S&P cuts Briggs & Stratton to junk

Standard & Poor's downgraded Briggs & Stratton Corp. to junk, cutting its senior unsecured debt to BB+ from BBB-. The outlook is stable.

S&P also removed Briggs & Stratton from CreditWatch with negative implications where it was placed April 18 in response to operating performance and credit protection measures that were below the rating agency's expectations.

The downgrade reflects the company's weaker than expected credit measures following its 2001 acquisition of Generac Portable Products Inc., S&P said.

S&P also said it has increased concern that the company's financial performance and credit measures will not recover to or be sustained at levels appropriate for a low investment grade rating over the medium-term, despite some expected improvement in the fourth fiscal quarter. This concern is due to the increased volatility of engine volume growth and the impact of economic and weather conditions combined with existing high leverage.

S&P said Briggs & Stratton's market share continues to be strong, with an estimated 50% share of the worldwide market for three to 25 horsepower engines and the inclusion of its engines in more than 50% of all residential lawn mowers in North America.

"Still, the industry is mature and competitive, characterized by slow growth in its end markets and the increasing concentration of mass merchandisers," S&P said.

The 2001 Generac acquisition added volatility to the company's business profile because the purchase of generators and pressure washers are somewhat discretionary. Indeed, generator sales are generally tied to severe weather conditions, S&P noted.

While the acquisition provided Briggs & Stratton with two new product lines, as well as entry into the consumer end product market, the addition of $300 million of debt significantly increased leverage, S&P added.

S&P cuts Venture Holdings

Standard & Poor's downgraded Venture Holdings Co. LLC and kept the company on CreditWatch with negative implications. Ratings lowered include Venture's $205 million 9.5% senior notes due 2005 and $125 million 11% senior notes due 2007, both cut to CCC- from B, $125 million 12% senior subordinated notes due 2009, cut to CC from B-, and $100 million term loan A due 2004, $150 million term loan B due 2005 and $200 million revolving credit facility due 2004, all cut to CCC from B+.

S&P said the downgrade follows the insolvency filing of Venture's European subsidiary, Peguform GmbH.

According to news reports, Peguform's advisory board approved the insolvency filing due to the cancellation of its line of credit and its inability to pay suppliers, S&P said.

Peguform makes up the bulk of Venture's European operations, which generated about 70% of the company's sales during 2001. Venture's North American operations have struggled during the past few years due to reduced automotive production and pricing pressures, while the European operations have continued to perform adequately, S&P said.

The inability to access cash flows generated by Peguform will severely impair Venture's ability to meet its debt service obligations, S&P added.

In addition, Venture's liquidity position is unclear. Although a recent bank financing provided additional borrowing capacity under the company's revolving credit facility, access to the facility may be limited as a result of Peguform's insolvency filing.

Venture has $14 million of interest payments on its public bonds due June 3, S&P said.

S&P rates Fleming loan BB+, notes BB-

Standard & Poor's assigned a BB+ rating to Fleming Cos. Inc.'s proposed $950 million senior secured bank loan and a BB- rating to its proposed $200 million senior unsecured note issue due 2010. S&P also confirmed the existing ratings including Fleming's senior unsecured debt at BB-, subordinated debt at B+ and senior secured bank loan at BB+.

Proceeds from the bank loan and note offering, together with the issuance of eight million shares of common stock, will be used to fund the acquisition of Core-Mark International Inc. and to repay debt.

S&P said it ratings the bank facility one notch above the corporate credit rating, based on its belief that the security interest in the collateral offers reasonable prospects for full recovery of principal if a payment default were to occur.

Fleming's ratings are based on its position as one of the two largest food wholesalers in the U.S., positive operating trends and solid financial progress over the past two years, and the potential for an improved business position following the completion of its pending acquisition of Core-Mark International Inc., S&P said.

S&P said it believes Fleming's use of equity to help fund the acquisitions reflects management's intention to moderate its relatively aggressive financial policy. The new capital structure should improve debt leverage.

S&P said Fleming's ratings are supported by its operating progress, which provides some cushion to enable it to get through a period of adjustment related to the bankruptcy filing of Kmart Corp., its largest customer. Kmart accounted for about 20% of Fleming's $16 billion of revenues in fiscal 2001. Although Kmart is closing stores, the total impact on Fleming's earnings is expected to be modest.

Moreover, Fleming is gaining additional distribution business from new and existing customers, S&P said.

Further support is provided by Fleming's designation as a critical vendor for Kmart by the bankruptcy court, giving it priority in payment over other vendors; the expectation that Fleming will continue its supply contract with Kmart; and the belief that Kmart will emerge from bankruptcy.

