S&P rates Case New Holland notes BB-

Standard & Poor's assigned a BB- rating to Case New Holland Inc.'s $1 billion senior notes due 2011 and confirmed the ratings of parent CNH Global NV including its corporate credit rating at BB-, Case Corp.'s senior unsecured debt at BB- and Case Credit Corp.'s senior unsecured debt at BB-. The outlook is stable.

S&P said its ratings of CNH reflect equalization with the ratings on parent company, Fiat SpA, recognizing the importance Fiat attaches to CNH.

Following the sale of a number of business units, Fiat operation's are more focused and it considers CNH, along with the auto and truck operations to be core businesses.

Fiat continues to provide strong liquidity support to CNH, in the way of intercompany loans and bank loan guarantees, and Fiat has increased its ownership to 92% (converted basis) following two debt-for-equity swaps.

On a stand-alone basis, CNH's rating would likely be one notch higher than Fiat's rating, reflecting the dramatic improvement in CNH's financial profile following the debt-to-equity swaps, S&P said.

Prolonged weak industry conditions for both agricultural and construction equipment continue to negatively affect operating performance, thus far largely offsetting the benefits from CNH's large rationalization and integration plan, S&P said.

For 2002, CNH lost $101 million, before the cumulative effect of an accounting charge, an improvement from the 2001 $242 million loss, excluding 2001 goodwill amortization charges. For the first quarter of 2003, CNH reported a net loss of $40 million (before restructuring charges), compared to a $46 million net loss on a comparable basis from the year-earlier period. CNH expects operations for the full year, before restructuring charges, to be modestly profitable based on new lower-cost, higher-margin product introductions, market-share gains, and additional cost-reduction benefits. The firm will also benefit from an eventual market recovery.

CNH's capital structure is much improved following actions taken over the past two years to reduce debt, S&P said. In 2002, CNH exchanged $1.3 billion of debt for common equity with Fiat and raised $200 million of new equity capital. In early 2003, CNH converted an additional $2 billion of debt into preferred stock with Fiat. Pro forma for these transactions, 2003 credit measures for equipment operations are expected to be in line with the ratings, with funds from operations to total debt of 15%-20%, and debt to EBITDA of 3.5x-4x.

Fitch cuts AAR

Fitch Ratings downgraded AAR Corp. including cutting its senior unsecured debt to BB- from BB+. The outlook is negative.

Fitch said the action reflects ongoing concerns regarding the weakness of AAR's operating performance and cash flow generation as the company seeks to adjust to a radically different level of demand for aviation-related services.

Although AAR had been reporting reasonable quarter-over-quarter improvement in revenues and cash flow during the first year after the September 2001 demand shock, operating performance took a turn for the worse in AAR's fiscal fourth quarter ended May 31, 2003, Fitch said.

To a large extent, weak results in the May quarter reflected the impact of major airline customer schedule reductions and poor demand for older-generation aircraft and engine parts. Demand conditions in AAR's inventory supply and MRO (maintenance, repair and overhaul) segments can be expected to stabilize somewhat through the remainder of the year as airline traffic and capacity levels improve. Still, AAR's free cash flow generation in the current fiscal year is likely to remain weak.

In addition to poor operating conditions, the recovery position of unsecured debt holders has been eroded by a series of financing transactions designed to shore up liquidity in anticipation of an October debt maturity totaling $23 million, Fitch said. A new $30 million secured credit facility with Merrill Lynch, a renewed $35 million accounts receivable securitization program, and a secured mortgage financing involving the company's Wood Dale, Ill. headquarters building have contributed to the erosion of asset protection levels for unsecured noteholders.

Moody's cuts AK Steel

Moody's Investors Service downgraded AK Steel Corp. including cutting its $125 million senior secured notes due 2004 to Ba3 from Ba2 and $117 million 9% guaranteed senior notes due 2007, $33.5 million 8.875% guaranteed senior notes due 2008, $450 million 7.875% guaranteed senior notes due 2009 and $550 million 7.75% guaranteed senior notes due 2012 to B2 from B1. The outlook is stable.

Moody's said the downgrade of AK Steel reflects near-term revenue and margin erosion due to soft steel prices and cost pressures, potentially large pension contributions if funding levels for its defined benefit pension plans do not improve and a possible lessening of cost competitiveness as other steel companies take actions to limit pension and retiree healthcare liabilities.

However, AK Steel's good liquidity, rich product mix and favorable long-term prospects for its ability to make cost saving modifications to its employee benefit plans support the current ratings and stable outlook.

The rating downgrade reflects a combination of cost and price factors that are expected to negatively impact AK Steel's cash flow over at least the next year and possibly longer, Moody's said. In the first half of 2003, the company's margins and cash flow were impacted by higher costs, particularly for natural gas, scrap steel, slabs and pension and healthcare benefits, and by lower shipments and production volumes due to weak steel demand and high inventory levels.

Moody's estimates that higher prices for natural gas, scrap and slabs have increased AK Steel's costs in the first half of 2003 by approximately $25/ton when compared to 2002. While these costs have moderated somewhat in recent weeks, they are likely to continue to be higher this year than they were in 2002.

At the same time, soft steel demand and the restart of previously idled carbon flat-rolled steelmaking capacity have lowered spot prices for flat-rolled steel by about $30/ton since the beginning of the year. Reduced light vehicle production in the US and automakers' narrow profit margins are expected to exert downward pressure on selling prices for steel destined for the automotive market, which accounts for around 60% of AK Steel's sales. Approximately 80% of AK Steel's sales of flat-rolled products in 2002 were made to contract customers. About one-third of these contracts are renegotiated at the end of every year.

Despite these near- and intermediate-term pressures, Moody's said it believes that AK Steel benefits from a number of favorable factors, which are reflected in the stable rating outlook. The company's mix of high value-added products is probably unequalled in the industry. Its excellent reputation for quality, service and technological leadership should enable it to maintain its role as a major supplier of coated, cold-rolled and specialty steels to demanding customers. AK Steel's track record is one of the reasons that Moody's believes the company will be able to work with its employees and labor unions to modify labor agreements and benefit costs to obtain some of the cost advantages that steel companies such as ISG and US Steel have negotiated.

Moody's puts Coca-Cola Embonor on review

Moody's Investors Service put Coca-Cola Embonor on review for possible downgrade including its senior unsecured debt at Baa3.

Moody's said the review was prompted by operating softness in the last 18 months at the bottler that has resulted in very weak credit metrics.

Soft economies and stiff competition from lower priced products combined to hurt volumes and margins over the past year, Moody's said. While volume has been picking up during 2003, pricing continues to be very competitive.

The company has lost market share in all of its markets in the past two years, although has begun to recover share recently.

Meanwhile, operating profit and cash flow have declined so that, despite ongoing debt repayment and lower average interest rates, coverage ratios have deteriorated. EBIT interest coverage fell to nearly 1 times in 2002. The company remains highly levered following its 1999 acquisition of Inchcape's bottling operations, Moody's said.

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