2001.

"The positive outlook is supported by recent debt reduction initiatives, good operating prospects, and the expectation that adequate levels of committed bank financing will remain available to underpin liquidity. A somewhat higher rating could be achieved over the next few years if management's cost-reduction programs succeed and business conditions improve," S&P concluded.

Fitch confirms Solutia

Fitch Ratings confirmed Solutia Inc. including its senior secured bank facility at BB- and senior secured notes at B. The outlook is negative.

Fitch's confirmation follows Solutia's announcement that it has signed a definitive agreement to sell its resins, additives and adhesives business to UCB SA for $500 million.

Although the application of net sale proceeds toward debt reduction could be significant, Solutia would be loosing a solid EBITDA-contributing business and interest coverage may only be mildly affected, Fitch said.

In addition, the company still faces challenging industry conditions and the unknown impact of the final resolution to ongoing polychlorinated biphenyl-related litigation.

S&P rates IMC Global notes BB

Standard & Poor's assigned a BB rating to IMC Global Inc.'s proposed $100 million senior unsecured notes due 2011 and confirmed its ratings on the company including its senior unsecured notes at B+, senior secured bank facility at BB+ and $700 million senior unsecured notes (guaranteed by subsidiaries) at BB.

S&P said its assessment of IMC Global reflects the company's average business profile, offset by an aggressive financial profile.

In addition to solid positions in the mature, competitive, and very cyclical fertilizer markets, IMC benefits from an advantageous cost profile derived from plentiful, low-cost reserves, backward integration into raw materials, efficient production methods, and strong distribution capabilities, S&P said.

The financial effects of volatility in phosphate prices and seasonal bulk sales are somewhat tempered by the more stable potash sales, S&P added. A growing population, higher incomes, and improved diets support long-term prospects. In addition, the need to rebuild global grain supplies, which remain at near record low levels, should continue to spur fertilizer use.

Debt levels remain elevated, stemming from the $1.4 billion acquisition of Harris Chemical Group in 1998, S&P noted. Profitability and cash flows have been weak for the past three planting seasons, reflecting primarily global overcapacity in phosphate markets, soft demand in phosphates, and significantly higher natural gas and ammonia costs during much of 2001 (ammonia is used to make DAP, a key phosphate product). Improvement in phosphate pricing, due in part to higher shipment orders to China, and an increase in demand could result in better earnings.

Operating margins (before depreciation and amortization) remain below 20%, thereby limiting free cash flow and straining credit protection measures, S&P said. Funds from operations to total debt has fallen into the single-digit percentage area; EBITDA interest coverage is almost 2 times; and debt to EBITDA is more than 6x. A gradual recovery in business conditions and restrained capital spending (about $140 million for 2002) should result in improved free cash flow generation. China's entry into the World Trade Organization (WTO) could benefit North American phosphate producers. But, the significant upswing in phosphate pricing needed to provide meaningful and sustainable improvements in cash flows is not expected in the near term.

Moody's cuts Columbus-McKinnon

Moody's Investors Service downgraded Columbus McKinnon Corp. including cutting its $200 million 8.5% senior subordinated notes due March 2008 to Caa1 from B3. The outlook is negative.

Moody's said the downgrade reflects continuing deterioration in the company's operating performance, its substantially weakened credit profile, and Moody's expectation of continued weakness over the medium term amid challenging market conditions.

But Moody's added that Columbus-McKinnon continues to benefit from a good market position, strong brand recognition and a broad product line and customer base.

The negative outlook reflects uncertainties over the length of the economic downturn, as well as challenges the company faces in stabilizing its operations, Moody's added.

The company recently refinanced its $150 million senior secured credit facility with a new $100 million senior secured credit facility and a new $70 million senior second secured term loan. Both facilities will mature in 2007. The refinancing has helped ease the liquidity pressure, but the company's financial flexibility remains constrained, Moody's said. The new $67 million revolver is subject to a borrowing base, which limited the company's borrowing capacity to $57 million at closing. The company currently has $15 million of availability under its new revolver.

As a result of the weak operating performance, the company's credit profile has deteriorated substantially, Moody's said. At the end of September 2002, total debt of $323 million was 6 times last 12 months EBITDA (10 times on an EBITA basis), compared to 4.3 times last 12 months EBITDA (4.9 times on an EBITA basis) as of September 2001.

