Moody's cuts Williams

Moody's Investors Service downgraded The Williams Cos., Inc., affecting $13 billion of debt. Ratings lowered include Williams' senior unsecured debt, cut to Caa1 from B1, and the senior unsecured debt of its pipeline subsidiaries, cut to B3 from Ba2. The outlook is negative.

Williams' $700 million revolver due July 25, 2005 and Transco Energy Co.'s $27 million 9.875% debentures due 2020, previously unsecured, are now secured so Moody's changed their rating to B3 from B1. Williams Gas Pipeline Central's senior unsecured debt was downgraded to B3 from Ba2 and withdrawn following its sale to unrated Southern Star Central Corp.

Moody's said the downgrade reflects concerns about Williams' ability to generate sufficient cash flow from operations to meet its ongoing obligations absent asset sales.

Poor market conditions are likely to hamper near-term improvement in Williams' cash flow and the company will face formidable challenges in reaching its targets of $1.7 billion of cash flow from operations (before interest expense) and $700 to $800 million of capital expenditures in 2003.

These targets compare with operating cash flow deficit of $1.3 billion (after interest expense) and capital expenditures and investments of $1.7 billion for the nine months ended Sept. 30, 2002, Moody's said.

While there is a measure of durability in the businesses that the company recently designated as core to its future operations (pipelines, exploration and production, midstream, and the investment in Williams Energy Partners, LP), Moody's said overall results remain depressed and well below the rating agency's previous expectations, particularly in its energy marketing and trading, but also in its petroleum and international businesses.

Williams continues to rely on asset sales proceeds to meet its large cash deficit and plans to sell at least $1 billion more than has already been closed or announced, Moody's noted.

It is uncertain whether such asset sales will be timed and generate adequate proceeds to meet its ongoing debt repayments and capital needs.

S&P upgrades Alliance Gaming

Standard & Poor's upgraded Alliance Gaming Corp. including raising its $150 million 10% senior subordinated notes due 2007 to B from B- and $190 million term loan due 2006 and $25 million revolving credit facility loan due 2006 to BB- from B+. The outlook is stable.

S&P said it raised Alliance Gaming because of the company's steadily improving operating performance and said it views these trends as sustainable.

Alliance has made significant progress during the past two years toward enhancing the performance of its Bally's Gaming and Systems division, which now generates about 50% of the company's EBITDA before corporate expenses, S&P noted.

Bally's has benefited from the introduction of new technology and new game themes. Its "EVO" game platform was first introduced in mid-2000, and has improved the division's ability to create higher quality games, and to roll them out more rapidly, S&P said. This has contributed to an increase in both the number of game devises sold and the size of the installed base of recurring revenue machines.

S&P added that it expects Alliance's slot route operation (United Coin) will continue to be a relatively stable generator of cash flow. The company's Vicksburg, Miss.- based casino has historically been a good performer, but has recently faced additional competitive pressure following improvements to a competing property. Sparks, Nev.-based Rail City has been a stable property, although it is a small contributor to Alliance's cash flow.

During 12 months ended Sept. 30, 2002, Alliance reported EBITDA of $116 million, up 27% over the comparable prior year period, S&P said. After adjusting for operating leases, EBITDA coverage of interest expense was about 4.5 times, while total debt to EBITDA was 3.3x.

S&P cuts Interface

Standard & Poor's downgraded Interface Inc. including lowering its $125 million 9.5% senior subordinated notes due 2005 to B- from B and $150 million 7.3% senior notes due 2008 and $175 million 10.375% notes due 2010 to B+ from BB-. The ratings were removed from CreditWatch and given a negative outlook.

S&P said it downgraded Interface in response to continued weakness in the commercial sector during the third quarter ended September 2002. The weakness has led to higher than expected volume declines and operating losses in several of Interface's business segments, including broadloom, interior fabrics, and raised access flooring.

Weaker than expected revenue and margin pressures across all business segments, particularly the commercial interiors and office furniture markets, has hurt operating results and further weakened credit measures, S&P said. Interface continues to be highly dependent on the corporate sector, deriving about 65% of total revenues from this segment.

For the 12 months ended Sept. 30, 2002, the company's operating margin (before D&A) was about 10.4%, down from the 13%-15% range it sustained in recent years, S&P said. Debt levels were high and credit measures were weak, with EBITDA to interest coverage at about 2.1 times and total debt to EBITDA of about 5.2x.

