Moody's cuts Fleming

Moody's Investors Service downgraded Fleming Cos., Inc., affecting $2.3 billion of debt. Ratings lowered include Fleming's $975 million secured credit facility to Ba3 from Ba2, $355 million 10 1/8% senior notes due 2008 and $200 million 9¼% senior notes due 2010 to B2 from Ba3, $400 million 10 5/8% senior subordinated notes due 2007, $150 million 5¼% convertible senior subordinated notes due 2009 and $260 million 9 7/8% senior subordinated notes due 2012 to B3 from B2. The outlook is stable.

Moody's said it cut Fleming because it believes the company's national distribution presence does not provide the exceptional competitive advantage previously contemplated in our ratings and that the company's capital strength may be reduced with divestiture of its retail operations.

Incorporated in the ratings is an evaluation of Fleming's debt protection measures relative to similarly rated credits, the possibility that retail assets with a book value of about $600 million will be sold for less than book value, and the uncertainty related to resolution of the Kmart bankruptcy, Moody's said.

Directly, or indirectly through its customers, Fleming competes with respected retailers such as Wal-Mart, Target and the national supermarket chains, Moody's noted.

Also impacting Moody's views of the risks facing Fleming are the intense competition within the fragmented distribution industry, the necessity to continually replace clients lost in the consolidating supermarket industry, and the challenges in effectively integrating actual and anticipated distribution acquisitions.

However, Fleming benefits from stability as the only national grocery distributor, the potential leverage reduction resulting from divestiture of the retail segment, and the company's adequate liquidity, particularly given Moody's expectation that the company will improve working capital efficiency to historical norms and use excess cash for balance sheet improvement.

Moody's lowers Pilgrim's Pride outlook

Moody's Investors Service lowered its outlook on Pilgrim's Pride Corp. to negative from stable. Ratings affected include Pilgrim Pride's $200 million 9.625% senior unsecured notes due 2011 at Ba3. Moody's does not rate the company's $530 million senior secured credit facilities.

Moody's said it revised Pilgrim Pride's outlook because of the persistence of a challenging business environment and the company's still high financial leverage since its $285 million debt-funded acquisition of WLR Foods in January 2001.

U.S. poultry markets have remained weak since the acquisition and industry margins compressed., Moody's noted An oversupply of chicken, exacerbated this year by a Russian ban on imports from the U.S. (which only recently was lifted) has depressed fresh poultry prices.

Looking forward, feed costs are expected to increase due to lower grain harvests this year, and economic weakness could impact prepared food demand, Moody's added.

Pilgrim Pride's leverage remains high for its ratings level, Moody's said. Total debt at June 30, 2002 was $541 million (including $60 million of receivables sales as part of debt). Debt/Capitalization at the end of the fiscal third quarter on June 29, 2002 was 60%.

Moody's puts Broadwing on review

Moody's Investors Service put Broadwing Inc. on review for possible downgrade affecting $3.1 billion of debt and preferred securities. Ratings affected include Broadwing's $900 million revolving credit facility, $750 million term loan A, $450 million term loan B, $200 million term loan C and $50 million senior secured notes at Ba3, $400 million convertible subordinated debt at B2, $155 million 6.75% series B perpetual convertible preferred stock at B3, Broadwing Communications Inc.'s $46 million senior subordinated debt and $395 million 12.5% junior exchangeable preferred stock due 2009 at B3 and Cincinnati Bell Telephone Co.'s $150 million senior unsecured debentures and $140 million guaranteed medium term notes at Ba1.

Moody's said it began the review because it is concerned that Broadwing's funding needs, especially those of its broadband operations, will continue to challenge an already tight liquidity position that is exacerbated by amortization requirements and covenant compliance pressure.

Absent an amendment or refinancing event, Moody's said it believes the scheduled tightening in Broadwing's senior secured bank covenants may cause compliance pressure in 2002.

At the end of June 2002, Broadwing recorded liquidity of $221 million, comprising $23 million in cash and $198 available under its bank revolver, with availability under the bank revolver scheduled to reduce to $131 million by year-end 2002, Moody' said.

