S&P cuts Charter, still on watch

Standard & Poor's downgraded Charter Communications Inc. and kept it on CreditWatch with negative implications. Ratings lowered include Charter's notes, cut to CCC- from CCC+, and bank debt, lowered two notches.

S&P said the downgrade is based on rising concern about a possible public debt restructuring.

Given depressed debt trading levels and the company's operational challenges, Charter could be further pressured to reduce debt through a restructuring, S&P said. The downgrades are also based on greater uncertainty regarding management's financial strategy.

The CreditWatch listing reflects the potential for further downgrades in the event that Charter announces an exchange offer to give bondholders consideration significantly less than the par value of the bonds, S&P said.

The CreditWatch listing also reflects uncertainty about the outcome of a federal grand jury investigation into the company's accounting policies.

S&P takes ATA off watch

Standard & Poor's removed ATA Holdings Corp. from CreditWatch with negative implications and assigned a negative outlook. Its $100 million 10.5% senior notes due 2004 and $125 million 9.625% senior notes due 2005 were confirmed at CCC. American Trans Air, Inc.'s $11.789 million 7.82% passthroughs series 96-1C due 2004 were cut to B- from B+, its $17.682 million 7.64% passthroughs series 96-1B due 2010 cut to B from BB, its $18.153 million 7.46% passthroughs series 1997-1C due 2008 cut to B- from BB-, its $26.333 million 7.19% passthroughs series 1997-1B due 2012 to B from BB, its $36.74 million 9.644% passthroughs series 2000-1C due 2007 to B+ from BB, its $41.258 million 7.37% passthroughs series 96-1A due 2012 to BB+ from BBB+ and its $63.105 million 6.99% passthroughs series 1997-1A due 2017 to BB+ from BBB+.

S&P said ATA's ratings were confirmed due to its improved liquidity after receipt of proceeds from a $168 million loan that was 90% backed by a federal loan guarantee that closed in November 2002.

Although the company's liquidity has been enhanced, its fate will still depend on the expected recovery in the airline industry, S&P cautioned. Prolonged weakness in the industry would negatively affect ATA and could result in a downgrade.

The downgrades of ATA's enhanced equipment trust certificates reflect the substantial deterioration in market values of the Boeing 757-200 aircraft which form their collateral, S&P added.

These planes, while efficient and widely used, have been under pressure following the shutdown of discount carrier National Airlines (which operated solely B757's), US Airways Inc.'s bankruptcy rejection and renegotiation of financings on its B757-200's, and bankrupt United Air Lines Inc.'s attempts to reduce debt service costs on many of its aircraft-backed obligations, including those that finance B757-200's.

S&P cuts Vishay loan to BB

Standard & Poor's lowered the ratings of Vishay Intertechnology, including its $150 million 5.75% convertible subordinated notes due 2006 and $550 million zero coupon LYONs subordinated notes due 2021 to B+ from BB- and its $660 million revolving credit facility due 2005 to BB from BB+, following its acquisition of Netherlands-based BCcomponents Holdings BV for $350 million in cash, debt and warrants.

The outlook is stable, incorporating an expectation that subsequent to the acquisition, Vishay will focus on cutting costs and maintaining adequate liquidity. It also considers that Vishay will not undertake other material debt-financed acquisitions until it restores further balance-sheet strength.

Vishay has about $748 million of debt outstanding.

In addition to adding leverage to the balance sheet, the acquisition will increase exposure to passive components that have suffered from significant pricing pressure and margin erosion over the past 18 months due to deterioration in demand and excess capacity, S&P noted.

Prolonged weak operating profitability in passive components combined with higher debt levels will likely put pressure on the company's debt protection measures.

Operating cash flow has historically been $200 million-$250 million annually (with the exception of 2000, when it was $767 million) and is expected to remain near these levels.

Post-acquisition, Vishay is still expected to maintain cash balances in excess of $300 million.

Vishay recently reduced the size of its revolving bank facility to $500 million from $660 million, and availability following the acquisition will be about $375 million. Along with the reduction in size, overall leverage and senior debt ratio covenants were revised.

Vishay should be able to remain within covenants, which are 3.5x leverage ratio and 1.75x senior debt ratio effective through Dec. 30, 2003, and stepping down in subsequent years, S&P said.

Vishay also faces potential cash use for the put on the convertibles in June 2004, when there will be an accreted value of $331 million. Vishay has the option of settling the put in cash and/or stock.

Moody's rates AMI notes B3

Moody's Investors Service assigned a B3 rating to AMI Semiconductor, Inc.'s proposed $200 million guaranteed senior subordinated notes, and confirmed the company's existing ratings as well as negative ratings outlook including its $50 million guaranteed senior secured term loan due 2007 and $75 million guaranteed senior secured revolving credit facility due 2007 at Ba3.

Moody's said the ratings are based on AMI's debt leverage, which is moderately high for a semiconductor company, and some uncertainty over end-market demand for the company's services.

The overall reduction in customer demand has led to a commensurate decrease in backlog, hindering the company's ability to estimate revenues with confidence beyond its forthcoming fiscal quarter, the rating agency added.

Moody's said its ratings are based on the decline in AMI Semiconductor's pro forma revenues and operating margins in its fiscal year ended Dec. 31, 2002 from those estimated on a pro forma basis in fiscal 2001; the estimated 3.3 times pro forma debt to pro forma EBITDA for the same period; and the merely satisfactory 1.9 times pro forma free cash flow coverage of pro forma fixed charges, assuming projected fiscal 2003 capex of $25 million.

The ratings are supported by the initial savings derived from the cost reduction program implemented in conjunction with the integration of the mixed signal business in Europe. MSB was formerly operated as a part of Alcatel Microelectronics NV before it was acquired in the second quarter of fiscal 2002 as a carve-out in Alcatel's sale of its Microelectronics business to STMicroelectronics NV.

Additionally, AMI's niche position as a supplier of mixed signal and medium complexity digital ASICs to select markets has been enhanced by the MSB acquisition, particularly the ability to cross-sell the design engineering of the North American and European operations in all global markets, Moody's said.

The negative outlook takes into account the limited time horizon under which the cost savings, estimated to reach $47 million on an annual run rate, have been recorded.

Moody's cuts Ahold ratings

Moody's downgraded the senior unsecured ratings of Koninklijke Ahold NV and its guaranteed obligations to Baa3 from Baa1, and group rated subordinated debt issues to Ba1.

The outlook on all ratings is stable.

The downgrade reflects Moody's view that Ahold's credit metrics, which have been weak for the category for some time, are not likely to improve significantly over the intermediate term.

Overall Moody's said it considers Ahold's liquidity to be satisfactory but notes that in the absence of access to the capital markets it would be heavily reliant upon its banking facilities for refinancing.

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