Moody's puts Calpine on review for possible downgrade

Moody's Investors Service placed its ratings for Calpine Corp. and its affiliates on review for possible downgrade because of increased concerns regarding Calpine's liquidity, modest near-term cash flow and reduced financial flexibility. On review are Calpine's senior unsecured Baa3 rating, convertible preferred Ba1 rating, among others.

Moody's expects that Calpine's operating profitability may moderate, in part due to projected warmer weather patterns and resulting lower power prices. The company has also lost financial flexibility because of the fall in its stock price. In addition, investor concern has increased throughout the entire energy sector. Although Calpine enjoyed access to the capital and credit markets in the past, it now finds itself facing skeptical investors and lenders, and Moody's believes the company's market access is materially reduced.

Against that background, and in the face of a significant debt load, modest near-term cash flow expectations and ongoing capex needs, Calpine is endeavoring to raise $1.5 billion in bank revolver and letter of credit facilities. The company will likely need to redeem $878 million in zero coupon convertible debt by April 30. Throughout this period, the company must continue funding its power plant construction program, largely through draws on its $3.5 billion ($2.5 billion already drawn) construction revolvers. Additionally, the company will require credit support for its marketing and trading operations. To the extent Calpine continues drawing on the secured project finance-style construction revolvers, the structural subordination of the senior notes will increase. Moreover, because Calpine may have greater difficulty eventually refinancing the secured project finance-style construction revolvers with corporate financing, the senior note holders may also remain structurally subordinated to the construction revolvers significantly longer than originally contemplated.

Fitch rates new Unisys notes BBB-

Fitch assigned a BBB- rating to Unisys Corp.'s planned offering of senior notes due 2004. The outlook remains negative.

Fitch said proceeds of the issue will improve financial flexibility and liquidity.

Fitch lowered Unisys' outlook to negative on Oct. 22, 2001, reflecting "the continued downturn in the company's business segments, especially the more profitable hardware segment, and the subsequent longer-term effects of the challenging technology environment for its products and services."

That negative outlook came after Unisys had "dramatically" improved its credit profile and balance sheet metrics over several years.

"While that progress has been modestly reversed in the current industry downturn, Fitch believes credit protection measures remain satisfactory for the BBB- rating category but is concerned about the negative trend in operating performance," the rating agency said.

Moody's rates A&P new notes B2

Moody's Investors Service assigned a B2 rating to the planned offering of senior notes by The Great Atlantic & Pacific Tea Co., Inc. It also confirmed A&P existing ratings, including its $425 million secured revolving credit facility at Ba2; and its $200 million of 7.70% senior notes due 2004, its $300 million of 7.75% senior notes due 2007 and its $200 million of 9 1/8% senior notes due 2039, all at B2. The outlook is negative.

Moody's said the ratings incorporate "the company's leveraged financial condition, weak return on assets, and the competitive nature of the supermarket industry. Difficulties in achieving operating synergies (partially caused by the widely scattered markets in which the company operates) and the need to use a significant proportion of expected future cash flows for store upgrades also impact the ratings."

However the rating agency also recognized that A&P has the number one or number two position in its four most important markets and has made progress closing underperforming stores and exiting several secondary markets.

Relatively high gross margins resulting from high perimeter department sales and a meaningful equity base in both market value and book value terms are also strengths, Moody's said.

Moody's has a negative outlook because of concerns about "uneven regional performance and the outcome of efforts in turning around operations at a significant proportion of stores. Success at making operating improvements that meaningfully increase return on assets would benefit the ratings. However, if further analysis causes more stores to be written off or if the pace of remodels and new store construction exceeds internally generated cash flow, then the ratings could be negatively affected."

S&P rates Pegasus new notes CCC+

Standard & Poor's rated Pegasus Satellite Communications Inc.'s planned offering of senior notes due 2010 at CCC+. It withdrew its ratings on the 12.5% notes to be redeemed with the proceeds and affirmed the company's other ratings, including Pegasus Communications Corp.'s preferred stock at CCC, Pegasus Satellite Communications' senior unsecured and subordinated debt at CCC+ and Pegasus Media & Communications' senior secured bank loan at B+. The outlook is stable.

S&P said Pegasus' ratings reflect "high financial risk from aggressive, debt-financed DirecTV franchise and subscriber acquisition activity, which is responsible for negligible interest coverage, highly negative discretionary cash flows, and significant capital demands."

On the positive side, S&P said the company has a growing satellite direct-to-home television subscriber base, is the largest franchisee of DirecTV services in rural areas, and has taken steps to improve profitability.

S&P said competition, particularly with Echostar Communications Corp., has fueled high subscriber acquisition costs. However the company benefits weaker cable competition in rural areas.

Direct sales secured by credit card payment and equipment rental have helped cut costs and churn, S&P added.

However the rating agency cautioned Pegasus' long-term business position and relationship with DirecTV, "remain unclear. Echostar's proposed purchase of DirecTV's parent, Hughes Electronics Corp., raises further questions about Pegasus' status."

