Fitch cuts AES

Fitch Ratings downgraded The AES Corp. and put it on Rating Watch Negative. Ratings lowered include AES' senior unsecured debt, revolving credit facility and ROARS, lowered to BB- from BB, its senior subordinated debt, lowered to B from B+, and convertible junior debentures and trust convertible preferred securities, lowered to B- from B.

Fitch also lowered IPALCO Enterprises and Indianapolis Power and Light because of the downgrade of the parent company and similarly put them on Rating Watch Negative. Indianapolis Power & Light Co.'s first mortgage bonds and secured pollution control revenue bonds were lowered to BBB- from BBB, its senior unsecured debt and preferred stock to BB+ from BBB- and commercial paper lowered to B from F2 and withdrawn. IPALCO's senior unsecured debt was lowered to BB+ from BBB- and its commercial paper lowered to B from F2 and withdrawn.

Cilcorp and Central Illinois Light Co. remained unchanged and on Rating Watch Evolving pending their announced sale to Ameren Corp. Cilcorp's senior unsecured debt is rated BBB- while Cilco's first mortgage bonds and secured pollution control revenue bonds are rated BBB, its senior unsecured debt and preferred stock is rated BBB- and its commercial paper F2.

Fitch said the watch placement reflects AES's constrained liquidity in the next six to nine months and AES's dependence on dividends from Latin American subsidiaries. The company has significant refinancing risk in this period and needs to secure financing or complete asset sales.

Fitch lowered AES because of "the increasingly challenging business environment" facing the company in Latin America as well as other countries such as the U.S. and the U.K., high consolidated leverage and high parent company leverage.

S&P puts Leap on watch

Standard & Poor's put Leap Wireless International Inc. on CreditWatch with negative implications. Ratings affected include Leap's $225 million 12.5% notes due 2010 and $325.1 million senior discount notes, both at CCC.

S&P said it put Leap on watch because of heightened concerns about the company's liquidity in light of Leap's ongoing operating losses.

Although the company has some availability under its vendor financing agreements, such financing may prove insufficient to fund anticipated operating losses if missteps in the business plan occur, S&P said.

Because of the heightened degree of competition in wireless in 2002 and the limited mobility of Leap's product, which does not provide for roaming outside a subscriber's designated calling area, Leap's ability to continue to grow its customer base aggressively and gain scale economies remains highly uncertain, S&P said.

Moreover, the company has been adversely affected by customer and dealer-related fraud in recent periods, S&P added.

Moody's lowers Petrobras outlook

Moody's Investors Service lowered the outlook on Petroleo Brasileiro's (Petrobras) foreign currency bonds to negative from stable. The debt is rated Ba1.

Moody's said the action follows a similar reduction in the outlook on Brazil's B1 foreign-currency country ceiling for bonds and notes.

Moody's lowers Marlim outlook

Moody's Investors Service lowered the outlook on Companhia Petrolifera Marlim's medium-term notes to negative from stable. The debt is rated B1.

Moody's said the action follows a similar reduction in the outlook on Brazil's B1 foreign-currency country ceiling for bonds and notes.

S&P rates Yum! notes BB

Standard & Poor's assigned a BB rating to Yum! Brands Inc.'s planned offering of $350 million senior unsecured notes due 2012 and confirmed its existing ratings including its senior unsecured debt and bank loan at BB.

S&P said Yum!'s rating reflect the risks associated with operating in the intensely competitive quick-service segment of the restaurant industry, the complexity of operating multiple brands and the unique competitive issues with each of the company's brands.

Partially offsetting the weaknesses are the leading market positions held by Yum!'s three core brands and by its significant progress in cutting costs and improving store productivity, S&P said.

Yum! owns, operates and franchises the KFC, Pizza Hut and Taco Bell brands and recently purchased Yorkshire Global Restaurants, the parent of Long John Silvers and A&W.

Historically KFC, Pizza Hut and Taco Bell have all experienced unique operating and competitive problems and have reported inconsistent performances, S&P noted.

Yum! Brands' consolidated operating performance has improved significantly since its spin-off from PepsiCo in 1997, S&P added. Operating margins have expanded as a result of a rationalized store base, increased operating efficiency and staff training and an improved relationship with franchisees.

The company's operating margin rose to 20.5% in 2001 from 19.9% in 2000 and is significantly above the 15.0% generated in 1997, S&P added. Operating margins also expanded in the first quarter of

2002 to 21.6% from 19.7% in the same period the year before due to the adoption of SFAS 142, which included the elimination of goodwill amortization and sales leverage.