S&P says Chesapeake Energy unchanged

Standard & Poor's said Chesapeake Energy Corp.'s ratings remain unchanged at a corporate credit rating of B+ with a positive outlook on news that the company has signed an agreement to purchase natural gas properties from ONEOK Inc. for $300 million.

Chesapeake intends to finance the acquisition by issuing $150 million of new senior notes and about $150 million of new common equity, S&P noted.

Pro forma for the acquisition, leverage and cash flow protection measures will be largely unchanged, S&P said. Chesapeake could be the beneficiary of a one-notch upgrade if it exploits likely strong natural gas pricing to materially deleverage. If the company fails to do so during the next year, the outlook likely will be revised to stable.

Fitch confirms Chesapeake Energy

Fitch Ratings confirmed Chesapeake Energy's senior unsecured notes at BB-, its senior secured bank facility at BB+ and convertible preferred stock at B. The outlook is stable.

Fitch's confirmation follows Chesapeake's announcement that it has agreed to acquire $300 million of Mid-Continent gas assets through an acquisition of a wholly-owned subsidiary of Oneok.

Chesapeake will fund the transaction with $150 million of equity and upon completion of that component it will issue $150 million of debt.

The Oneok acquisition fits well with Chesapeake's existing Mid-Continent assets and with Chesapeake's business strategy of creating value by acquiring and developing low-cost, long-lived natural gas assets in the Mid-Continent region of the U.S., Fitch said. This transaction will increase its proved reserves by 8% to almost 2.5 tcfe and its production by 12% to over 565,000 mcfe per day. Since Dec. 31, 2001, CHK has increased its reserve base by approximately 40%.

The ratings reflect the conservative nature in which the transaction is being funded, Chesapeake's long-lived, focused natural gas reserve base and its modest credit profile, Fitch said. Chesapeake's proved reserves, pro forma for the latest acquisition are nearly 2.5 Tcfe, which provide a reserve life of close to 11 years. Additionally, approximately 90% of Chesapeake's proved reserves are natural gas and are primarily located in the very familiar Mid Continent region.

Fitch expects Chesapeake to achieve synergies through its recent acquisition and to expand upon the current production from those properties.

Chesapeake has generated credit metrics consistent with its rating over the last 12 months. Coverages, as measured by EBITDA-to-interest, are roughly 4.5 times for the latest 12-month period, and debt-to-EBITDA is approximately 3.0x, Fitch added.

S&P cuts Equitable Life debt

Standard & Poor's downgraded Equitable Life Finance plc's £350 million perpetual junior subordinated debt guaranteed by The Equitable Life Assurance Society to CCC- from CCC. Equitable Life Assurance's counterparty credit rating was confirmed at B. The outlook is changed to negative from developing.

S&P said the downgrade to the subordinated debt reflects the increased risk to debt holders that coupon payments will be deferred.

The outlook revision reflects the lack of upside in the rating over a six-month to two-year period.

Management continues to work to restore stability to the fund. Nevertheless, uncertainties regarding mis-selling, expense, and general provisions remain, S&P said. Consequently, adverse developments in asset values, a material strengthening of provisions, or an inability to manage liabilities in line with changing asset values could result in the ratings being lowered.

S&P lowers Coast Hotels outlook

Standard & Poor's lowered its outlook on Coast Hotels & Casinos Inc. to stable from positive and confirmed its ratings including its subordinated debt at B.

S&P said the lower outlook is in response to the longer-than-anticipated timing for Coast Hotels' IPO of its common stock and soft third quarter performance.

In May 2002, Coast's parent company Coast Hotels Inc. filed a registration statement for a proposed IPO of its common stock. Proceeds from this offering were to be used to repay outstanding balances under Coast's revolving credit facility, and any excess funds would be used to fund projects such as those ongoing at the Orleans and the Gold Coast.

The offering has not yet occurred, and given the company's comments that the timing is indefinite and subject to market conditions, S&P said it now expects that most of the company's external capital requirements will be funded with debt capital.

Coast owns and operates four casinos in the Las Vegas market, primarily targeting local residents through such amenities as casual restaurants, bingo parlors, bowling alleys and movie theaters.

S&P said it believes that the long-term prospects for the Las Vegas locals market remain favorable because Las Vegas continues to be one of the fastest-growing cities in the country. Tight zoning restrictions that limit new casino development in neighborhoods are expected to provide established operators like Coast with a competitive advantage.

