Moody's cuts Williams Cos. four notches to junk

Moody's Investors Service downgraded The Williams Cos., Inc. four notches to junk affecting $18 billion of debt. Ratings lowered include Williams' senior unsecured debt, cut to B1 from Baa3, and its pipeline subsidiaries' senior unsecured debt, cut to Ba2 from Baa2. The parent company's ratings were also put on review for possible further downgrade.

Moody's said it lowered Williams' because of concerns about the sufficiency of its operating cash flow in relation to its debt as well as the adequacy of the company's liquidity in the coming quarters.

The company's operating cash flow has been below expectations so far this year, Moody's noted. Energy marketing and trading's operating cash flow fell short of expectations in the first half of the year, though the pipeline and energy services segments were relatively steady.

The weaker-than-expected operating cash flows and looming debt repayments have put a strain on the company's liquidity resources, Moody's continued.

To address these concerns, Williams is seeking to renew its bank credit facilities and Moody's said it expects that these facilities will likely be recast on a secured basis rather than on an unsecured basis as was previously planned.

The downgrade of the parent company's senior unsecured ratings to B1 reflects the effective subordination of the senior unsecured bonds to the secured bank lines that are being negotiated, Moody's said. The rating agency expects the secured bank debt will be "amply" collateralized by Williams' hard non-pipeline assets.

The Ba2 senior unsecured ratings for the pipeline subsidiaries reflect their structural seniority to the parent debt but also their lack of regulatory ringfencing, Moody's added.

The ratings remain under review for possible further downgrade, reflecting the considerable execution risk that Williams faces in the near-term, Moody's said.

Moody's cuts Dynegy multiple notches

Moody's Investors Service downgraded Dynegy Inc. and its subsidiaries by multiple notches, affecting $5 billion of debt. Ratings lowered include Dynegy's senior implied rating, cut to Ba3 from Ba1, Dynegy Holdings Inc.'s senior unsecured debt, cut to B1 from Ba1, and preferred stock, cut to Caa1 from Ba2, Illinova Corp.'s senior unsecured debt, cut to B1 from Ba2, Illinois Power Co.'s senior secured debt, cut to Ba2 from Baa3, senior unsecured debt, cut to Ba3 from Ba1, and preferred stock, cut to B3 from Ba3, and Roseton-Danskammer's pass-through certificates, cut to B1 from Ba1. The outlook remains negative.

Moody's said it cut Dynegy because of continuing concerns about the company's liquidity and operating cashflow that continues to decline and fall short of management's projections.

The company's current cashflow estimate for 2002 is $600 million to $700 million, down from estimates of approximately $1.0 billion in June and $1.2 billion in April, the rating agency noted.

Moody's has notched Dynegy Holdings' ratings due to increased amounts of secured debt and the expectation that future renewals of existing bank debt will likely be done on a secured basis, effectively subordinating the senior unsecured bondholders.

The negative outlook reflects execution risk associated with company's restructuring plan, which is heavily reliant on asset sales; a continuing lack of investor and counterparty confidence that has limited access to public debt markets and negatively impacted the company's marketing and trading businesses; uncertainty surrounding the FERC and SEC investigations; and continuing challenges from Enron related to the termination of the merger agreement.

Dynegy's efforts to enhance liquidity so far have largely addressed immediate liquidity needs, Moody's said, but add that it considers them to have fallen short of addressing needs looming in early 2003.

Dynegy currently has approximately $320 million available under its committed bank facilities and $290 million of cash on hand, compared to a total of $695 million in late June, indicating a continued deterioration in liquidity, Moody's said.

Furthermore, near-term improvement in the company's liquidity position is almost exclusively dependent on proceeds from asset sales, including Northern Natural Gas (NNG), and year-end 2002 liquidity is now projected to be $500 million lower than the previous estimate provided by Dynegy.

While a sale of NNG would enhance short-term liquidity, it remains unclear how much of the proceeds will ultimately go to ChevronTexaco to deal with the $1.5 billion in preferred securities potentially coming due in November 2003, Moody's said. The probability that Dynegy will be able to issue new debt at Illinois Power and raise MLP equity has also diminished.

Refinancing risk remains challenging, the rating agency said. Dynegy has a $300 million revolver that matures in November 2002 and $1.6 billion of credit facilities maturing in April and May 2003. Banks have pulled back from the sector as a whole and Moody's said it believes future renewals may be done at lower commitment levels and are likely to be done on a secured basis.

Fitch cuts Corning to junk

Fitch Ratings downgraded Corning Inc. including cuttings its senior unsecured debt to BB from BBB-, convertible preferred stock to B from BB and commercial paper program to B from F3. The Rating Outlook remains Negative.

Fitch said the downgrade reflects continued weak end-markets for Corning's telecommunications segment, deteriorating credit protection measures, negative free cash flow, and significant execution and event risk as the company continues to restructure its operations.

The current pressure on the company's telecommunications revenues, from both a volume and pricing perspective, should result in further erosion of EBITDA for 2002, reducing interest coverage to less than 1.5x, Fitch said.

Increasing negative free cash flow, despite capital expenditure reductions to approximately $125 million per quarter, will reduce the company's financial flexibility well into 2003. Leverage is expected to remain above 15x as a result of lower EBITDA levels, Fitch added.

