Moody's cuts Charter

Moody's Investors Service downgraded Charter Communications Inc. and its subsidiaries, affecting $21 billion of debt. The outlook remains negative. Ratings lowered include Charter Communications' senior unsecured convertible notes, cut to Ca from Caa2 and speculative-grade liquidity rating, cut to SGL-4 from SGL-3, Charter Communications Holdings, LLC's senior unsecured notes, cut to Ca from B3, CC V Holdings, LLC (formerly Avalon Cable LLC)'s senior unsecured notes, cut to Caa1 from B2, Renaissance Media Group LLC's senior unsecured notes, cut to Caa1 from B2, Charter Communications Operating, LLC's senior secured bank debt, cut to B2 from B1, Falcon Cable Communications, LLC (CC VII)'s senior secured bank debt, cut to B2 from B1, CC VI Operating, LLC (Fanch)'s senior secured bank debt, cut to B2 from B1, and CC VIII Operating, LLC (Bresnan)'s senior secured bank debt, cut to B2 from B1.

Moody's said the downgrades reflect the growing probability of expected credit losses which Moody's believes will be sustained in connection with an increasingly likely debt restructuring over the near-to-intermediate term.

The timing and specific nature of the event(s) that will ultimately precipitate such a restructuring remain somewhat less certain than Moody's expectation that it will be necessary, the rating agency said.

Over the past several months, Charter's operating performance has been weak relative to even revised expectations, and has lagged that of its peer group in several regards but most notably in the areas of net subscriber losses and cash flow growth, Moody's added. Basic subscriber losses, driven partly by tighter credit standards and less aggressive promotional activity but also by sharp rate hikes and mainly by market share erosion to competing DBS service providers, have mounted to meaningful levels.

This subscriber churn has now led to a significant amount of lost revenue and cash flow, which has been difficult to replace, Moody's noted. While top-line growth has largely performed in accordance with expectations, with new ancillary service revenues more than offsetting lost basic subscription revenues, absolute cash flow generation, growth and operating margins have suffered.

Moody's attributed the trends to the combined result of heightened competition, the high level of expense required to continue growing the digital and cable modem subscriber bases (and driving that top-line growth), and the loss of high margin basic subscribers.

The reduced cash flow performance is expected to further weaken the company's liquidity, Moody's said. It added that it now expects the maximum permitted financial leverage maintenance covenants in Charter's four subsidiary bank credit agreements, which are scheduled to step-down this quarter and again later this year, may need to be modified and/or waived in 2003.

Moody's cuts Century Aluminum

Moody's Investors Service downgraded Century Aluminum Co. including cutting its $100 million guaranteed senior secured revolving credit facility due 2006 to Ba3 from Ba2 and its $325 million 11.75% first mortgage notes due 2008 to B1 from Ba3. The outlook was changed to stable from negative.

Moody's said the downgrade was prompted by Century's weak operating performance, which has fallen short of Moody's previous expectations.

In addition, Moody's expects low aluminum prices to persist over the intermediate term.

The company's financial performance has been negatively impacted by soft aluminum demand and the resulting weakness in aluminum prices, its focus on a single commodity-priced product, primary aluminum, and the company's difficulty in reducing operating costs below current levels, Moody's said.

Despite current difficulties, the stable outlook reflects Moody's view that the company's current operations, liquidity position, and cost structure, as well as the absence of any material debt service requirements in the near term, will enable the company to operate in the current low price environment as it has in the recent past, absent any significant events, Moody's added.

For the nine months ended September 2002, the cash LME price per pound for primary aluminum averaged $0.612 while Century's average realized selling price was $0.68 per pound, Moody's noted. Despite the realization of above-market prices, Century's leverage remained high at about 5.5x on a debt/EBITDA basis and coverage was weak at approximately 1.5x on an EBITDA/interest basis.

S&P rates AMI Semiconductor notes B

Standard & Poor's assigned a B rating to AMI Semiconductor Inc.'s planned $200 million senior subordinated notes due 2013 and confirmed its senior secured bank loan at BB-. The outlook is negative.

