Moody's lowers AK Steel debt ratings, outlook is negative

Moody's Investors Service lowered to Ba3 from Ba2 the senior implied rating of Middletown, Ohio-based AK Steel Corp. The outlook is negative. Approximately $1.6 billion of debt securities are affected.

Citing deteriorating conditions in AK Steel's key end-use markets in the automotive, appliance, construction and manufacturing sectors, Moody's actions include the following:

--Senior secured debt to Ba2 from Ba1

--Senior unsecured debt to B1 from Ba2

--AK Steel Holding Corp. Series B $3.625 convertible preferred shares to B2 from B1.

"Presently, debt comprises approximately 53% of AK Steel's total capitalization but is likely to be lowered in December when the company commences annual amortization payments of $62.5 million on its outstanding senior secured notes, due 2004. Upon payment, the maximum ratio of debt to capitalization permitted under the company's senior secured notes indenture will decline to 55% from 65%. Further, the senior unsecured note indentures contain restricted payment limitations that prevented the company from paying common stock dividends for the quarter ended September 30. In addition to its approximately $1.45 billion of debt obligations, AK Steel has about $1.4 billion of post retirement benefit obligations," Moody's stated.

Moody's also said that the negative outlook on the ratings "anticipates persistent adverse conditions in the steel industry including overcapacity, reduced shipments, and lower pricing as a result of continued weakening in domestic industrial production."

Moody's downgrades Brown Shoe to Ba3, outlook stable

Moody's Investors Service lowered the senior implied and senior unsecured debt and issuer ratings of St. Louis-based Brown Shoe Co. Inc. to Ba3 from Ba2. Approximately $200 million of debt securities are affected, according to Moody's, which added that Brown Shoe's rating outlook is stable.

The rating agency believes that Brown Shoe's debt protection will remain at lower than historic levels, and that the company's leverage measures are subject to decline due to declining consumer confidence and concerns about unemployment.

The Ba3 ratings of Brown Shoe's unsecured debt also reflect the lack of significant levels of secured debt in the capital structure, the release stated.

The stable outlook reflects Moody's belief that Brown Shoe has "credible plans" to improve its operating efficiencies and store productivity. Brown Shoe has also had some success in improving the image of its

Naturalizer product, and remains focused on improving near term operating results as well as longer term brand positioning, the report added.

S&P puts LodgeNet on negative watch

Standard & Poor's put LodgeNet Entertainment Corp. on CreditWatch with negative implications including its B+ senior secured bank loan rating and its B senior unsecured debt rating. The rating agency said it was concerned the company's profitability and credit profile will weaken as a result of a material decline in travel following the terrorist attacks on Sept. 11.

S&P commented: "As a leading provider of in room entertainment to the lodging industry in the U.S., LodgeNet's revenue and earnings are directly tied to occupancy rates at the lodging properties of its customers. Standard & Poor's believes that the terrorist attacks are likely to result in material declines in short-term business and leisure travel. Longer-term effects are less certain and the extent and length of the decline in travel will depend on many factors including any U.S. military action, confidence in travel safety, and general economic conditions."

It added: "LodgeNet's diversified room base and high percentage of rooms in suburban and highway locations - approximately two-thirds of its room base - could help mitigate the impact."

S&P revises Finlay outlook to negative

Standard & Poor's revised its outlook on Finlay Enterprises Inc. and its wholly owned subsidiary, Finlay Fine Jewelry Corp., to negative from stable. S&P rates Finlay Enterprises senior secured bank loan at BB and its senior unsecured debt at B. Finlay Fine Jewelry's senior secured bank loan is rated BB and its senior unsecured debt B+.

S&P said the outlook revision is based on its expectation that Finlay's operating performance will be pressured by the "increasingly difficult retail environment."

After a period of consistent sales growth, S&P said, Finlay's comparable-store sales declined 5.3% in the second quarter as the economy weakened. With a softer retail environment, increased marketing and promotional expenses and higher markdowns, Finaly's operating margin fell to 10.6% for the 12 months to Aug. 4 compared to 11.5% for the same period a year earlier.

S&P added: "The Sept. 11, 2001, terrorist attacks on the U.S. are likely to compound the negative effects of a sluggish economy, resulting in waning consumer confidence and growing economic pressures."

S&P revises KSL outlook to negative

Standard & Poor's revised its outlook on KSL Recreation Group Inc. to negative from positive in response to "a weaker-than-expected operating environment and increasingly challenging business fundamentals for the remainder of this year and into 2002."

