Moody's cuts Conseco's existing debt

Moody's Investors Service downgraded Conseco, Inc. and some affiliates including cutting its old senior debt by two notches to Caa1 from B2. A total of $5.6 billion of debt is affected. Also lowered were Conseco's senior subordinated debt, to Caa2 from Caa1, its preferred stock, to Caa3 from Caa2,

Moody's said that it had indicated on March 18 that the old senior debt would likely be downgraded one notch in response to the company's planned exchange offer.

"However, since then, Conseco's slower than anticipated progress in generating cash from reinsurance and other transactions and its continued weak net income performance from its finance and insurance subsidiaries leads Moody's to believe that the possible risks of bankrupcty for Conseco are more problematic," the rating agency said.

The lower ratings on the old senior unsecured notes also reflect their structural subordination to the new notes.

Moody's said the exchange provides Conseco with modest added financial flexibility. But Moody's also noted the uncertainty of the company's cash sources is heightened by the fragile economic environment.

Moody's confirms Building Materials

Moody's Investors Service confirmed the ratings of Building Materials Corp. of America and removed it from watch. The outlook is now stable. Ratings confirmed include Building Materials' $35 million 10.5% senior notes due 2003, $150 million 7.75%senior notes due 2005, $100 million 8.625%senior notes due 2006, $100 million 8% senior notes due 2007 and $155 million 8% senior notes due 2008, all at B2.

However Building Materials' senior unsecured issuer rating of B2 was lowered to Caa1, reflecting the fact that both the senior notes and the company's bank credit facility (which Moody's does not rate) are now secured.

Moody's said its actions reflect steady and significant improvement in Building Materials' operating results, liquidity and credit protection measures since December 2000, at which time its ratings were downgraded and kept on review for further downgrade.

In addition, the ratings incorporate the company's strong brand franchise, its growing, industry-leading market position, and its strong free cash flow generating ability.

But Moody's said the ratings also take into account the continuing uncertainties about Building Materials' ultimate ownership, as its parent company, G-1 Holdings Inc., works its way through Chapter 11 bankruptcy proceedings. The ratings also encompass Building Materials' own legal uncertainties, as it and its parent contest the attempts by asbestos litigants to impose successor liability on Building Materials for asbestos claims against the parent.

Building Materials also has negative book and tangible net worth and the senior notes are effectively subordinate to the bank credit facility.

S&P takes Bluegreen off watch

Standard & Poor's removed Bluegreen Corp. from CreditWatch with negative implications and confirmed its ratings including its $46 million 8.25% convertible subordinated debentures due 2012 at CCC+ and its $110 million 10.5% senior secured notes due 2008 at B. The outlook is stable.

At the end of the third quarter in December 2001, Bluegreen had $38 million in cash on its balance sheet of which $14 million represented unrestricted cash, S&P said. The company had high leverage levels, with debt to past 12-month EBITDA in the mid-7.0 times area and interest coverage just under 2.0x.

In April 2002, Bluegreen announced an agreement with ING Capital LLC to expand the size of a receivable purchase facility to $125 million and extend the maturity date to 2003. The company has adequate availability through the combination of its current credit facilities, warehouse facilities, construction and development facilities and its receivable purchase facilities. The rating also reflects expectations that the company will be able to obtain additional facilities as needed, S&P said.

Bluegreen has a high debt level, relies on capital market appetite for receivable sales, is exposed to timeshare and residential real estate development risk and faces a high level of competition in the timeshare industry, S&P said.

Partially offsetting the negatives are the company's focus on drive-to vacation destinations and its experienced management team, S&P said.

Moody's cuts Avecia

Moody's Investors Service downgraded Avecia Group plc and changed the outlook to stable. Ratings affected include Avecia's $540 million senior notes, cut to B3 from B2, bank debt, cut to Ba3 from Ba2 and $45m PIK preference shares cut to Caa1 from B3.

Moody's said action reflects continuous weak demand in the electronics industry; limited prospects for any material improvement in debt protection measures given the group's significant capital investments and its priority on growth; and the heightened business risk following the disposal of the Stahl division and the recently announced large capital investments in biotechnology.

Avecia's recent operating performance and profitability has been hit by weak demand in agrochemicals and intermediate products, in the fine chemicals division as well as continuous inventory de-stocking at equipment manufacturers, in electronic materials which altogether lead to an operating loss in the first quarter of 2002, Moody's said. However, the second half of the year is anticipated to improve, especially in the biotechnology segment, with customer orders usually taking place during this period. The rating agency also notes that these two businesses (electronics materials and fine chemicals) are very cyclical and that the market outlook remains uncertain.

However, Moody's said it still views Avecia's business portfolio, degree of geographic and business diversity and focus on higher growth and margin businesses as positive.

Moody's also expects a reduced likelihood of further fully debt financed acquisitions and large capital investments going forward given the significance of the group's recent stated CAPEX plans, illustrated by its £70 million investment program to build Biologics medicines facilities at Billingham in the UK.