Broadwing's second quarter of 2002 senior secured debt leverage of 2.78 times compared to a covenant of 3.25 times. This covenant reduces to 3.0 times at the end of September 2002, resulting in considerable tightness, Moody's said.

Moody's cuts Venture Holdings

Moody's Investors Service downgraded Venture Holdings Co., LLC affecting $845 million of debt. Ratings lowered include Venture's $175 million guaranteed senior secured revolving credit facility maturing 2004, $75 million guaranteed senior secured term loan A maturing 2004 and $200 million guaranteed senior secured term loan B maturing 2005, cut to Caa1 from B2, $125 million 11% guaranteed senior notes due 2007 and $205 million 9.5% senior notes due 2005 cut to Caa3 from Caa1 and $125 million 12% guaranteed senior subordinated notes due 2009 cut to Ca from Caa2. The outlook is negative.

Moody's said the downgrade is in response to the decision by the German district court to start formal insolvency proceedings against German automobile parts producer Peguform, Venture's largest subsidiary.

Despite indications that significant progress had been made with negotiations among the company's bankers, customers, and possibly other constituents with regard to efforts to obtain the approximately €200 million of additional financing commitments determined by the temporary administrator to be necessary to extract the Peguform assets from insolvency, the company was unable to comply with the Sept. 30, 2002 deadline, Moody's noted. The institution of formal insolvency proceedings against Venture's largest subsidiary therefore occurred and has furthermore triggered an event of default under the company's U.S. senior secured bank credit agreement.

Acceleration of the bank debt would invariably result in bankruptcy proceedings for the company's U.S. operations.

Moody's said it expects that without a substantial reduction in bank outstandings the banks could not avoid acceleration in the absence of an indefinite deferral of the approximately $24 million of aggregate bond interest payments coming due in December 2002 and January 2003.

For these reasons, the ongoing prospects and viability for Venture remain extremely uncertain, Moody's said.

Moody's said it speculates that concerns about Venture's liquidity in Europe emanated from a significant mismatch between the company's U.S. debt service requirements and the existence of a substantial portion of the company's cash flow generation capabilities in Europe. This mismatch was created by the fact that all of the financing for Venture's May 1999 acquisition of Peguform was U.S.-based.

By virtue of this financing structure, it was necessary to repatriate a significant amount of cash from Venture's European operations on a steady basis. The degree to which repatriation was required was exacerbated during 2001 into early 2002, due to the particularly weak U.S. automotive production volumes in combination with the still strong European production volumes, Moody's continued. Peguform notably did not have any of its own funded debt, nor did it have any other material indebtedness other than accounts payable and accruals.

S&P puts Consolidated Container on watch

Standard & Poor's put Consolidated Container Co. LLC on CreditWatch with negative implications. Ratings affected include Consolidated Container's $185 million 10.125% senior subordinated notes due 2009 at CCC and $90 million revolving credit facility due 2005, $150 million term A loan due 2005 and $235 million term B loan due 2007 at B-.

S&P said the watch placement reflects heightened concerns about Consolidated Container's liquidity position (including tightening financial covenants and increasing debt maturities) in light of its ongoing operating challenges and more stringent credit standards.

Since the third quarter of 2001, Consolidated has faced severe operating challenges at its various plants, particularly in new product introductions for key customers, S&P said. In response, management has been implementing several restructuring measures aimed at reducing plant labor and repairs and maintenance costs, containing product quality related issues, and establishing unified information systems.

Although management's ongoing efforts towards an operational turnaround have led to some improvement in operating margins in the second quarter of 2002, lower-than-expected volume growth in key customer contracts and increasing raw material prices (plastic resins) have pressured Consolidated's financial performance, S&P said. Accordingly, EBITDA interest coverage is about 1.5 times and leverage remains very aggressive with total debt (adjusted for capitalized operating leases) to EBITDA at about 7x for the 12-month period ended June 30, 2002.