The recent acquisition of Alcatel SA's mixed signal ASIC unit is expected to enhance AMI's mixed-signal process technology and market position and increase sales of mixed-signal ASICs to more than 50% of total sales, S&P said. AMI's mixed-signal business experienced stable sales performance in the semiconductor downturn relative to the company's more-volatile digital and foundry businesses. Operating margins at the mixed-signal business in the 12 months ended June 2002 fell to around 11% from 20% the year earlier, following a decrease in orders from its largest customer, Alcatel, and other communications customers.

S&P said it expects AMI to improve profitability at its new mixed-signal business unit through headcount reductions, improved manufacturing, materials efficiencies, and a migration of mixed-signal business test activities to AMI's lower-cost facility in the Philippines.

Total debt to EBITDA is expected to be 2.7x in 2002 and rise above 3x in the March 2003 quarter because of higher debt levels, S&P said. EBITDA interest coverage is expected to be about 4x in 2002, trending lower in 2003, due to higher interest costs from the new subordinated issue.

S&P cuts Congoleum

Standard & Poor's downgraded Congoleum Corp. including cutting its $100 million 8.625% senior notes due 2008 to CCC from B+ and put its ratings on CreditWatch with developing implications.

S&P said the action follows Congoleum's announcement that it is negotiating a global settlement with current asbestos plaintiffs. Upon successful completion of these negotiations, the company intends to file a prepackaged plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code.

The plan of reorganization would provide for an assignment of insurance to a trust that would fund the settlement of both pending and future asbestos claims. This plan is intended to leave Congoleum's trade creditors unimpaired. In addition, the company expects cash provided by operations and availability under its $30 million revolving credit facility will be more than adequate to fund anticipated working capital requirements, debt service, and planned capital expenditures through this process.

The company had cash of $14.9 million, a fully available revolving credit facility, and debt of $100 million at Sept. 30, 2002.

Congoleum experienced a rapid escalation in the number of asbestos-related claims filed against it during the last two years, although actual payments, before insurance recoveries, did not increase, S&P noted. Insurance carriers have covered substantially all indemnity costs incurred to date, which totaled $13.5 million through Sept. 30, 2002. However, because now-insolvent carriers provided some of Congoleum's excess layer of insurance coverage, the company is expected to pay a portion of future costs.

S&P rates SoCalEd mortgage bonds BB

Standard & Poor's assigned a BB rating to Southern California Edison Co.'s $1 billion 8% refunding first mortgage bonds series 2003A due 2007. The outlook is developing. Southern California Edison will issue up to $1 billion of bonds through a tender for outstanding 8.95% variable rate notes due November 2003.

Southern California Edison is pursuing the tender and exchange to enhance liquidity by extending a near-term maturity by four years, S&P noted.

Without the tender, Southern California Edison would face $1.425 billion of 2003 debt maturities, an amount representing about one-quarter of outstanding debt. Whether Southern California Edison achieves its objective will be determined by the tender's results.

Southern California Edison ratings reflect the settlement it reached with California's Public Utilities Commission in litigation the company commenced in federal court asserting that it was unlawfully barred from recovering power-procurement costs as they were incurred in 2000 and 2001, S&P said. The settlement yields robust cash flows over a short time frame and enabled Southern California Edison to borrow $1.6 billion on a senior secured basis to discharge defaulted debt and trade obligations. The settlement agreement's validity remains the subject of a pending judicial challenge. An adverse decision setting aside the settlement could negatively affect Southern California Edison's ratings.

Southern California Edison defaulted on payments to bondholders and power generators beginning in January 2001, S&P added. Defaults resulted from the absence of a timely regulatory response to power-procurement costs that greatly exceeded revenues in 2000 and 2001. The settlement provides for amounts equivalent to the defaulted obligations to be recovered through surpluses tied to the CPUC's agreement to maintain retail rates at post-March 2001 levels pending the recovery of past shortfalls. Barring a judicial determination setting aside the settlement, full recovery is expected no later than the fourth quarter of 2003.

S&P keeps Neff on watch

Standard & Poor's said Neff Corp. remains on CreditWatch with negative implications including its senior secured bank facility at B- and subordinated notes at CCC.

S&P's comments came after Neff entered into a forebearance agreement that prevents its lenders from exercising remedies as a result of Neff's leverage covenant violation.