Operational improvements have helped strengthen the company's financial condition, S&P continued. Gains from refranchised stores and internally generated cash flow have allowed Yum! Brands to repay about $2.3 billion of debt since 1998. Total debt to EBITDA was 2.5 times in 2001, down significantly from 4.4x at year-end 1997.

Debt is expected to decline only modestly in the near term because of the company's share repurchases, S&P added.

Moody's cuts Energy Corp.

Moody's Investors Service downgraded Energy Corp. of America and assigned a negative outlook. Ratings lowered include Energy Corp.'s $198 million of 9.5% senior subordinated notes due 2007, cut to Caa3 from Caa1.

Moody's said further ratings actions are possible upon review of ECA's fiscal year-end June 30, 2002 reserve replacement results after a year of heavy reinvestment, funded with cash-on-hand, and depending on whether ECA incurs additional secured debt to fund its drilling program.

The downgrade reflects insufficient cash flow to cover interest expense and reserve replacement capital expenditures; asset coverage that is below the par value of the bonds; and declining production in spite of heavy FYE 2001 and FYE 2002 reinvestment in reserve acquisitions and development and exploration drilling, Moody's said.

ECA is burdened by the draining impact of high three-year average unit reserve replacement costs, very high unit G&A costs, and very high unit interest expenses on its ability to reduce leverage and/or grow reserves relative to debt levels; and a poor liquidity outlook for fiscal year 2003, Moody's added.

Exploration drilling has so far been comparatively unproductive in the Texas Wilcox Trend and New Zealand, Moody's noted.

After ECA consumes the last of its liquidity remaining from its sale of Mountaineer Gas, it does not appear that any realistic price outlook can fully cover its combined unit operating, funding, and reserve replacement cost structure, Moody's commented.

S&P says Navistar strike does not impact ratings

Standard & Poor's said the ratings on Navistar International Corp. (BB+/negative) are currently unaffected by the strike at its Chatham, Ontario assembly plant.

Navistar has the operating flexibility to accommodate a labor strike by shifting production to its Escobedo, Mexico facility, which can produce heavy-duty trucks.

Navistar has indicated that it is considering closing the Chatham plant if it is unable to reach a satisfactory agreement with the Canadian Auto Workers Union.

Should the strike continue for a significant period, causing overall production levels to be affected, S&P would reassess the impact.

Moody's rates Yum! notes Ba1

Moody's Investors Service assigned a Ba1 rating to Yum! Brands, Inc.'s new $350 million senior note issue and confirmed Yum!'s existing ratings including its senior unsecured guaranteed bank facility at Baa3 and senior unsecured notes at Ba1. The outlook is stable.

Moody's said the ratings recognize the strong global market position of Yum!'s three restaurant concepts, its diversification by food concept that mitigates the risk of changing consumer tastes to some degree and enables the company to capture more meal occasions since they can satisfy customers' desire for variety.

Moody's said it has considered intense industry competition and price pressures and the challenges associated with ongoing product development and menu enhancement.

Yum! will continue to face serious challenges from expansion programs, low-price menu offerings and promotional activity of its competitors, Moody's said. Yum! seeks to meet these challenges through it multi-brand strategy, the customer mania initiative, and its C.H.A.M.P.S (cleanliness, hospitality, accuracy, maintenance, product quality and speed of service) operating platform to encourage employees to deliver superior customer satisfaction, as well as continued expansion of its international operations.

Moody's added that the ratings reflect Yum!'s large capital needs to grow existing concepts, to execute its multi-branding strategy and to improve the quality and image of its aging store base.

Moody's said it believes the company can fund its capital program to build, relocate, and remodel its restaurants with internally generated cash flow.

The company's recent purchase of Yorkshire Global Restaurants, Inc., the operator of A&W and Long John Silver's restaurants, further diversifies Yum!'s food offerings by adding branded hamburgers and seafood concepts which should enable the company to capture more meal occasions, and is expected to provide more growth opportunities to franchisees with lower capital investment requirements, Moody's added.

As a result of this acquisition Yum!'s pro forma debt protection measures have weaken slightly as the company has incurred debt to finance the acquisition, Moody's said. On a proforma basis adjusted debt to EBITDAR is expected to increase to 3.2x from 2.9x at year end 2001.