Coast's properties have performed well during the past couple of years. However, during its third quarter ended Sept. 30, 2002 Coast reported a 17% decline in EBITDA, primarily as expenses associated with operating the expanded Orleans increased, while revenue at this property declined, S&P said. Revenue was affected by a lower-than-normal hold percentage, and lower-than-expected visitor volume, which had been affected by ongoing construction and a temporary reduction in available parking spaces.

It is likely to take a few quarters for visitation to recover, and for the property to ramp-up following the expansion.

Despite recent operating weakness, credit measures remain in line with the rating, and this is not expected to change during the intermediate term, S&P said. For the 12 months ended Sept. 30, 2002, leverage, as measured by total debt to EBITDA, was 3.9 times, while EBITDA coverage of interest expenses was 3.6x. These ratios are adjusted for operating leases.

S&P raises IndyMac outlook

Standard & Poor's raised its outlook on IndyMac Bancorp to stable from negative and confirmed its ratings including its counterparty credit rating at BB+.

S&P said the outlook revision reflects the success IndyMac has had in hedging its servicing asset in the current environment of low interest rates and extraordinarily high volume of home mortgage refinancing.

S&P added that the ratings confirmation reflects the relatively low level of credit risk associated with IndyMac's lending business and more stable business model created from the company's de-REITing in early 2000 and the subsequent purchase of SGV Bancorp, the parent of First Federal Savings and Loan Association of San Gabriel Valley.

Limiting the rating is a lack of product diversity, S&P added.

Moody's rates Imexsa certificates Caa1

Moody's Investors Service assigned a Caa1 rating to the 10 5/8% senior structured export certificates due 2005 issued by Imexsa Export Trust No. 96-1. The certificates were issued by the trust to complete an exchange of the senior export certificates that the trust had issued in 1996 and that were scheduled to mature in 2003. Both series of certificates are backed by exports of steel slabs by Ispat Mexicana, SA de CV (Imexsa).

Moody's said its rating reflects the operational and financial strength of Imexsa, which is rated Caa1 on a foreign currency basis, the financial strength of Ispat International, which guarantees the new senior certificates and which has been assigned a Caa1 issuer rating, the existence of a long-term steel supply contract between Imexsa and Mitsubishi Corporation (A3) and structural and legal protections included in the transaction.

S&P to cut Vanguard Health, rates loan B

Standard & Poor's said it will downgrade Vanguard Health Systems Inc. if the company completes the proposed acquisition of Baptist Health System. Vanguard's senior secured debt would be lowered to B from B+ and the subordinated debt to CCC+ from B-. S&P also assigned a B rating to Vanguard's proposed $150 million senior secured term loan due 2009. The outlook would be stable and the rating would be removed from CreditWatch where they were placed on Sept. 13.

S&P said the purchase of Baptist Health is expected to be completed within a few weeks. The transaction will cost $295 million and involve a $200 million capital expenditure commitment over a six-year period to upgrade the facilities.

After the deal is completed, Vanguard Health's total outstanding debt, including the new term loan, would be $450 million. In addition, Vanguard currently has full availability of its $125 million revolving credit facility.

S&P said the downgrade reflects its concern that if Vanguard Health makes a very large investment in the five-hospital Baptist Health System it will be challenged to earn a return consistent with a higher level of credit quality.

The bank loan rating is the same as the corporate credit rating. S&P said that although Vanguard Health's asset coverage presently appears ample for the senior credit facilities, the company's growth strategy and potential for additional secured financing under the existing agreement would diminish the prospects of a full principal recovery in the event of a default.

Moody's upgrades American Axle

Moody's Investors Service upgraded American Axle & Manufacturing, Inc. including raising its $300 million 9.75% guaranteed senior subordinated notes due March 2009 to Ba2 from Ba3 and $378.8 million guaranteed senior secured revolver due October 2004 and $375 million guaranteed senior secured term loan B due April 2006 to Ba1 from Ba2. The outlook is stable. The action concludes a review begun on Nov. 13.

Moody's said the upgrade is in response to American Axle's improved cash flow performance; significantly reduced ongoing capital expenditures run rates; and favorable future operating prospects, including net new business totaling awards exceeding $1.3 billion (annualized) from General Motors, DaimlerChrysler and other new customers.