The negative outlook continues to reflect the reduction in telecommunications infrastructure spending and the uncertainty regarding the timing or magnitude of a recovery of spending levels, Fitch said.

S&P raises Alliant Techsystems outlook

Standard & Poor's raised its outlook on Alliant Techsystems Inc. to positive from stable and confirmed its existing ratings including its senior secured debt at BB- and subordinated debt at B.

S&P said the action reflects expectations of an improved financial profile due to Alliant's broadened business base and better diversification after a series of acquisitions, positive trends in defense spending and further debt reduction.

While Alliant's diversification, although improved, remains somewhat below average, business risk is tempered by demonstrated successful pursuit of follow-on and next-generation contracts in its niche markets, S&P said.

Consequently, the firm's long-lived programs and healthy backlogs ($3.5 billion at March 31, 2002) provide a high level of predictability to revenues and profits, S&P added.

Alliant's capital structure is aggressively leveraged, although total debt to capital is now below 65%, down from over 80% after the Thiokol acquisition, due to the issuance of $250 million in equity in late 2001 to finance another acquisition, S&P said. Credit protection measures are appropriate for the current ratings, with pretax interest coverage of 2.6 times, EBITDA interest coverage of 3.6x and total debt to EBITDA of 3.2x.

S&P says Goodyear unchanged

Standard & Poor's said its ratings and outlook on Goodyear Tire & Rubber Co. are not affected by the company's announcement that net income reached nearly $29 million for the second quarter of 2002, its most profitable quarter in two years, despite a 3% decline in sales from the second quarter in 2001. S&P gives Goodyear a BB+ corporate credit rating with a stable outlook.

The ratings incorporate an expectation that operating performance may remain under pressure over the near to intermediate term, but that the company will achieve adjusted debt to capital of about 50%, and funds from operations to debt of about 25%-30%, over time, S&P said.

Operating margin for the second quarter of 2002 improved to 3.8% from 2.9% in the second quarter of 2001 due to cost containment programs and lower raw material costs, S&P noted.

Although six of seven business segments reported improved operating income, the North American tire segment (about 47% of sales) reported a 20% decline due to lower replacement market volumes, unfavorable product mix, reduced facility use and the conclusion of the Ford recall program, S&P added.

Moody's withdraws Callahan rating

Moody's Investors Service withdrew its Caa2 senior implied and Ca senior unsecured issuer and senior unsecured note ratings on Callahan Nordrhein-Westfalen GmbH and the Caa1 rating on the €2.9 billion guaranteed senior secured credit facility of the company's subsidiary. A total of $4.1 billion of debt is affected.

Moody's said the withdrawal follows Callahan's announcement that it was obliged to request the commencement of insolvency proceedings following a review of its over-indebtedness and liquidity positions, under German law, as well as the limited information flow provided from the company and the resultant inability to adequately monitor the company's ratings.

S&P lowers Hollinger

Standard & Poor's downgraded Hollinger Inc. and assigned a stable outlook.

Ratings lowered include Hollinger Inc.'s C$104.62 million 7% preferred shares due 2004 at B and Hollinger International Publishing Inc.'s $250 million 9.25% subordinated notes due 2006 and $290 million 9.25% senior subordinated notes due 2007, cut to B from B+.

Moody's lowers Caraustar outlook

Moody's Investors Service lowered its outlook on Caraustar Industries, Inc. to negative, affecting $500 million of securities. Moody's rates the company's senior unsecured debt at Ba1.

The change follows Caraustar's announcement that it plans to acquire the tube and core business of Smurfit-Stone Container Corp., Moody's said.

The $79.8 million acquisition will enhance Caraustar's existing market position in tube and core products as well as provide substantial opportunities for marketing and cost reduction synergies, Moody's noted. Caraustar anticipates total synergies of about $12 million, split between increased utilization of mill facilities and the consolidation of tube and core converting facilities.

Financing is expected to come from a combination of cash on hand (the cash balance totals about $80 million) and additional debt.

Despite the expected EBITDA contribution, potential synergies, and increased market share, the transaction is likely to delay the company's ability to reduce financial leverage to levels consistent with its rating category and represents a departure from management's focus on debt reduction, Moody's said.

Although the market for Caraustar's products appears to be recovering, and price increases have been announced, demand prospects are contingent on a sustained recovery in the U.S. economy, the rating agency added.

S&P rates Jostens' loan BB-, raises outlook

Standard & Poor's rated Jostens Inc.'s proposed $330 million senior secured term C bank loan due 2009 at BB-. In addition, S&P affirmed the company's BB- corporate credit and secured debt ratings, as well as the B subordinated debt rating. The outlook has been revised to positive from stable.

Proceeds of the new term loan will be used to repay the company's existing term loan B, following which the BB- rating on the term B will be withdrawn.

The new and revised credit facility will consist of a $150 million term A due 2006, $330 million term C due 2009 and $150 million revolver due 2006. Security is substantially all assets.

The changed outlook reflects improved credit protection measures and the expectation that these measures will strengthen further following the refinancing and bank amendment, S&P said.

Ratings reflect high leverage and relatively narrow business profile, which are offset by defendable leading market position, S&P said.

Pro forma for the proposed partial bank refinancing, 2002 EBITDA coverage of cash interest is expected to be at least 2.5 times and 2002 debt, adjusted for leases and preferred stock, to EBITDA is expected to be more than 4 times.

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