S&P rates El Paso Energy notes BB-, cuts outlook

Standard & Poor's assigned a BB- rating to El Paso Energy Partners LP's planned $150 million senior subordinated notes due 2012 and lowered its outlook on the company to stable from positive.

S&P said it cut El Paso Energy Partners' outlook "to reflect the growing confluence of the ratings of EPN and its general partner" El Paso.

El Paso's involvement as the general partner with a 28% stake in El Paso Energy Partners influences the partnership's credit profile in several ways and effectively tethers the ratings of the two entities, S&P said. El Paso Energy Partners plays an important role in El Paso's plan to deleverage its balance sheet plan by enabling it to transfer qualifying midstream assets to El Paso Energy Partners.

El Paso continues to operate El Paso Energy Partners' assets and provide administrative support.

The change to a stable outlook for El Paso Energy Partners factors in the greater uncertainties surrounding the credit profile of its general partner. Further deterioration of El Paso's credit quality would likely exert pressure on El Paso Energy Partners' rating irrespective of the partnership's stand-alone credit quality, S&P said.

S&P cuts Focal, on watch

Standard & Poor's downgraded Focal Communications Corp. and put it on CreditWatch with negative implications. Ratings affected include Focal Communications' $270 million 12.125% senior discount notes due 2008 and $275 million 11.875% senior notes due 2010, cut to C from CC, and $300 million senior secured bank facility due 2007, cut to CC from CCC.

S&P said the downgrade reflects Focal's weak liquidity position and the potential for debt restructuring in the near term as indicated in the company's third quarter 2002 10-Q.

The debt restructuring would be in connection with resolving its covenant defaults under its bank credit facility and equipment loan, S&P added. During the third quarter of 2002, Focal technically defaulted on these facilities as a result of violating covenants related to revenue and EBITDA.

The CreditWatch listing reflects that cash flow measures are anticipated to remain very weak in the near term and the potential for a Chapter 11 bankruptcy proceeding exists in the near term, S&P said. Third quarter 2002 results were weaker than anticipated due to high line churn in the wholesale business and continued pressure in the ISP segment.

S&P says Tesoro unchanged

Standard & Poor's said Tesoro Petroleum Corp.'s BB- corporate credit rating and negative outlook are unchanged in response to the announcement that it has terminated its agreement to sell its Northern Great Plains Products System to Williams Energy Partners LP for $110 million and has signed an asset purchase agreement with Kaneb Pipe Line Partners LP to sell the system for $100 million in cash.

While selling the system to Kaneb will result in a lower cash realization for Tesoro, S&P said it views the greater likelihood of this transaction being closed before year end as a positive development.

Tesoro's credit agreement requires the company to close on asset sales totaling $175 million by the end of 2002. This transaction, along with the recently announced package of California retail stations Tesoro expects to sell by year end for around $70 million, moves the company much closer to achieving the required level of asset sales, S&P added.

Fitch cuts Veritas DGC to junk, rates credit facility BB+

Fitch Ratings downgraded Veritas DGC Inc.'s senior unsecured debt to BB+ from BBB- and assigned a BB+ rating to its new credit facility. The outlook is negative.

Fitch said it lowered Veritas because of weaker-than-expected results following more than three years of above-average commodity prices.

Additionally, Fitch said it believes that the seismic sector will remain weak in 2003 as commodity prices may likely return to mid-cycle-type levels. This would likely lead to upstream spending getting directed towards exploitation and development projects rather than exploration projects benefiting companies such as Veritas.

The negative outlook reflects the weak outlook for the seismic sector, Fitch added.

S&P withdraws Abraxas ratings

Standard & Poor's withdrew its ratings on Abraxas Petroleum Corp. including its $191 million 11.5% senior second lien notes due 2004 at CC and $63.5 million 12.875% first lien notes due 2003 at CCC-.

S&P cuts Sweetheart, on developing watch

Standard & Poor's downgraded Sweetheart Holdings Inc. and its affiliates and changed the CreditWatch to developing from stable. Ratings affected include Sweetheart's $110 million 10.5% subordinated notes due 2003 and The Fonda Group Inc.'s $120 million 9.5% senior subordinated notes due 2007, cut to CCC- from B-.