Moody's rates Advanced Medical Optics loan B1; notes B3

Moody's Investors Service rated Advanced Medical Optics Inc.'s $40 million senior secured revolver due 2007 and $100 million senior secured term due 2008 at B1, $175 million senior subordinated notes due 2010 at B3, senior implied at B1 and senior unsecured at B2. The outlook is positive.

Advanced Medical is being spun-off from Allergan Inc. Proceeds from the loan and notes will be used to fund various payments to Allergen and refinance existing debt. After the spin-off, Advanced Medical will have debt/EBIDTA leverage of 3.8 times for pro-forma 2001 and EBIDTA/interest coverage of 2.9 times.

Ratings reflect the company's leading position in the market, well-recognized brand name, strong global distribution network, diversification of sales, moderately high leverage and modest coverage, lack of history as an independent company and high level of competition in the sector, Moody's said.

The positive outlook reflects the anticipation that the transition into an independent company will go smoothly, the expectation that sales will stabilize and improve modestly, the expectation that operating cash flow will be sufficient to fund capital expenditure and the likeliness that excess free cash flow will be used to reduce debt, Moody's said.

S&P rates AK Steel notes BB

Standard & Poor's assigned a BB rating to AK Steel Corp.'s planned $550 million senior unsecured notes due 2012 and confirmed its existing ratings on AK Steel Corp. and parent AK Steel Holding Corp. The outlook is stable.

The proposed notes will provide some interest cost savings and enhance AK Steel's debt maturity schedule, S&P said.

AK Steel Holding's ratings reflect its fair business position as a midsize, value-added, integrated steel maker with high exposure to the automotive market, low sensitivity to spot prices, and its burdensome legacy costs totaling $1.4 billion, S&P said.

The company benefits from having a higher value-added product mix than many of its peers, with only minimal exposure to commodity steel markets, S&P added. AK sells most of its product line to automakers and appliance customers demanding high quality and specification for their products. This focus on high-quality, high-margin steel insulates AK somewhat from the threat of low-cost minimills, which, although they have saturated the commodity steel segment, have trouble meeting the quality demanded by AK's customer base.

Approximately 75% of AK's steel shipments are under fixed-price contracts, but quantity is still subject to cyclical demand, S&P said. As a result of these contracts and the company's enhanced product mix, AK's financial performance is less volatile than its peers'.

"Recent tariffs implemented by the U.S. government's section 201 investigation have led to lower supply levels, enabling the industry to implement needed price increases. Because only 25% of AK's sales (mostly cold-rolled steel) are tied to the spot market, the company is expected to benefit only slightly from these price increases during 2002," S&P commented.

However it added that AK has benefited from very strong automotive sales in the past few years. Although the U.S. economy slowed significantly in 2001, automotive sales reached their second-highest level at about 17 million units. Currently, auto sales are tracking in excess of 16 million units for 2002, which is still relatively strong and above the 15.5 million-unit forecast. In addition, AK increased its market share with some automotive manufacturers when competing suppliers filed for bankruptcy.

S&P cuts Farmland

Standard & Poor's downgraded Farmland Industries Inc. including cutting its $100 million cumulative preferred shares to D from CCC- and its $350 million revolving credit facility due 2007 bank loan and $150 million term bank loan due 2004 to D from B.

S&P said the downgrade follows Farmland's filing for bankruptcy protection under Chapter 11.

The cooperative did not make the $10 million debt repayment under its $500 million senior secured bank credit facility due on May 31. In addition, the firm was not able to comply with several of the financial covenants related to cash reserves under the bank facility for the quarter ended May 31, S&P added.

S&P cuts CP Kelco outlook

Standard & Poor's lowered its outlook on CP Kelco ApS to negative from stable and confirmed its senior secured bank loan at B+.

S&P said the revision reflects concerns about CP Kelco's recent operating performance, which continues to perform below expectations as a result of sustained weakness in oilfield sales, lost customer accounts, and inventory reductions at key customers in the U.S. and Japan.

These issues have forestalled improvement to the firm's already sub-par credit statistics, and indicate that the improvements necessary to support the current ratings could take longer than previously anticipated, S&P said.

CP Kelco has a below-average business position and a very aggressive financial profile, S&P said.

Despite CP Kelco's well-entrenched and leading positions in its product lines, the firm is largely dependent on the ongoing success of a fairly limited group of products, S&P commented. The xanthan, pectin, and carrageenan markets total about $1.2 billion in global sales annually and are focused significantly on food applications.