The agreement, which expires on April 15, 2003, provides for continued access to the revolver during the forebearance period and there is availability under the borrowing base facility. The company made the $8 million interest payment that was due on its subordinated notes on Dec. 1, 2002. The next interest payment due on the notes is in June 2003.

The ratings were originally placed on CreditWatch because the company was not in compliance with its leverage covenant on its credit agreement and uncertainty regarding the payment of interest due Dec. 1, 2002, on its subordinated notes.

Neff experienced a significant decline in operating income in the third quarter of 2002, falling by 27% from the year-earlier level because of weaker equipment-rental revenues, S&P noted.

Fitch rates Levi notes B+

Fitch Ratings assigned a B+ rating to Levi Strauss & Co.'s expected $100 million 12.25% senior unsecured note issue due 2012. The outlook remains negative.

Fitch said the negative outlook reflects the ongoing challenges Levi faces in stimulating top-line sales growth.

The ratings reflect Levi's solid brands with leading market positions as well as its geographically diverse revenue base and adequate cash flow generation, Fitch added. Of ongoing concern is the difficulty the company has faced in growing sales, coupled with the slower than expected pace of improvement in credit protection measures

S&P rates Georgia-Pacific notes BB+

Standard & Poor's assigned a BB+ rating to Georgia-Pacific Corp.'s planned $500 million notes due 2010 and confirmed its existing ratings including its senior unsecured debt at BB+ and the senior unsecured debt of Fort James Corp., James River Corp. of Virginia, Great Northern Nekoosa Corp. and G-P Canada Finance Co. at BB+. The outlook is stable.

S&P said Georgia-Pacific's ratings reflect broad product diversity, with good market and cost positions in tissue, disposable tableware, and containerboard.

This is offset by more cyclical building products, pulp, and paper operations; aggressive debt leverage; and weak credit protection measures, S&P added.

In addition, the company's asbestos-related liabilities increase refinancing risk, S&P said.

Conditions in many of GP's markets have been negatively affected by the weak economy, and the company has generated nominal free operating cash flow since the primarily debt-financed acquisition of Fort James two years ago, S&P said. Wood products markets are oversupplied and have been hurt by the ongoing U.S. lumber trade dispute with Canada. In its substantial domestic tissue business, the company recently began to face price competition as well as higher wastepaper and energy costs.

To maintain a BB+ corporate credit rating, Georgia-Pacific will need to begin strengthening key credit measures in the near term. Georgia-Pacific needs to achieve and average over the course of an industry cycle: funds from operations to debt of 20% to 25% (currently below 15%), EBITDA interest coverage of about 4x (currently about 3x), and total debt to EBITDA of 2.5x to 3.0x (currently above 4x), S&P said.

S&P raises Leslie's Poolmart outlook

Standard & Poor's revised its outlook on Leslie's Poolmart Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at B- and senior secured bank loan at B+.

S&P said the outlook change reflects Leslie's improved operating performance over the past two years following two years of declining operations.

Through improvements primarily in shrink control, inventory management, and customer service, the company increased lease-adjusted EBITDA to $38 million in 2002 from $23 million in 2000, S&P noted.

S&P said it believes Leslie's will continue to maintain this better operating performance over the next 18 months as it focuses on refinancing its bank loan that matures in January 2004 and its $90 million of senior notes that mature in July 2004.

The company's capital structure is highly leveraged, with total debt to EBITDA in the low-4x area. EBITDA coverage of interest improved to 2.2x in 2002 from only 1.3x in 2000. Leslie's improved free cash flow generation over the past three years through better working capital management and reduced capital expenditures, S&P said.

S&P cuts Guess?

Standard & Poor's downgraded Guess? Inc. including cutting its $127.5 million 9.5% senior subordinated notes series B due 2003 to B from B+. The outlook remains negative.

S&P said the downgrade reflects the continued erosion of Guess?'s operating performance and weakened credit protection measures.

The company's performance in recent years has been hurt by the intensely competitive retail environment, waning consumer confidence, and consumers' poor response to its product line, S&P said.

Guess? recently lowered its fourth quarter 2002 profit guidance due to increased price pressure. In fiscal 2002, the company has experienced revenue declines and margin pressures in its wholesale and retail operations, resulting in operating losses in both business segments through the first nine months of 2002, S&P noted.