Although aimed at generating growth for the group, Moody's said it believes that this investment will increase the group's business risk profile through the "speculative" characteristics of the project and the medium-term nature of its cash flow generation.

S&P raises Silicon Graphics outlook

Standard & Poor's raised its outlook on Silicon Graphics Inc. to positive from negative and confirmed its ratings including its senior unsecured debt at CCC- and subordinated debt at CC.

S&P said the revised outlook is in response to Silicon Graphics' recent progress in stabilizing its operations.

Silicon Graphics' ratings reflect a declining revenue base, limited financial flexibility and a challenging industry environment, S&P said.

Although Silicon Graphics has a strong technology position in high-end computing and graphics solutions, the company has been struggling to restore revenue growth and profitability in the highly competitive technical workstation and server markets, S&P noted.

In addition, economic weakness and reduced levels of information technology spending will continue to pressure the company's efforts to stabilize revenues, S&P said.

Despite a difficult market environment, Silicon Graphics has demonstrated significant operational progress. The company reported EBITDA of $48.6 million for the nine months ended March 29, 2002, compared with an EBITDA loss of $143 million in the previous year period. In addition, the company generated positive cash flow from operations in the March 2002 quarter, and halted the erosion in its cash balances, S&P said.

Moody's rates Columbia House's loan B2

Moody's Investors Service rates Columbia House Co.'s $145 million senior secured term loan and $30 million senior secured revolver at B2. In addition, the company received a senior implied rating of B2 and unsecured issuer rating B3. The outlook is positive.

Columbia House's parent company, BCP Acquisitions LLC, and its domestic operating subsidiaries guarantee the loan. Security for the loan consists of the stock of Columbia House, its subsidiaries (limited to 2/3 of the stock of non-U.S. subsidiaries) and the tangible and intangible assets of Columbia House and subsidiaries. "The B2 rating of the bank facilities recognizes the thin tangible asset coverage of debt at the outset, and the non-recoverability of prepaid assets if the business model fails to perform," Moody's said.

Negative factors affecting the ratings include high initial debt level and modest base of tangible assets, high level of fixed costs, lack of history about long term demand for DVD products, direct and indirect competition, mis-steps by previous management and a lack of transparency in the financial reporting, Moody's said.

Positive factors affecting the rating include financial investments from Blackstone, Sony and AOL-Time Warner, favorable recent performance of the DVD and music harvest strategies, expectation of continued cost savings through consolidation, medium to long term licenses with major studios and scalability of DVD license fees, Moody's said.

The outlook is positive "based on favorable early stage financial results for music harvest and DVD strategies," Moody's said.

Moody's rates IESI's loan B1; notes B3

Moody's Investors Service rates IESI Corp.'s $222.5 million senior secured loan due Aug. 31, 2004 at B1, $150 million senior subordinated notes due 2012 at B3, senior implied at B1 and issuer rating at B2. The outlook is negative.

Ratings reflect weak cash flow generation, pro forma LTM EBITA to interest coverage of 1.4 times in first quarter 2002, EBIT return of average assets of 5%, risk of increased leverage due to the acquisition strategy and size of the company compared to its competitors, Moody's said.

Ratings also reflect $200 million in capital from equity sponsors, recent quarterly improvement in cash generation, stable earnings related to certain municipal and franchise arrangements and lower costs associated with a young hauling fleet.

The negative outlook reflects uncertainty regarding future profitability.

In fiscal 2001, the company had positive net income of $2.25 million, the EBIT margin improved 120 basis points to 8.7% and cash from operations was 15.5% of revenues and was a negative $2 million after capital expenditures. First quarter 2002 gross profit margins improved to 36.5% from 35.6% for a comparable period a year ago and EBIT margin improved to 10.9% from 6.8% a year ago. EBIT return on average total assets for the twelve months ending December 31, 2001 is approximately 4.7%.

S&P cuts United Refining outlook

Standard & Poor's lowered its outlook on United Refining Co. to negative from stable and confirmed its ratings including its senior unsecured debt at B-.

S&P said it lowered United Refining's outlook because of the company's weakening financial profile, which has been exacerbated by an extremely poor refining margin environment.

Without a recovery in sector margins, United Refining's liquidity (cash flow generation and ability to borrow under its revolver) could become strained, S&P said.

United Refining's cash flow generation usually improves during the summer asphalt season as it liquidates inventory; in the near term, a potential ratings downgrade could be highly influenced by United Refining's performance during this peak business period, S&P noted.

For the longer term, a downgrade could be prompted by the high spending requirements associated with new clean fuels standards, S&P added.

S&P rates Columbia House's loan B+

Standard & Poor's rates Columbia House Co. a corporate credit rating of B+ and CH subordinated LLC's $175 million senior secured credit facilities B+.

The loan consists of a $145 million term loan and a $30 million revolver maturing in 2007. The loan is guaranteed by all subsidiaries of the company and is secured by substantially all assets. Proceeds will be used to partially fund the acquisition of Columbia House by BCP Acquisition Co.