But Moody's expects Yum! to improve its credit statistics by year-end 2002 principally through earnings growth.

Fitch rates Yum! notes BB+

Fitch Ratings assigned a BB+ rating to Yum! Brands, Inc.'s proposed $350 million senior unsecured notes due 2012 and confirmed its bank facilities and senior notes at BB+. The outlook remains stable.

Yum! intends to use proceeds along with an additional draw under a new unsecured revolver to repay and retire the existing senior unsecured term loan facility that had a principal balance of $422 million as of March 23, Fitch noted.

Yum!'s ratings consider the company's solid cash-generating ability, the diversity and size of its core brands, leading position in each of its restaurant food categories, and ability to realize efficiencies through national advertising, bulk purchasing and multibranding, Fitch said.

These strengths are balanced against the competitive nature of the quick-service restaurant industry and the company's leveraged capital structure, the rating agency said.

After the end of last quarter, YUM! Brands acquired Yorkshire Global Restaurants, Inc. (Yorkshire), owner of Long John Silver's and A&W All-American Food Restaurants (A&W), for $320 million, including assumed debt. The acquisition will result in higher leverage than had been originally anticipated, but will also create additional growth through more multibranding opportunities, Fitch said.

Yum!'s other core brands, KFC, Taco Bell and Pizza Hut, have been generating better revenue growth recently with same-store sales at U.S. company-owned restaurants up 3% for the second quarter ended June 15, 2002, not including Long John Silver's and A&W restaurants. International system sales increased 7%, after a negative impact from foreign currency conversion, Fitch said.

Moody's rates Advance Stores' loan Ba3, raises outlook

Moody's Investors Service rated Advance Stores Company Inc.'s proposed $250 million senior secured term loan C at Ba3. The company's existing secured term loan and revolver were confirmed at Ba3 and senior subordinated notes were confirmed at B3. Furthermore, Advance Auto Parts Inc., the parent company, has its senior implied rating confirmed at B1 and senior unsecured issuer and senior note rating confirmed at Caa1. The rating outlook was changed to positive from stable.

The new term C, combined with $15 million in cash on the balance sheet, will be used to refinance the outstanding $265 million term B. Security is all of the tangible and intangible assets, with the significant exception of the owned stores' real estate and its fleet of delivery vehicles Ratings on the term B will be withdrawn upon completion of the refinancing.

The outlook was changed to positive from stable reflecting Advance's ability to reduce debt from operating cash flow following the acquisition of Discount Auto Parts; the further modest reduction of debt; the success thus far in integrating Discount Auto Parts; and Moody's expectation that Advance can continue to meaningfully pay down debt using internally generated cash flow, Moody's said.

Ratings reflect high leverage, a history of continuous acquisitions to keep up with consolidating market, continued integration risk of Discount Auto Parts, exposure to seasonal trends, large concentration in the Southeast, new store risks and high competition, according to Moody's.

Fitch rates Advanced Medical loan B+, notes B-

Fitch Ratings assigned a B+ rating to Advanced Medical Optics Inc.'s proposed senior secured bank facility and a B- rating to its proposed senior subordinated notes. The outlook is stable. The ratings were initiated by Fitch as a service to users of its ratings and are based on public information.

Fitch said the ratings reflect Advanced Medical's high leverage, the challenge of achieving top-line revenue growth from the flat to low growth surgical business and from the commodity-like contact lens care market, offset in part by moderate cash flows and strong niche market share positions.

Fitch also said it is concerned about the success of the transition of the two businesses into a viable independent company.

At the time of the spin-out, Fitch anticipates debt coverage (total debt-to-EBITDA ) will be approximately 4.2 times and interest coverage (EBITDA-to-interest) will be approximately 2.9x. Fitch said it anticipates that the credit metrics will improve in the near to intermediate term, as excess cash flows are applied to debt reduction.

S&P lowers Xerox notes

Standard & Poor's removed Xerox Corp. from CreditWatch with negative implications, confirmed its corporate credit rating at BB-, downgraded its senior unsecured debt to B+ from BB-, confirmed its subordinated debt at B and preferred stock at B-, rated its $1.5 billion revolver due April 30, 2005, $1.5 billion term A loan due April 30, 2005 and $700 million term C loan due Sept. 15, 2002 at B+ and rated its $500 million term B loan due April 30, 2005 at BB-. The outlook is negative.