S&P added that it believes that the weak 2002 holiday season was very challenging for Guess? and that credit protection measures will be below expectations.

Guess?'s poor operating performance has weakened credit measures over the years. The company's EBITDA coverage of interest for full-year 2002 is expected to be below the 2.5x that the company recorded in the first nine months of 2002, S&P said. This compares unfavorably to coverage of 3.0x generated in 2000 and 5.6x recorded in 1999 when the company was a more profitable and less leveraged company. Leverage is high with total debt to EBITDA about 3.5x.

Moody's rates Levi Strauss bank loan B1

Moody's Investors Service assigned a B1 rating to Levi Strauss & Co.'s proposed $400 million revolving credit agreement and $400 million tranche B term loan and confirmed its existing ratings including its existing senior unsecured bank facilities at B1 and senior unsecured notes at B3.

Moody's noted the new bank facilities will be secured by inventory and certain receivables, all intangible assets of the company (including trademarks, patents, and license rights), capital stock of each unrestricted domestic subsidiary, and 65% of capital stock in material foreign subsidiaries.

The B1 rating on the bank facilities reflects the value of the collateral, which materially exceeds the amounts of the facilities.

Borrowings under the facilities at the time of closing will be less than 1.0x fiscal 2002 EBITDA.

The ratings reflect a low level of free cash flow (cash from operations less capital spending) in relation to total debt, intense competitive pressure in Levi's core business, and heightened operational and market risk related to the new mass merchant initiative, Moody's said. Following completion of the financings, pro forma net debt to 2002 EBITDA will be approximately 3.5x.

S&P rates Iasis bank facility B, raises outlook

Standard & Poor's assigned a B rating to Iasis Healthcare Corp.'s proposed $475 million senior secured credit facility, confirmed the company's subordinated debt at CCC+ and raised the outlook to stable from negative.

S&P said the proposed senior secured credit facility, a refinancing of an existing secured facility, extends debt maturities, lowers interest rates and improves covenant requirements.

With the company's modestly improved performance and elimination, under the bank agreement refinancing, of near-term covenant tightening, coverage will now be adequate until September 2003, when the covenants become more restrictive, S&P noted.

S&P said it used its enterprise value methodology to determine notching implications of the facility because hospitals are often essential to a community and would retain value as a business enterprise in the event of bankruptcy. Iasis' cash flows were severely discounted to simulate a default scenario and capitalized by an assumed EBITDA multiple. Under this simulated downside, S&P said it believes that there would be meaningful recovery in the event of bankruptcy of at least 50% of the total amount of secured bank debt.

S&P said the improvement of the corporation's infrastructure, its pruning of unprofitable businesses, a physician recruitment program, and turnaround efforts in the Arizona market have contributed to Iasis' recently improved operating results after struggling ever since its formation in 1999. Accordingly, aided by a currently favorable reimbursement environment, the company's profitability has improved, highlighted by an increase in return on capital to 11.3% in 2002 from 7.3% in 2001.

Nevertheless, Iasis remains challenged to extend its recent successes as the environment for hospitals becomes more difficult, S&P said. The future of government reimbursement is becoming cloudy with the deteriorating status of both state and federal budgets. Currently favorable managed care reimbursement trends are likely to moderate over the next year or two. The expectation of ongoing increases in key expense categories such as labor will also continue to pressure profitability.

Funds from operations to lease-adjusted debt, which increased to 13%.0% in 2002 from 7.2% in 2001, now provide an adequate cushion for the rating, S&P said.

S&P keeps Omnicare on watch

Standard & Poor's said the ratings of Omnicare Inc. (corporate credit at BBB-) remain on negative watch following completion of the acquisition of NCS HealthCare Inc.

The continued watch reflects financing the acquisition and its possible effect on Omnicare's credit protection and cash flow measures.

The acquisition, valued at about $460 million, may weaken Omnicare's funds from operations to lease-adjusted debt to below 20%, a level considered weak for an investment-grade company.

Furthermore, the acquisition involves the risk that the company may not realize the benefits from the acquisition to the extent anticipated by management.

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