S&P added that anticipated "material declines" in business and leisure travel after the Sept. 11 terrorist attacks will hurt the company although its "high quality assets, demonstrated track record of increasing efficiency at acquired properties, and solid operating performance" will help.

The rating agency anticipates KSL will continue to make acquisitions although these have been successfully integrated and leverage reduced in line with S&P's expectations.

S&P rates KSL's senior secured bank loan at B+ and its subordinated debt at B-.

S&P downgrades Numatics, still on watch

Standard & Poor's downgraded Numatics Inc.'s senior secured debt to B- from B and its subordinated debt to CCC from CCC+. The ratings, which cover $163.3 million of debt, remain on CreditWatch with negative implications, where they were placed on June 8.

S&P said the actions reflect Numatics' weaker-than-expected operating performance in the past year. That has resulted in "weak credit protection measures, bank covenant violations, constrained liquidity, and heightened financial risk."

For the 12 months ended June 30, EBITDA interest coverage was 1.4 times and total debt to EBITDA was 7.5 times, S&P said.

The rating agency added that Numatics has "minimal liquidity" of less than $1 million in cash and $12 million in availability under its revolving credit facility as of June 30, 2001.

The Oct. 1 $5.5 million interest payment on its senior subordinated notes has further constrained its liquidity position, S&P added.

S&P puts Pioneer-Standard on negative watch

Standard & Poor's put Pioneer-Standard Electronics Inc. on CreditWatch with negative implications following its announcement that it expects to report a loss of $0.15-to-$0.20 per share on sales of about $588 million for the quarter ended Sept. 30, 2001.

S&P commented: "Although Cleveland, Ohio-based Pioneer has a good position in the North American region, the company faces significantly larger competitors in an increasingly global industry. In addition, spending declines in information technology and economic weakness will continue to pressure near-term revenues and operating profitability."

S&P rates Pioneer-Standard's senior unsecured debt BB and its trust preferreds B.

S&P puts Hartmarx on negative watch

Standard & Poor's put Hartmarx Corp. on CreditWatch with negative implications. Among the ratings affected is Hartmarx's B- subordinated debt rating.

S&P said its action follows Hartmarx's announcement of continued weak top-line results. The rating agency said it is concerned about Hartmarx's "ability to improve its financial condition in this currently soft retail environment."

Moody's downgrades Pentacon senior sub notes to Ca

Moody's Investors Service downgraded Pentacon's $100 million senior subordinated notes due April 2009 to Ca and its $100 million senior secured revolving credit facility to B3. The outlook remains negative.

Moody's said it downgraded Pentacon after the company did not make the $6.13 million interest payment on its 12 ¼% senior subordinated notes due Oct. 1. There is a 30-day grace period.

The rating agency said Pentacon's ability to make the interest payment was reduced on Sept. 28 when its bank lender exercised its right and established a reserve of $4.9 million, effectively reducing the availability under the revolver. As of June 30, 2001, the drawings under the revolver were $71 million with availability of $17.5 million.

Moody's added: "The ratings reflect the company's deteriorating operating performance since 2000 with anticipated further decline in view of the events of September 11, 2001."

Moody's said it believes that full recovery on the senior subordinated notes is unlikely.

Fitch downgrades Grupo Minero Mexico to BB, outlook stable

Citing a continuing negative trend in the company 's credit quality, and continuing weak copper prices, Fitch downgraded the local currency corporate credit rating of Grupo Minero Mexico, S.A. de C.V.

(GMM) from BBB-, negative watch, to BB, outlook stable.

The company's secured export notes (SENs) were also downgraded to BB, outlook stable from BBB- rating watch negative. In addition, GMM's guaranteed notes due 2008 and 2028, were also downgraded from BB+ watch negative to BB- outlook stable. GMM's foreign currency rating has been lowered from BB+ to BB outlook stable. Fitch maintains the AAA foreign currency rating on GMM's series E SENs which are guaranteed by MBIA Insurance Corp. The rating actions affect approximately $1.0 billion of debt securities.

Approximately $850 million of GMM's total debt of $1.3 billion comes due between 2001 and 2004. To meet these amortizations, GMM expects to use its free cash flow and proceeds from new bank facilities, including an extension of a secured export note guaranteed by MBIA, Fitch said.

GMM's principal copper mining facilities are located in Northern Mexico, according to Fitch.

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