S&P said the action follows Xerox's completion of its $4.2 billion amended and restated credit agreement and the removal of a major refinancing uncertainty.

S&P said it lowered the senior unsecured debt rating because of the material amount of secured debt (including security granted under the new credit facility, and on- and off-balance sheet loans secured by finance receivables).

The negative outlook reflects Xerox's need to achieve material improvement in non-financing EBITDA in 2002 and non-financing cash flow over the intermediate term, S&P said.

S&P said the term B loan is rated higher because it has a first priority claim on security interests not to exceed: (a) 20% of consolidated net worth, minus (b) existing secured debt as defined in Xerox' public indentures (collectively, the lien basket). Consolidated net worth is equal to common equity plus preferred securities not treated as debt under GAAP.

S&P said the term B loan has likelihood of meaningful recovery of principal in the event of default or bankruptcy. Lenders could recover more than 50% of principal.

The other loans are rated the same as the senior unsecured debt because they have a second priority interest in the lien basket.

Covenants in the amended and restated credit agreement provide significantly more protection for the lenders, including collateral, than the previous agreement, S&P said. Covenants include limitations on: additional debt, liens, investments, acquisitions, and capital expenditures. In addition, Xerox must maintain minimum levels of consolidated EBITDA and net worth, and maximum levels of leverage. The collateral pool for the lenders' security interest includes: major owned U.S. real estate; 100% of the owned stock of direct material domestic subsidiaries; 65% of the owned stock of direct material foreign subsidiaries; all other Xerox Corp. U.S. personal property that may be perfected; and all domestic intellectual property.

Moody's rates L-3 notes Ba3, raises outlook

Moody's Investors Service assigned a Ba3 rating to L-3 Communications Corporation, Inc.'s proposed $750 million senior subordinated notes and confirmed its existing ratings including L-3 Communications Holdings, Inc.'s $420 million 4% senior subordinated convertible notes due 2011 at Ba3 and $300 million 5¼% senior subordinated convertible notes due 2009 at Ba3 and L-3 Communications Corporation's $225 million 10 3/8% senior subordinated notes due 2007 at Ba3, $180 million 8½% senior subordinated notes due 2008 at Ba3, and $200 million 8% senior subordinated notes due 2008 at Ba3.

Moody's raised the outlook to positive from stable.

The positive outlook reflects Moody's expectations for continued strong financial performance (helped by favorable industry environment) with acquisition adjusted revenue growth in the upper single digits and stable operating margins, Moody's said.

A ratings improvement would require a performance track record confirming the successful integration of the AIS acquisition. Further rating improvement might be limited by any near-term additional debt-financed major acquisition, the rating agency added.

Moody's said the current ratings recognize that pro forma the transactions, L-3's capital base will be substantially strengthened with its equity increasing to about $2.1 billion from $1.3 billion and debt-to-capital decreasing to below 45%.

The proposed debt and equity issuance follows a spike in leverage in the first quarter of 2002 (debt-to-cap of 63% at 02) that resulted from the $1.15 billion largely debt-financed acquisition of Raytheon Company's Aircraft Integration Systems (AIS) division as the company broadened its ISR product reach, Moody's said. The equity sale is in consistent with the company's stated intent at the time of the acquisition and with management's demonstrated strategy of reducing leverage when it approaches the 60% level.

S&P cuts GT Group

Standard & Poor's downgraded GT Group Telecom Inc. and put it on CreditWatch with negative implications.

Ratings lowered include GT Group's $855 million 13.25% senior discount notes due 2010, cut to CC from B-.

S&P cuts Kabel Hessen, iesy Hessen

Standard & Poor's downgraded Kabel Hessen GmbH & Co. KG and iesy Hessen GmbH. Both continue on CreditWatch with negative implications.

Ratings lowered include Kabel Hessen's €850 million bank loan due 2009, cut to CC from B- and iesy Hessen's €385 million 14.5% notes due 2010 and $175 million 14.5% notes due 2010, both cut to C from CCC-.

Moody's cuts Contour Energy senior secured notes

Moody's Investors Service downgraded Contour Energy's $105 million 14% senior secured notes to Caa2 from Caa1 and senior implied rating to C from Ca and confirmed its $155 million 10.375% senior subordinated notes at C. The outlook is negative.

Moody's said the secured note downgrade adjusts that rating to reflect possible ranges of asset coverage.