Moody's rates Gray Communications new notes B3

Moody's Investors Service assigned a B3 rating to the planned offering of senior subordinated notes from Gray Communications Systems, Inc. and confirmed the company's existing ratings, including its $50 million senior secured revolving credit facility due 2008 and $200 million senior secured term loan due 2009 at Ba3. Moody's withdrew the B3 rating on the existing senior subordinated notes which will be refinanced. The outlook is stable.

Moody's said the ratings reflect Gray's "high leverage and thin cash flow coverage of interest, the likelihood that the company will continue to pursue a debt financed acquisition strategy, and expectations of higher capital expenditures to complete digital conversion."

Gray's local advertising focus has protection the company from the brunt of the national advertising slump but Moody's said there is a risk the slow national economy could lead to further deterioration in local advertising markets.

Also of concern is the lack of diversity in the company's television portfolio, the lower margins of Gray's publishing business and the risks and challenges associated with that business, including paper price volatility and decreasing interest in reading among younger consumers, Moody's said. It also sees the paging business as non-strategic.

Supporting the ratings is Gray's prominent position in its markets and expected advertising next year from political and Olympic sources.

S&P rates new Unisys notes BB+

Standard & Poor's assigned a BB+ rating to Unisys Corp.'s planned offering of senior unsecured notes and affirmed the company's existing ratings including its BB+ corporate credit, senior unsecured and senior unsecured bank loan ratings. The outlook is stable.

S&P said the ratings reflect the improving business profile of Unisys' information services segment and a strengthened financial profile.

"Even with currently weak industry conditions, Unisys has demonstrated good operating performance," S&P said. "While revenue growth could be slower than expected in some quarters, operating margins before depreciation and amortization are expected to remain in the low-teens percentage."

S&P rates Gray Communications planned notes B-

Standard & Poor's assigned a B- rating to the planned offering of senior subordinated notes by Gray Communications Systems Inc. It also affirmed the company's existing ratings. The outlook is stable.

S&P said the ratings reflect the "strong market positions of the company's TV stations, its modest geographic and operational diversity, the overall good free cash flow of television broadcasting, and the company's experienced management team. These factors are balanced by an aggressive financial profile, a debt-reliant acquisition strategy, and the mature growth of its core TV and newspaper operations."

While profits will be lower in 2001, S&P sees 2002 revenue benefiting from "important political races in certain markets and, to a lesser degree, the winter Olympics on its three NBC stations. Still, economic weakness is likely to suppress revenue in early 2002 and network compensation revenue will continue to decline."

S&P added that Gray has held up better than some of its peers in 2001 because of its strong market positions, cost reductions and a high concentration of more stable local revenue.

Moody's rates IPC new deal B3

Moody's Investors Service assigned a B3 rating to IPC Acquisition Corp.'s proposed $150 million senior subordinated note issue due 2009 and a B1 rating to its $120 million senior secured bank credit facility rating. The outlook is stable

Moody's said the ratings reflect its concerns about the concentration of IPC's customer base in the financial services industry, the prospects of increasing competition and management's ability to sustain the revenue ramp and revitalize turret product sales revenues.

The rating agency noted that the banking and brokerage sector continues to experience significant workforce reductions, while scaling back on trading infrastructure spending as a result of the current economic slowdown.

So far IPC's competitors have been unsuccessful in taking significant market share, especially in North America, Moody's said.

"However, this leadership position is vulnerable to erosion should its deep-pocketed competitors, including British Telecom, France Telecom, Hitachi and Siemens, take a more determined approach to strengthening their own market share," Moody's commented.

Moody's upgrades Ainsworth Lumber, rates new deal B3

Moody's Investors Service upgraded Ainsworth Lumber Co. Ltd. and assigned a B3 rating to the company's planned offering of senior secured notes. Ratings raised include the company's $186.5 million of senior secured notes due 2007, moved up to B3 from Caa1. The outlook is stable.

Moody's said the upgrade reflects the improved liquidity that will be provided by the new notes.

In addition, Moody's anticipates improved pricing fundamentals for oriented strand board (OSB), assuming that the US housing market recovers in 2003 to trend line levels.

Moody's also expects the High Level OSB mill presently operating at about 60% of capacity will be at close to full capacity in 2003, resulting in improved volumes and profit margins.

S&P removes Senior Housing from CreditWatch, rates new deal BB

Standard & Poor's rated Senior Housing Properties Trust new offering of senior unsecured notes at BB and confirmed the company's existing ratings and took them off CreditWatch where they were placed on Aug. 11. Ratings confirmed include the BB senior unsecured rating and BB- rating on the trust preferred securities issued by SNH Capital Trust I.

S&P put Senior Housing on CreditWatch after it announced it would acquire 31 senior housing communities for $600 million from Crestline Capital Corp., essentially doubling the company's asset base.

S&P said its confirmation of the ratings primarily reflects the fact that financing for the purchase is now in place.