Total debt (adjusted to capitalize operating leases) to EBITDA near 7 times, S&P added. Accordingly, management is expected to apply free cash from operations to debt reduction so that the key ratio of funds from operations to total debt, currently about 7%, will be improved and maintained in the 10%-15% range throughout the business cycle.

While the cash balance has declined to $9 million at March 31, 2002, the financial profile is aided by satisfactory availability under the revolving credit facility and the deferral of cash interest on the company's 11.875% notes held by Lehman Brothers until 2005, S&P said.

Fitch rates J.C. Penney's loan BB+, cuts notes, raises outlook

Fitch Ratings assigned a rating of BB+ to J.C. Penney Co. Inc.'s $1.5 billion secured credit facility. In addition, Fitch lowered J.C. Penney's senior unsecured notes to BB from BB+ and convertible subordinated notes to B+ from BB-, due to their subordinated position to the new bank loan. The rating outlook was changed to stable from negative.

The outlook change reflects the company's progress in turning around drugstore and department store operations and the expectation of improvement in profitability.

In 2001, EBITDAR coverage of interest plus rents increased to 1.7 times from 1.2 times in 2000 and leverage, as measured by lease-adjusted debt to EBITDAR, improved to 5.9 times from 7.8 times in 2000. Liquidity is strong with $2.3 billion of cash remaining after the repayment of $700 million of debt.

While these levels are weak for the rating category, Fitch said it expects them to strengthen over the medium term as profitability and cash flow improves. In addition, Penney's liquidity remains strong, with $2.3 billion of cash remaining after the recent repayment of a $700 million debt maturity.

S&P rates Advanced Medical Optics loan BB-; notes B

Standard & Poor's rates Advanced Medical Optics Inc.'s $40 million senior secured revolver due 2007 at BB-, $100 million senior secured term due 2008 at BB-, $175 million senior subordinated notes due 2010 at B and a corporate credit rating of BB-. The outlook is stable.

Negative influences on the ratings include, challenges faced as a newly independent company, uncertainty on execution of business plan and aggressive capital structure, S&P said.

Positive influences include, the company's "leading, high-technology product lines, solid cash flow, and experienced management," S&P said.

Advanced Medical will be formed by the June 2002 public spin-off from Allergan Inc. The company's aggressive capitalization, 79% pro forma year-end 2002 debt leverage and 3.3 times total debt to EBITDA, is expected to moderate by 2004 to the low-60% and mid-2 times areas, respectively, S&P said.

Moody's rates AK Steel notes B1

Moody's Investors Service confirmed the senior debt ratings of AK Steel Corp. at B1 as the company announced its proposed issuance of $550 million of senior notes to be guaranteed by parent AK Steel Holding Corp. The outlook remains negative. Moody's also confirmed the senior secured debt at Ba2 and AK Steel Holding Corp. series B $3.625 convertible preferred shares at B2.

Moody's said its confirmation reflect AK Steel's significant leverage; reduced interest coverage; and underfunded pension and retiree health care obligations.

Additionally, the company's return on assets, based on EBITA, weakened to about 2% for the four quarters ended March 31, from comparatively low rates of return in the mid-single digits during the prior two years, Moody's said.

AK Steel's operating margins have been negatively impacted by industry conditions that reduced its fixed asset turnover and average selling prices, although both improved in the first quarter 2002, the rating agency commented. Compounding its low overhead cost absorption was AK Steel's acceleration of a planned maintenance outage at its Middletown facility.

Prospectively, operating income may remain challenged by AK Steel's high proportion of fixed price sales contracts (comprising about 75% of total sales) that may limit its ability to fully realize the benefits of improving spot prices, Moody's said.

While the company's cash flow will benefit from several unusual gains in 2002, uses of cash are projected to be significant and include a likely increase in working capital needs to support projected higher shipments; scheduled debt service payments; payments for fees and call premiums on the refinanced debt; and modest acquisition costs associated with management's intention to expand coated steel product capacity by as much as one million tons, Moody's added.

In Moody's opinion, the likelihood that AK Steel may be obligated to make a significant cash payment in 2003 to fund up its pension plan is increasing. Of AK Steel's $1.74 billion pension and OPEB liabilities at year-end, $1.47 billion relate to OPEB.

S&P rates new Norske Skog loan BB+, upgrades notes

Standard & Poor's assigned a BB+ rating to Norske Skog Canada Ltd.'s C$350 million secured revolving operating credit facility due 2005 and upgraded Norske Skog Canada Ltd.'s $200 million 8.625% senior unsecured notes due 2011 to BB+ from BB and Pacifica Papers Inc.'s $200 million 10% notes due 2009 guaranteed by Norske Skog Canada Ltd. to BB+ from BB.