Moody's said it believes American Axle's strengths will continue to drive steady improvement in the company's debt protection measures over the near-to-intermediate term, despite the uncertain prevailing general economic and industry-specific conditions and the company's currently less-than-optimal degrees of customer, product or geographic diversification.

For the 12 months ended Sept. 30, 2002, American Axle's total debt/EBITDA leverage declined to approximately 1.9x and 2.2x, respectively, before and after incorporating the approximately $150 million present value of remaining off-balance-sheet operating leases, Moody's said.

Usage under American Axle's accounts receivable conduit notably continues to be reflected on-balance-sheet. The absolute dollar amount of debt reduction achieved during the last 12 months totaled almost $100 million.

Moody's puts Solutia on upgrade review

Moody's Investors Service put Solutia Inc. on review for upgrade, affecting $1.2 billion of debt including its secured credit facility at Ba3, guaranteed senior unsecured notes at B1, senior unsecured notes and debentures at B2 and Solutia Europe SA/NV's guaranteed senior unsecured euro notes at B2.

Moody's review follows Solutia's announcement that it has signed a definitive agreement to sell its resins, additives and adhesives businesses for $500 million plus a $10 million exclusivity fee. Solutia has stated that proceeds will be used to reduce debt.

Moody's said the transaction has potential for a significant improvement in the company's financial profile. The contract with UCB, a strategic buyer, is not subject to further due diligence, however European regulatory approval is required.

Proceeds from the transaction will be used to repay the current $300 million term bank facility and all outstandings under the revolving credit facility, thereby reducing debt to roughly $825 million (a 35%

reduction in total debt), Moody's noted. Taxes on the divestiture are expected to be minimal since the vast majority of the assets being sold were part of the Vianova business, which was purchased in 1999 for approximately $640 million.

Moody's review will focus on the improvement in the company's debt protection measurements, the additional liquidity provided by this transaction, as well as the likelihood that it will facilitate Solutia's renegotiation of its revolving credit facility in 2004. In addition, the review will seek to balance the improvement in financial performance with Solutia's continuing environmental, pension and legal liabilities. Furthermore, the review with consider any potential developments in related lawsuits prior to the conclusion of the transaction.

Moody's puts Teck Cominco on review

Moody's Investors Service put Teck Cominco Ltd. and Teck Cominco Metals Ltd. under review for possible downgrade affecting $646 million of debt including Teck Cominco's senior unsecured 7% notes at Baa3, 3.75% convertible subordinated debentures at Ba1, 3% subordinated debentures exchangeable for Inco shares at Ba1 and Teck Cominco Metals' senior unsecured 6.875% notes at Baa3.

Moody's said the review follows the announcement by Teck, Fording Inc., and Westshore Terminals Income Fund that they will create the Fording Income Trust and Fording Coal Partnership. The Partnership will combine the coal assets of Teck, principally Elkview, with the coal assets of Fording. In addition, Teck will provide C$200 million to the partnership and C$170 million to the Fording Income Trust. At the conclusion of this transaction, Teck will hold a 38% interest in the partnership and a 13.3% interest in the Fording Income Trust. The Fording Income Trust will own 62% of the Partnership.

The combination of Teck's coal assets with the coal assets of Fording results in a business entity with a significant position in the global metallurgical coal markets and provides Teck with the opportunity to diversify its exposure to base metal commodities, Moody's said.

However Moody's added that it is concerned that Teck is contributing its coal assets into a partnership which it does not control and therefore may not be able to draw on the cash generated.

An important consideration in the review therefore, will be the removal of Teck's coal assets, principally Elkview, as an operating business segment, relative to the level of distributions it will receive from the Partnership and Income Trust, Moody's said.

Elkview contributed roughly C$82 million of EBITDA for the nine months to Sept. 30, 2002.

Growth potential of the coal assets within the Partnership and synergies that can be achieved by the combining of the Teck and the Fording coal businesses will be a further consideration.

Moody's said it will also evaluate the structure of the income trust and the partnership, the distribution requirements and distribution levels from the partnership and the income trust, and any circumstances under which the distributions could become unavailable.

Moody's review will also focus on the increase in Teck's debt position resulting from this transaction, and the company's debt protection measures going forward. Reflective of weak market conditions and their impact on performance, Teck's EBITDA/interest ratio for the 12 months to Sept. 30, 2002 was 3.5x compared with 6.4x for the year ended Dec. 31, 2001.

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