If the exchange is unsuccessful, Contour will assess other serious alternatives. If the exchange is successful, Moody's would reassess the secured note ratings pro forma for the exchange and for any other associated possible refinancings.

Still, Moody's said it anticipates reasonable risk of further erosion in senior secured note asset coverage.

In its cash-strapped condition, Contour is under-investing in full reserve replacement; the reinvestment it has funded has not been highly productive, yielding exceedingly high reserve replacement costs; pro-forma unit cash flow (after elimination of subordinated note interest) is much less than three-year average unit reserve replacement costs; and the reserve life on proven developed (PD) reserves is a short 4.4 years, Moody's said.

S&P keeps Agrilink on positive watch

Standard & Poor's said Agrilink Foods Inc. remains on CreditWatch with positive implications including its senior secured debt at B+ and subordinated debt at B-.

The announcement follows news that Agrilink's parent, Pro-Fac Cooperative Inc., Vestar Capital Partners and the company had signed a definite agreement providing for a $175 million equity investment in Agrilink Foods. Proceeds of the recapitalization (Vestar equity investment and a new secured bank facility) will be used to retire existing bank debt.

S&P said it will monitor the situation and meet with management over the near-term to discuss the firm's business strategy, capital structure, and financial policies.

S&P keeps United on watch

Standard & Poor's said UAL Corp. and United Air Lines Inc. remain on CreditWatch with negative implications. Ratings affected include UAL's preferred stock at CCC+ and United Air Lines' senior secured debt at B+, senior unsecured debt at B- and equipment trust certificates at BB.

S&P's announcement follows news that the company has reached a tentative agreement with its pilots union on concessions that the company says would save $520 million over three years. The agreement is subject to ratification by pilot union members and receipt of a federal loan guaranty.

High operating costs, very weak recent and near-term prospective operating performance, difficult labor relations and a substantial debt and lease burden more than offset a strong route network and membership in the leading global alliance, which provide good revenue potential, S&P said.

The likelihood of approval of a federal loan guaranty is less clear than for another major airline applicant, US Airways Inc. because United still has reasonable liquidity ($2.9 billion at March 31, 2002) and about $3 billion of unencumbered aircraft available for collateral, S&P said.

Accordingly, the most likely credit risk is continued erosion of financial strength due to a weak airline industry revenue environment, United's high operating costs, and its heavy burden of debt and leases, rather than a near-term liquidity crisis, the rating agency added.

Moody's rates OM Group's loan Ba3, raises outlook

Moody's Investors Service rates OM Group Inc.'s proposed $600 million senior secured term loan C due 2007 at Ba3. Furthermore, Moody's confirmed the senior implied rating at Ba3, issuer rating at B1, $325 million senior secured revolver due 2006 at Ba3, $13.7 million senior secured term A due 2006 at Ba3, $489.3 million senior secured term B due 2007 at Ba3 and $400 million senior subordinated guaranteed notes due 2011 at B3. The rating outlook was changed to positive from negative.

Proceeds from the new term C will be used to refinance the company's existing term loans and reduce outstanding debt under the existing revolver. Following the refinancing, the ratings on the term A and B will be withdrawn. Security for the credit facility is a first priority interest in substantially all U.S. assets and by 65% of the capital stock of international subsidiaries.

Moody's said it raised OM's outlook because it raised $226 million from an equity offering, using proceeds to reduce credit facility debt, the credit statistics are good despite the fact that the credit facilities are being increased and earnings have been somewhat lower than anticipated. In addition, the integration of dmc2 is progressing as planned, including being on track with working on joint customers, cost savings, the integration of its plants in Finland and Germany, managing its metal lease line exposure, and appropriate staffing.

Ratings reflect the company's rapid growth, debt financed acquisition policy, integration risks, moderate debt coverage, significant working capital needs, need to improve the return on assets, risks related to proprietary trading of precious metals, effect of end-use demand for its products, fluctuations in cost of raw materials, availability of key raw materials is subject to potential interruption and potential margin risk from sourcing higher cost raw materials, Moody's said.

Supporting the ratings is the company's leading market position, metal refining technology, track record of profitable earnings growth, pricing elasticity, vertical integration, diversified customers and end markets, strong research and development of new products, flexibility and significant market capitalization, Moody's added.

At March 31, pro forma debt with the proposed term loan totaled $1.1 billion, pro forma debt to EBIDTA is 4.1 times and first quarter annualized EBIT to interest is 2.7 times.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.