Moody's downgrades IT Group, assigns negative outlook

Moody's Investors Service downgraded The IT Group, Inc., including lowering to Caa1 from B1 its $496 million guaranteed and secured senior credit facility, to Caa3 from B3 its $225 million of 11.25% guaranteed senior subordinated notes due 2009 and OHM Corp.'s $40.3 million of 8% convertible subordinated debentures due 2006 and to Ca from Caa1 IT's $51.4 million issue of 7% cumulative convertible exchangeable preferred stock. The outlook is negative.

Moody's said the downgrade reflects "the deterioration in operating profits and cash generation linked to delayed commercial project revenue and a weak economy; a buildup in working capital and lower than expected returns on recent acquisitions."

The action also reflects IT Group's "recent inability to reduce its significant leverage through asset sales or funds from operations; its limited liquidity and lack of financial flexibility aggravated by considerable fixed charges including interest, debt amortizations and lease payments."

The negative outlook is in response to concern about the impact of the recession on the company's commercial segment and the impact of poor project management on cash and earnings, Moody's said.

Planned asset sales and current cash generation may not help deleverage so a financial restructuring may result, the rating agency added.

Fitch downgrades Kamps

Fitch downgraded Kamps AG, lowering senior unsecured rating and its €250 million eurobond due 2005 to BB- from BB+. The outlook is stable.

Fitch said the action follows Kamps' announcement of two new debt transactions for up to €700mln to meet its cash outflow commitments due during 2003. While they will not increase net debt, the offerings will increase secured debt, resulting in less protection for unsecured creditors, Fitch said.

Fitch is also concerned about Kamps' inability to attract new unsecured funding and the emergence of the need to meet the March 17, 2003 put option on the €660mln zero coupon convertible bonds.

S&P raises Radiologix outlook to stable

Standard & Poor's lifted its outlook on Radiologix Inc. to stable from negative. It confirmed the senior secured rating at BB- and the senior unsecured rating at B.

S&P took the action following the company's $160 million senior note offering.

The rating agency had said it would raise the outlook once the transaction was completed since it would alleviate refinancing concerns.

Moody's confirms Riggs National

Moody's Investors Service confirmed its ratings on Riggs National Corp., including the subordinate debt at Ba2 and Riggs Bank NA bank deposits at Baa2.

The action follows Riggs' announcement that it will take a $27.5 million restructuring charge during the fourth quarter and expects to report a net loss for full year 2001, in part due to the performance of its venture capital business.

Moody's said it affirmed the ratings because of Riggs' "strong capital ratios and good liquidity, as well as the Riggs' solid market position within the District of Columbia."

S&P downgrades DESA

Standard & Poor's downgraded DESA International Inc., cutting its senior subordinated notes to CCC- from CCC and its bank facility to CCC+ from B-. The ratings remain on CreditWatch with negative implications.

S&P downgrades Oxford Automotive

Standard & Poor's downgraded Oxford Automotive Inc., cutting its senior subordinated notes to C from CCC- and its bank facility to CC from CCC+. The ratings remain on CreditWatch with negative implications.

S&P downgrades Kamps

Standard & Poor's downgraded Kamps AG, cutting its €660 million LYONS and its €250 million 8% notes due 2005 to BB from BB+. It also rated the company's new notes at BB.

S&P takes Air Canada off CreditWatch

Standard & Poor's removed Air Canada from CreditWatch with negative implications and confirmed the company's ratings. However it has a negative outlook.

Ratings confirmed include the company's notes and debentures at B.

S&P rates new Host Marriott notes BB

Standard & Poor's assigned a BB rating to Host Marriott LP's offering of senior notes due 2007. The notes are on CreditWatch with negative implications.

S&P rates new MeriStar notes BB-

Standard & Poor's rated MeriStar Hospitality Operating Partnership, LP's new offering of senior unsecured notes BB-. The securities are on CreditWatch with negative implications.

Moody's downgrades Glencore Nickel, Murrin Murrin

Moody's Investors Service downgraded Glencore Nickel Pty Ltd.'s $300 million of senior secured fixed notes due 2014 to B1 from Ba3 and Murrin Murrin Holdings Pty Ltd.'s $340 million of senior secured fixed notes due 2007 and $64 million of floating rate notes due 2005 to B3 from B1. The outlook for Glencore Nickel is stable and the outlook for Murrin Murrin is negative.

Moody's said the action reflects "the current depressed environment for nickel prices and the inconsistent performance" of the Murrin Murrin project, which is owned 60% by Anaconda Nickel through Murrin Murrin Holdings, and 40% by Glencore International AG through Glencore Nickel's Glenmurrin Pty Ltd. unit. The actions also reflect "the significant liquidity pressures" facing Murrin Murrin Holdings.

However Moody's said the Glencore rating also recognises that Glencore International has been supporting Glencore Nickel's cash requirements for the Murrin Murrin project and anticipates this will continue.

Murrin Murrin also benefits from Glencore International's association, Moody's said. The rating agency noted recent management efforts to reduce overheads at Anaconda. However it said these are unlikely to substantially benefit the short-term liquidity position.

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