Ratings reflect competitiveness of the industry, mature sales trends on CDs, dependency on movie studios and music labels for quality content and high debt leverage, S&P said. These factors are offset by favorable prospects in the DVD industry and improving operating performance.

EBITDA improved to $57.0 million in 2001, from $3.2 million in 2000 and negative $37.4 million in 1999. Pro forma for the buyout transaction, total debt to EBITDA will be high at about 4.4 times. Pro forma EBITDA interest coverage is at 2.8 times.

S&P cuts Choice One

Standard & Poor's downgraded Choice One Communications Inc. and kept the company on CreditWatch with negative implications. Ratings affected include Choice One's $350 million secured bank facility due 2008 to CCC- from CCC+.

S&P said Choice One's default risk has increased substantially because its liquidity has weakened to the point where it would be challenging for the company to maintain its business plan in the near term.

The company has less than $34 million in cash, virtually all of it from the complete drawdown of its revolving bank facility on May 20 and no additional identifiable sources of liquidity, S&P said.

S&P added that its projects indicate that the cash along with about $20 million in cash from operations in the second half of 2002 will have difficulty covering more than $22 million in cash interest expense and more than $30 million in capital expenditures for the remainder of the year.

S&P raises Jo-Ann Stores outlook

Standard & Poor's raised its outlook on Jo-Ann Stores Inc. to stable from negative and confirmed the company's ratings including its senior secured bank loan at B+ and its subordinated debt at B-.

S&P said the action is in response to Jo-Ann Stores' stabilized operations resulting from improved inventory management.

Prolonged inventory management difficulties related to the implementation of the SAP retail information system had negatively affected performance as it led to out-of-stocks, higher inventory levels, and a higher shrink expense rate, S&P said.

The company has also benefited from its turnaround plan, which included closing underperforming stores and the liquidation of 10,000 items from its merchandise assortment, and a trend toward home-based activities, the rating agency said.

Same-store sales increased 13.5% in the first quarter of 2002 following a 5.9% rise in all of 2001, while operating margins expanded to 13.3% from 12.7%, S&P noted. Credit protection measures also improved, with EBITDA coverage of interest for the 12 months ended May 4, 2002, at 2.7 times, up from 2.5x in the comparable period of 2001. Leverage declined with total debt to EBITDA at 3.2x, compared with 4.4x, as the company lowered debt by reducing inventory levels.

S&P raises Constellation Brands outlook

Standard & Poor's raised its outlook on Constellation Brands Inc. to stable from negative and confirmed its ratings including its senior unsecured debt at BB and its subordinated debt at B+.

S&P said the outlook change is in response to improvement in Constellation's credit measures, bringing them more in line with the rating category.

S&P said acquisitions raised Constellation's debt substantially to over $1.4 billion at fiscal-year end Feb. 28, 2002 and leverage remains high yet adequate for the rating category.

Credit measures strengthened in fiscal 2002 as the company's operating performance improved, S&P said. Adjusted for operating leases, Constellation Brands' debt to EBITDA ratio was about 3.4 times at fiscal year ended February 2002, down from about 4.1x the prior year. Adjusted EBITDA coverage for fiscal year 2002 was about 3.6x, compared with EBITDA coverage of about 3.0x at the end of fiscal year

2001.

Moody's puts United Defense Industries on review for downgrade

Moody's Investors Service placed all debt ratings of United Defense Industries Inc. on review for possible downgrade. Ratings being reviewed include, $200 million senior secured revolver due 2007 at Ba3, $423 million senior secured term due 2009 at Ba3, senior implied at Ba3 and issuer rating at B1.

"The review was prompted by UDI's announcement that it has agreed to acquire United States Marine Repair, Inc. (USMR) for $316 million in a largely all debt transaction," Moody's said. "Moody's review will focus on the likelihood of realization of the indicated deleveraging via a review of USMR's business plan integrated with a multi-scenario review of the impact of the announced Crusader program cancellation."

After the acquisition, pro forma debt is expected to be 3.3 times EBIDTA, deleveraging to 2.1 times within 18 months.

S&P puts United Defense Industries on negative CreditWatch

Standard & Poor's placed United Defense Industries Inc.'s BB- corporate credit rating and senior secured debt ratings of BB- on CreditWatch with negative implications in reaction to the mostly debt-financed acquisition of privately held U.S. Marine Repair Inc. for $316 million.

The acquisition will be funded with a $300 million add-on to the company's existing bank loan and $16 million cash on hand.

"Standard & Poor's will soon meet with management to discuss the impact of the acquisition on United Defense's credit profile and will resolve the CreditWatch thereafter," S&P said. "The debt-financed acquisition will cause a deterioration in the company's currently satisfactory financial profile, which could lead to a downgrade. However, the acquisition will likely provide some diversification benefits for United Defense, reducing the proportion of its revenues from its two largest programs (Crusader artillery system, which will likely soon be cancelled, and Bradley Fighting Vehicle) to 31% of revenues from 41% in 2001."

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