S&P cuts J Crew

Standard & Poor's downgraded J. Crew Group Inc. including lowering its $150 million 10.375% senior subordinated notes due 2007 and $75.254 million 13.125% senior discount debentures due 2008 to CCC from CCC+ and $70 million secured term loan due 2003 and $200 million secured revolving credit facility due 2003 to B- from B. The outlook remains negative.

S&P said the action was based on J. Crew's poor operating performance over the past 16 months and weakening credit protection measures.

J. Crew's same-store sales decreased 13.0% in the first quarter of 2002 and 15.5% in 2001, and its operating margin fell to 6.0% in the first quarter of 2002 from 6.5% in the first quarter of 2001 as well as to 12.3% in all of 2001 from 14.8% in 2000, S&P noted.

The poor operating performance has hurt credit protection measures. EBITDA coverage of interest fell to 1.4 times in the trailing four quarters ended May 4, 2002, from 1.5x in 2001 and 2.2x in 2000, S&P said.

Moreover, significant improvement in the near term is not expected due to the soft U.S. economy and the intensely competitive retail environment, S&P added.

S&P rates H&E notes B, loan BB

Standard & Poor's assigned a B rating to H & E Equipment Services LLC's new $200 million of senior secured notes and a BB rating to its proposed $150 million, five-year senior secured revolving credit facility and confirmed the company's BB- corporate credit rating. The outlook is stable.

S&P said H&E's reflect the company's position as a large provider of equipment rentals in the U.S., its geographic location in high growth markets, and customer diversity with some exposure to the cyclical construction and industrial markets, offset by its high debt leverage and aggressive financial policy.

H&E Equipment is being formed by the combination of two equipment rental companies, Head & Engquist Equipment L.L.C. and ICM Equipment Company L.L.C., both of which operate in contiguous geographical markets with a similar integrated rental operating model.

Demand for rental equipment slowed in fiscal 2001 with relatively flat sales, S&P said. The equipment rental industry will remain challenging for fiscal 2002, with near-term rental revenue growth rates expected to remain relatively flat, and potential for low- to mid-single digit growth in the second half of fiscal 2002.

The potential growth reflects the continued outsourcing trends and efforts by customers to reduce fixed-capital investments, and some recovery in the U.S. economy in the second half of fiscal 2002, S&P added.

H&E Equipment's balance sheet is leveraged, with total debt to EBITDA at 3.6 times and EBITDA to cash interest coverage of 2.7x on a pro forma basis, S&P said. Nevertheless, management has committed to deleveraging. Free cash flow from operations is expected to be positive in 2002.

S&P upgrades American Commercial

Standard & Poor's upgraded American Commercial Lines LLC's corporate credit rating to B- from SD on completion of the barge transportation company's acquisition by Danielson Holdings Corp. and financial restructuring.

S&P also confirmed ACL's secured bank facility at B and removed it from CreditWatch.

The ratings on ACL's 10.25% senior unsecured notes due 2008 were withdrawn after the notes were exchanged for a combination of $134.7 million of new unsecured notes due 2008 and $112.9 million of new subordinated notes due 2008, both of which are rated CCC. The outlook is stable.

S&P said the acquisition and restructuring modestly improved ACL's weak capital structure.

ACL's bank facility is rated higher than its corporate credit rating due to significant marine assets (barges and towboats), facilities, and other assets securing the facility. The value of this collateral provided reasonable confidence that principal will be fully recovered in a default scenario, S&P said.

ACL's ratings reflect the company's weak financial profile, onerous debt burden, and very limited financial flexibility due to limited revolver availability and lack of unencumbered assets, S&P added.

Poor weather conditions negatively affected earnings in 2000 and into 2001, and further deterioration is expected in 2002 due to the weak economy and lower margins, S&P said.

ACL's balance sheet is very weak, with a heavy debt load and negative book equity due to the recapitalization in 1998. The acquisition by DHC and recapitalization improved ACL's capital structure modestly, but the company's debt load will continue to be onerous, with total leased-adjusted debt to capital of more than 110% in 2002, S&P said.

Cash interest costs will likely decrease in 2002 due to lower debt levels, lower interest rates, and the new subordinated payment-in-kind notes. Cash generation is likely to continue to be weak due to poor earnings, with funds flow to debt of only 10%, S&P added.

S&P rates Buffets loan BB-, notes B

Standard & Poor's assigned a BB- rating to Buffets Inc.'s proposed $255 million senior secured bank loan and a B rating to its proposed $260 million senior subordinated notes due 2010.