S&P said it lowered Sweetheart because of very weak credit measures, uncertainty regarding the company's ability to refinance a significant upcoming debt maturity, and the possibility of a distressed debt exchange.

Sweetheart has offered to exchange its $110 million senior subordinated notes due in September 2003 for notes with similar terms and conditions due in January 2007.

If the exchange is executed under the proposed terms, S&P said it will deem this a distressed exchange and will lower the corporate credit rating to SD (selective default) and the rating on the Sweetheart notes to D. Following a successful completion of the exchange offer, the corporate credit rating could be revised from SD to as high as B- to reflect the easing of refinancing pressures.

If Sweetheart is unable to exchange or refinance the existing notes, its $235 million bank credit facility, which is heavily drawn, will become due on March 1, 2003. If the exchange offer is unsuccessful and the company defaults on its bank debt, all the ratings would be lowered to D, S&P said.

Sweetheart is pursuing a number of strategic options including possible asset sales. If asset sale proceeds are used to reduce debt and maturities become more manageable, ratings could be raised.

The ratings reflect high debt levels and a below-average business position in the relatively low-margin manufacture and distribution of paper and plastic food service items, S&P said.

S&P cuts US Unwired

Standard & Poor's downgraded US Unwired Inc. and its wholly owned subsidiary IWO Holdings Inc. Ratings lowered include US Unwired Inc.'s $130 million secured bank loan, cut to CCC from B, $200 million senior subordinated discount notes due 2009, cut to CC from CCC+, IWO Holdings Inc.'s $160 million senior unsecured notes due 2010, cut to CC from CCC+, and Independent Wireless One Corp.'s $120 million senior secured term loan A, $50 million senior secured term loan B and $70 million senior secured revolving credit facility, cut to CCC from B. The ratings were removed from CreditWatch with negative implications and a negative outlook assigned.

S&P said it believes US Unwired is unlikely to meet the total debt to EBITDA covenant in the first half of 2003 under the US Unwired credit facility. A tightening minimum subscriber covenant under the IWO facility also could present a compliance problem in 2003.

The company may have difficulty renegotiating the covenants, given slowing growth from heavy competition and churn problems related to sub-prime customers, S&P said.

US Unwired generates roughly break-even EBITDA, but discretionary cash flow is negative, largely from considerable capital spending. Assuming heavy competition and economic uncertainty, the company's weak financial condition is likely to persist during the intermediate term, S&P said.

Despite adding more than 80,000 gross subscribers in the third quarter of 2002, heavy 4.7% monthly churn gave US Unwired anemic net subscriber growth of less than 1% on a sequential-quarter basis, S&P noted. The spike in churn from a still high 3.4% rate in the second quarter of 2002 was caused by termination of non-paying subscribers. Most of the churned customers were attributed to the no-deposit account spending limit program that US Unwired eliminated for new subscribers in its northern markets in September 2002, following reinstitution of deposits in the southern markets in early 2002.

Moody's cuts AES China

Moody's Investors Service downgraded AES China Generating Co. Ltd.'s notes to B1 from Ba3. The outlook remains negative.

Moody's said the action follows the downgrade of the senior unsecured rating of AES China's parent, AES Corp., to B3.

Moody's added that it expects the financial difficulties being experienced by AES may result in increased pressure on AES China to maximize its cash distributions to its parent or related entities. This in turn may reduce the overall cash reserves AES China may have in the coming years.

S&P rates MDM Bank notes B-

Standard & Poor's assigned a B- rating to the planned loan participation notes to be issued by, but without recourse to, Credit Suisse First Boston International to finance a loan to MDM Bank.

The credit risk of the notes wholly reflects the counterparty credit rating of MDM Bank (B-/stable), S&P said.

MDM Bank's ratings reflect its improved market position, achieved through expansion by acquisitions and organic growth, in the context of better prospects for macroeconomic stability in Russia, S&P said.

Negatives are the continued high risk inherent in the Russian economic and banking environment, as well as by the potential risks coming from the MDM group's expansion strategy, S&P added.

Moody's rates MDM Bank notes B1

Moody's Investors Service assigned a B1 rating to the planned loan participation notes to be issued by but without recourse to CSFB to finance a loan to OAO MDM Bank. The outlook is stable.

Moody's said that the rating is at the same level as MDM's B1 deposit rating, which reflects MDM's important role in Russia's banking system as one of the top 10 banking groups.

