Moody's cuts Comcast, rates new loan Baa3

Moody's Investors Service downgraded Comcast Corp., affecting $40 billion of debt. Ratings lowered include Comcast's long-term issuer rating to Ba1 from Baa3 and senior subordinated and subordinated debt to Ba2 from Ba1; Comcast Cable Communications, Inc. (including former Jones Intercable and Lenfest Communications)'s senior unsecured debt to Baa3 from Baa2; AT&T Broadband LLC (formerly TCI Communications Inc.)'s senior unsecured debt to Baa3 from Baa2, subordinated debt to Ba1 from Baa3, TOPrS to Ba1 from Baa3 and junior preferred stock to Ba2 from Ba1; MediaOne Group Inc. (including former US West Capital Funding debt)'s senior unsecured debt confirmed at Baa3; MediaOne Funding Inc.'s MediaOne Finance Trust III TOPrS confirmed at Baa3 and Media One of Delaware (formerly Continental Cablevision)'s senior unsecured debt cut to Baa3 from Baa2.

Moody's also assigned a Baa3 long-term senior unsecured rating to AT&T Comcast Corp.'s new $12.8 billion bank facilities.

The actions conclude a review begun on July 9, 2001 and are a result of Comcast's and AT&T's agreement to combine their cable TV system operations (AT&T Broadband) via a tax-free merger, which is expected to close in the fourth quarter. The outlook for all ratings is stable.

Moody's said its action is based on its view that Comcast faces a significant challenge in integrating a cable MSO (multiple system operator) that is over 1½ times its own size, has been experiencing significant subscriber erosion, has the lowest margins in the industry, and requires significant network upgrade.

The rating action also considers the strength of Comcast's management and their historical track record in successfully integrating much smaller, cable system acquisitions and swaps, Moody's added.

Management plans to spend 1 1/3 times depreciation at AT&T Broadband, including nearly $2 billion over two years to complete the plant upgrade. At Comcast, capex is expected to run at about the level of depreciation.

Deleveraging by debt reduction, other than for the mitigation of the significant capex spending, would be significant as a result of anticipated $4.5 to $5 billion of asset sales in the first two years, Moody's added. At the outset of the merger, there will be slightly more debt than revenues. Once the AT&T systems are upgraded, the cash spent on extraordinary enhancements to plant should be available to reduce debt.

The new rating level anticipates a steady reduction in leverage over the medium-term, as it integrates AT&T's systems with Comcast management and best practices to quickly, steadily, and materially grow free cashflow (EBITDA minus: interest, taxes, capex and working capital) which is the basis for the stable outlook, Moody's said.

Responding to the Moody's ratings, Comcast said it does not expect substantial debt issuance at the Comcast Corp. level in the near future.

Moody's cuts Doane Pet Care

Moody's Investors Service downgraded Doane Pet Care Co. including cutting its $60 million senior secured revolving credit due 2006, $278 million amortizing term loan facility maturing 2005-2006 and €71 million amortizing term loan facility maturing 2005 to B2 from B1, its $150 million 9¾% senior subordinated notes due 2007 to Caa1 from B3 and $30 million 14.25% redeemable preferred stock maturing 2007 to Caa2 from Caa1. The outlook is stable.

Moody's said the downgrades reflect Doane's still very high leverage and the potential for margin pressures in 2003.

Lower than anticipated forecast U.S. grain harvests this year (particularly for corn) may increase Doane's feed ingredient costs in 2003, while intense competition in the category may limit Doane's ability to pass through the higher costs, Moody's said.

In addition, the company may be challenged to meet covenants under its credit facilities in 2003, requiring additional waivers from its lenders, and may need to refinance or extend amortizing term loan payments in 2003 to retain sufficient ongoing liquidity, the rating agency said.

Moody's cuts British Energy

Moody's Investors Service downgraded British Energy plc's unsecured bonds to Caa1 from B2 and kept them on review for further downgrade.

Moody's said the action follows the Sept. 26 announcement that the U.K. government is extending its £410 million loan to the company until Nov. 29, 2002 and increasing it to £650 million. The company also said that security for the loan has been granted to the government and that the loan also contains a requirement to provide further first ranking fixed and floating charge security to the government if so requested.

Moody's said the downgrade reflects its view that notwithstanding the company's negative pledge there now is or will likely be material secured debt which would rank ahead of the bonds. This may increase the level of losses incurred by par bondholders.

Moody's also noted that considerable uncertainties remain regarding any restructuring alternatives or whether the company will proceed into administration; there are a number of potential outcomes with differing implications for bondholders.

Moody's rates Genesis Health loan Ba3

Moody's Investors Service assigned a Ba3 rating to Genesis Health Ventures Inc.'s $200 million senior secured add-on term loan B due 2007 and confirmed the company's $150 million senior secured revolver due 2006, $282 million senior secured term B due 2007 and $79 million senior secured delayed draw term due 2007 at Ba3. Furthermore, upon completion of the add-on, the company's $243 million senior secured second-lien rollover facility due 2007 will be downgraded to B2 from B1. The outlook remains stable.

The add-on term loan B will be used to help refinance NCS Healthcare Inc.'s debt as part of the proposed acquisition agreement. The transaction will result in a modest increase in leverage to 3.8 times for pro forma 12 months ending June 30, 2002 from 3.6 times for the 12 months to June 30, 2002. Furthermore, Total Debt/Total Capitalization will increase to 47.5% from 42.1% for the same periods. Coverage, as measured by EBITDAR/(Interest + Rents), will remain unchanged at 3.3 times.

Ratings reflect high leverage, modest interest coverage, concerns regarding the potential Sept. 30 end of certain Medicare add-on payments, integration risks related to the potential acquisition of NCS, weak market for general and professional liability insurance, tight labor environment and the challenges of operating in a highly competitive and regulated industry, Moody's said.

Supporting the ratings is the company's stable post-bankruptcy operating trends, favorable demographic trends and an experienced management team, Moody's added.

The stable outlook reflects the anticipation of stable results for Eldercare, the nursing home business, and better prospects for Neighborcare, the institutional pharmacy business.

S&P cuts Texas Petrochemicals

Standard & Poor's downgraded Texas Petrochemicals Corp. and put the company on CreditWatch with negative implications. Ratings lowered include Texas Petrochemicals' $225 million 11.125% senior subordinated notes due 2006, cut to CCC+ from B.

S&P said the action reflects deterioration in the company's credit profile and heightened concerns regarding the refinancing of the company's bank credit facility, which matures on Dec. 31, 2002.

Disappointing operating results, challenging industry conditions, and restrictive capital markets have made the task of refinancing the credit line more difficult, S&P said. The CreditWatch placement highlights the importance of obtaining a line of credit and the increased risk of default if the company is unable to refinance its bank debt beyond the expiration of the current credit agreement.

Profitability and cash flow have been negatively impacted by higher raw material costs and weaker pricing in key product lines, and several recent operational disruptions at the company's sole manufacturing facility in Houston, S&P said.

The shortfall in earnings, reflected by operating margins and funds from operations to total debt in the mid-single-digit area, will make it more difficult for the company to strengthen credit protection measures in the near term, S&P added.

Future demand for methyl tertiary-butyl ether (MTBE), which is subject to legislative bans, could begin to decline as some gasoline refiners and retailers curtail their usage of the product ahead of these legislative mandates, S&P noted. In addition, the company faces significant costs required to reduce the emissions of nitrogen oxide at its manufacturing facility as mandated by clean air legislation and substantial capital expenditures that will be needed to convert production assets currently used for MTBE to other products.

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