Proceeds will be used to refinance $212 million of bank debt, redeem $97 million of mezzanine debt and make a $150 million distribution to Buffets Holdings, S&P said.

Buffets' ratings reflect the company's participation in the highly competitive restaurant industry, weak credit protection measures and a highly leveraged capital structure, S&P said.

Partially offsetting the negatives are Buffets' established position in the buffet segment of the restaurant industry and its history of stable operating performance.

The company has demonstrated a record of consistent operating performance, increasing sales very year since 1985, posting 19 consecutive quarters of positive same-store sales and maintaining stable operating margins of about 16.5% over the past several years, S&P noted.

In addition, the company is fairly recession-resistant based on its performance during this economic downturn and during the downturn of 1990 to 1991.

Buffets is highly leveraged due to a debt financed LBO in 2000. Pro forma for the new bank loan and subordinated notes, the company is even more leveraged, with total debt to EBITDA more than 4 times, S&P said. Cash flow protection measures, though weak, are adequate for the rating category, with EBITDA coverage of interest at about 2.5x and funds from operations to total debt at 12%.

Fitch cuts Farmland

Fitch Ratings lowered Farmland Industries' $500 million senior secured credit facility to DD from B-, its approximately $500 million of subordinated debt to D from CCC- and its $100 million of preferred stock to D and CC.

Fitch said the action follows Farmland's filing for protection under Chapter 11.

The one notch difference between the bank debt rating and the subordinated debt and preferred stock ratings reflect Fitch's expectation that recovery will be more significant for secured creditors relative to other creditors.

S&P rates JC Penney loan BBB-

Standard & Poor's assigned a BBB- rating to J.C. Penney Co. Inc.'s $1.5 billion senior secured bank facility, which expires in 2005 and confirmed J.C. Penney's BBB- long-term corporate credit rating. The outlook is negative.

The new facility replaces an existing $1.5 billion unsecured credit agreement that was due to expire later in 2002, S&P noted. Although the new loan is secured by all of the company's domestic department store and catalog inventories, under a liquidation scenario we do not see enough excess value to provide 100% recovery to lenders, the rating agency added.

Moreover, under a distressed enterprise value scenario, we believe there is not a material advantage to being secured because the value the Eckerd drug stores would not be included, S&P said.

Because of the company's strong liquidity, S&P said it does not believe that J.C. Penney will use the credit facility in the foreseeable future and, therefore, that there is no disadvantage to existing unsecured debt holders.

S&P affirms Freeport-McMoran Copper & Gold ratings

Standard & Poor's affirmed its ratings on Freeport-McMoran Copper & Gold Inc. and assigned a B rating to Freeport's $734 million in secured bank facilities. Ratings confirmed include Freeport's senior unsecured debt at B- and preferred stock at CCC.

The bank loan is rated the same as the company's corporate credit rating. To the extent a default scenario would occur, S&P believes it is highly uncertain whether the bank creditors would realize the value of their security interests.

The outlook reflects the expectation that the company will continue to face a difficult operating environment including considerable country risk but will meet the liquidity and debt maturity challenges it faces in the near future.

Moody's confirms Newfield Exploration ratings

Moody's confirmed Newfield Exploration's ratings, including its senior unsecured notes at Ba2 and convertible trust preferreds at Ba3, reflecting its pending purchase of EEX Corp. for roughly $640 million.

The outlook is stable.

Newfield hopes to justify the high price with subsequent volume upside in EEX's deepwater Gulf of Mexico plays, deep horizon shallow water GOM Treasure Island play and onshore Texas properties. NFX was also attracted to EEX's deepwater GOM seismic database, higher position on the deepwater GOM learning curve and onshore Texas team.

The ratings are supported by a history of sound funding and business strategies, acceptable leverage for the ratings as long as Newfield materially reduces effective debt in 12 months, larger reserve scale and diversification, attractive margins before funding and high reserve replacement costs and Newfield's ability so far to internally fund high reserve replacement costs with effective up-cycle hedging to bolster downcycle cash flow.

The ratings are restrained by Newfield's high total unit costs due to high three-year average reserve replacement costs of $10.45/boe and resulting reduced cash-on-cash returns, much higher effective debt burden on proven developed reserves ($5.25/boe), higher pro-forma unit interest and preferred dividend burden likely to exceed $2.25/boe, potentially significantly reduced pro-forma liquidity, financial and reinvestment risk attendant to a short PD reserve life (5 years), the potentially higher front-end costs, risks and lead times associated with NFX's move into deepwater GOM exploration and development activity, and ratings flexibility needed for additional strategic moves.

The ratings reflect the challenges and rising costs of building a North American exploration and production firm.

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