Moody's said the rating also reflects MDM's strong management team, which has successfully steered the group through the challenging market conditions of recent years, and which is in charge of the bank's franchise-strengthening expansion strategy via acquisitions of smaller banks.

A consistently strong financial performance and good asset quality also support the rating, Moody's added.

However, Moody's cautioned that the rating is constrained by Russia's still difficult and potentially volatile operating environment. Furthermore, MDM must comply with strict covenants in the loan agreement one of which requires the bank to maintain its consolidated Tier 1 capital adequacy ratio above 13%.

Fitch rates Alfa-Russia notes B

Fitch Ratings assigned a B rating to the $175 million of three-year senior unsecured notes issued by Alfa-Russia Finance BV and guaranteed by ABH Financial Ltd. and Open Joint Stock Company Alfa Bank.

Alfa Bank is one of the five largest banks in Russia by assets. The bank comprises both commercial and investment banking operations, with an emphasis on the corporate sector, but also has a growing retail business, Fitch said.

S&P says LSP Batesville unchanged

Standard & Poor's said LSP Batesville Funding Corp.'s B rating is not affected by the recent downgrade of Aquila Inc to BB from BBB- and the assignment of a negative outlook.

LSP Batesville has already been lowered to B and placed on CreditWatch with negative implications following the recent fall-out of the ratings on its parent, NRG Energy Inc., S&P noted.

S&P said the B rating is already indicative of a low speculative-grade credit quality and the downgrade of its 1/3 capacity off-taker, Aquila, will not further harm the project's rating.

S&P cuts Banco Comercial

Standard & Poor's downgraded Banco Comercial SA's $100 million 8.25% bonds due 2007 and $100 million 8.875% bonds due 2009 to D from CC.

S&P cuts Ancap

Standard & Poor's downgraded Ancap (Administracion Nacional de Combustibles Alcohol y Portland) including cutting its foreign-currency corporate credit rating to B- from B. The outlook is negative.

The rating action and outlook is in line with the recent downgrade on the sovereign, the Oriental Republic of Uruguay (B-/negative), S&P noted.

Ancap's credit quality is tightly linked to that of the Republic of Uruguay, its 100% owner. Therefore, Uruguay's financial system crisis, and unfavorable growth prospects will also affect Ancap, S&P said.

The risks inherent in operating as a single-asset refiner, as well as the company's limited upstream production, are also major rating factors, S&P added.

The company is currently undergoing the upgrade of La Teja refinery for a total cost of $120 million of which approximately 75% had been incurred as of June 30, 2002. To fund that investment, Ancap entered into a $115 million committed credit facility of which $50 million has already been drawn.

Under this facility, the fall from investment-grade of the rating of either Ancap or Uruguay allows lenders to ask for acceleration of the facility. After this trigger was activated in February following the downgrade of the sovereign and Ancap, the company has been negotiating with its lenders to obtain a waiver on this breach, S&P said.

S&P added that it expects that the company will continue to have the government's support in this negotiation and will be successful in obtaining a solution in the near term. However, S&P does not anticipate Ancap to be able to continue drawing down on the facility, requiring the company to look for alternative funding sources in a context of restricted credit availability.

S&P lowers TV Azteca outlook

Standard & Poor's lowered its outlook on TV Azteca SA de CV and Azteca Holdings SA de CV to stable from positive and confirmed TV Azteca's corporate credit rating at B+ and Azteca Holdings' corporate credit rating at B-.

S&P said the outlook revision reflects its view that despite moderate recent improvement in financial statistics Azteca now faces a number of challenges that will likely preclude an upgrade in the short to medium term.

These challenges include: refinancing of Azteca's holding debt, potential litigation risk, risks related to the Unefon investment, and risks for Azteca America SA de CV's growth, S&P said.

S&P added that it has concerns as to how the company will resolve Azteca Holdings' $150 million bond due in July 2003 and how this could affect TV Azteca's financial profile and financial flexibility.

EBITDA coverage of interest and total debt to EBITDA improved slightly to 3.1 times and 2.5x, respectively for the nine months as of September 2002, from 3.0x and 2.7x as of September 2001, S&P said. Taking into account Azteca Holdings' debt, total debt to EBITDA and EBITDA coverage of interest coverage were 3.1x and 2.7x, respectively for the 12 months ended September 2002.

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