Moody's rates EaglePicher notes B3, loan B2

Moody's Investors Service assigned a B3 rating to EaglePicher Inc.'s proposed $220 million guaranteed senior unsecured notes due 2013 and a B2 rating to its proposed $125 million revolving credit facility due 2008 and $150 million term loan B due 2009 and confirmed its existing rating including EP Holdings $141.9 million 11¾% cumulative redeemable exchangeable preferred stock due March 2008 at Ca. The outlook remains stable.

Moody's said the refinancing transactions are aimed at ensuring EaglePicher's ongoing liquidity and increasing the company's operating flexibility.

Moody's said the ratings reflect EaglePicher's weak historical trailing 12 month credit protection measures which remain consistent with existing ratings, most notably with regard to the company's high leverage in terms of both EBITDA and total capitalization.

EaglePicher additionally operates in highly competitive markets; remains dependent upon cyclical general economic conditions, and most significantly upon automotive production levels; continues to be susceptible to OEM price compression within Hillsdale, the company's largest division; and has greater exposure to the potentially adverse effect of government contract provisions and audits within EaglePicher's technology division.

While EaglePicher's new management team has achieved a measurable degree of success to date in transforming EaglePicher, Moody's said it has some concern regarding the company's ability to implement change effectively at the pace projected.

The ratings and stable outlook more favorably reflect that EaglePicher's proposed refinancing will enhance liquidity by virtue of extended debt maturities, approximately $26 million of additional senior secured commitments, and slightly loosened covenant requirements which should provide EaglePicher with effective access to nearly the full commitment over the tenor of the new credit agreement.

The extension of the company's accounts receivable securitization maturity to 90 days prior to the new revolving credit maturity also solidifies the company's financial flexibility and ability to implement various initiatives while economic conditions remain uncertain.

The ratings also reflect that EaglePicher's cash flow performance should steadily improve as the company's comprehensive 2002 restructuring program takes hold and anticipated levels of annualized savings are realized, Moody's said. Margin improvement has already been evident during the last few reported quarters.

Moody's rates Norcross notes B3

Moody's Investors Service assigned a B3 rating to Norcross Safety Products LLC and Norcross Capital Corp.'s planned $150 million senior subordinated notes due 2011 and confirmed its $30 million senior secured revolving credit facility due 2008, C$10 million senior secured revolving credit facility due 2008 and $100 million senior secured term loan due 2009 at B1. The outlook is stable.

Moody's said the ratings reflect Norcross Safety's significant financial leverage, weak balance sheet, modest free cash flow generation and acquisitive growth strategy.

However, these risks are mitigated by the company's strong position in the personal protection equipment market, a relatively stable revenue base supported by established brands and customer loyalty, favorable industry trends and good profit margins.

The stable rating outlook reflects Moody's expectation of improving operating performance at Norcross Safety, offset by on-going acquisition and integration risks.

When completed, the planned transactions will alleviate the company's near-term refinancing risk but result in higher debt leverage, Moody's said. In replacing its 13% senior subordinated notes due 2005, the company will extend its maturity on the new notes to 2011 and eliminate an early-maturity clause in the existing credit facility. The company may also benefit from possible lower interest rate on the new notes.

However, post-transaction, the company's total leverage (including holding company's $25 million senior notes if converted) will increase to approximately 5x pro forma 2003 trailing 12 months EBITDA (including KCL) from 4.4x.

Moody's noted that the company is fully leveraged for its ratings category and any significant leveraging transaction going forward would likely put downward pressure on the ratings.

S&P rates Norcross notes B-

Standard & Poor's assigned a B- rating to Norcross Safety Products LLC's planned $150 million senior subordinated notes due 2011and confirmed its bank debt at B+. The outlook is stable.

S&P said Norcross Safety Products' ratings reflect the company's niche positions in small, highly fragmented markets combined with its high leverage and limited financial flexibility.

Norcross Safety Products has broadened its markets through acquisitions. The company has broadened its presence internationally, e.g. with strong growth in Canada following the acquisition of Arkon Safety Equipment in 2000. Similarly, it is acquiring KCL, a German manufacturer of industrial gloves for approximately $20 million, increasing it European presence. Additional tuck-in acquisitions are expected to augment existing product lines.

Sales were relatively flat from 2000 to 2002, up 1.6% per year, S&P said. However, the company was able to raise EBITDA 14% over the same period because of cost-saving and restructuring initiatives in 2002.

The company's debt leverage pro forma for the transaction is about 4.5x (adjusted for operating leases) and S&P expects total debt/EBITDA to average 4x over time. Cash flow protection is thin, with funds from operations to total debt (adjusted for operating leases) at about 7% pro forma, and is expected to rise to about 15% over time.

S&P rates Ardent Health notes B-, loan BB-

Standard & Poor's assigned a BB- rating to Ardent Health Services' proposed $100 million senior secured bank facility due 2008 and a B- ratings to its proposed $150 million senior subordinated debt due 2013. The outlook is negative.

For the bank loan S&P said the collateral package in a distressed default scenario suggests that estimated asset value will be sufficient to provide complete recovery of the $100 million bank facility in the event of a default.

S&P said Ardent's ratings reflect a relatively undiversified portfolio of hospital and health plan assets and a dependence upon on its behavioral hospitals which contribute half of its profitability.

Moreover, the company has a very short track record of operating the seven acute care hospitals and health plan that have historically produced weak operating cash flow. Since they were acquired at various times within the last year, their vulnerability is highlighted by a large 71% of total revenues derived from its key Albuquerque, N.M. assets, which are considered an integrated delivery system. As these assets include several significant health plans, the company is also at risk for future premium trends as well as the cost of care to a large enrollee base in a single market.

Still, Ardent benefits from a strong market share in its key Albuquerque market, S&P said. The company will attempt to bolster its profitability by improving operating efficiency with investments in key areas such as information systems, by offering its integrated delivery system in Albuquerque, known as the Lovelace Sandia Health System to other area health plans, and benefiting from a currently favorable reimbursement environment for its behavioral hospitals.

The success of these initiatives are vital to improve upon a weak return on capital that is likely to remain under 10% for at least the next couple of years, S&P added.

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