Under the company's credit agreement, which was amended through February 2003, $15 million of the revolving credit facilities mature on Jan. 5, 2003, and the company faces an interest payment on its 10.125% senior subordinated notes on Jan. 15, 2003, S&P said. The credit facility and the senior subordinated notes have cross-default provisions, and financial covenants under the amended credit agreement tighten considerably in the third and fourth quarter of 2002. Debt maturities increase significantly to about $48 million in 2003, and accelerate further in subsequent years. Consequently, the company's ability to satisfy ongoing debt service requirements is highly reliant on successfully negotiating an amendment with its lenders.

Fitch cuts Amerco

Fitch Ratings downgraded Amerco's senior unsecured debt to BB+ from BBB, preferred stock to BB- from BBB- and commercial paper ratings to B from F2 and kept them on Rating Watch Negative. Fitch also assigned a BB+ rating to Amerco's proposed $275 million senior unsecured notes due 2009.

Fitch said the watch reflects a significant level of debt refinancing requirement over the near term, including a $100 million maturity due Oct. 15, 2002.

The rating actions were based on a combination of weaker operating performance in Amerco's consolidated businesses, which has caused leverage to rise, heighten refinance risk introduced through terms of its new bank revolving credit facility, the and managerial issues, including concerns regarding corporate governance, Fitch said.

Inconsistency has been the hallmark of Amerco's last two fiscal years, Fitch said. Amerco's earnings declined sharply from the levels reported in 2000 due to issues at the company's Republic Western Insurance Co. unit. Aside from the operating issues facing Amerco, changes in financial statement reporting, weaknesses cited in internal controls, lukewarm response by the banking community to Amerco's effort to refinance its revolver, and the firing of its long-time auditors contributed to the inconsistency.

While it appears that most of the changes are completed, management will need to put together a string of good clean quarters to help restore market confidence, Fitch said.

Storage Acquisition Corp.'s debt is non-recourse to Amerco and not included in the calculation of the company debt covenants. However, Mark Shoen, who owns 15.6% of Amerco's common equity, is the sole owner of Storage Acquisition. Therefore, Fitch believes that Amerco would provide some level of support in the event Storage Acquisition encounters some difficulties. Management recently indicated that no significant future transactions are expected between Storage Acquisition and Amerco and plans to separate the two companies are being contemplated.

The addition of Storage Acquisition has increased Amerco's balance sheet footings at March 31, 2002. Storage Acquisition and its subsidiaries added $558 million of debt and an equity deficit of $20 million to Amerco's balance sheet at March 31, 2002. As a result, Amerco's leverage, including off-balance sheet leases and Storage Acquisition debt, stood at 4.14 times at March 31, 2002.

S&P rates Massey Energy loan BBB-, puts existing notes on watch

Standard & Poor's assigned a BBB- rating to Massey Energy Co.'s proposed $525 million of senior secured bank loans to replace its existing $400 million of unsecured revolving credit facilities. S&P also put Massey Energy's $300 million 6.95% senior unsecured notes due March 2007 rated BBB- on CreditWatch with negative implications.

S&P said the watch placement on the notes reflects their potential disadvantaged position in the capital structure due to security to be granted under the proposed bank facility.

S&P noted that specific assets secure the new bank facility. Although the collateral includes high quality accounts receivables and inventories, which should realize substantial recovery, S&P said it expects that the remaining collateral will incur substantial devaluation in a default scenario. In addition, strategic assets, including land, coal reserves, and mining permits, which are among the most valuable assets, are not part of the collateral. S&P said that in the event of a default or bankruptcy, the secured debt holders are unlikely to receive full compensation but can be expected to recover a substantial amount of principal - at least 80%, assuming a fully drawn bank facility.

Massey's ratings reflect its substantial, quality coal deposits, contracted production, and high costs. With primarily all of Massey's 2.1 billion tons of reserves located in the Central Appalachia region, the company benefits from this region's high-BTU (British Thermal Units), low-sulfur, and substantial metallurgical coal deposits. Relative to its peers, Massey's reserves contain a higher percentage (41%) of metallurgical coal deposits, which usually receive a higher premium versus steam coal (preferred by electric utilities), given its favorable properties.

Nevertheless, Massey's productivity measures continue to be constrained by its limited use of the efficient longwall mining method, environmental regulations, and ongoing permitting issues, S&P said. In addition, Massey's average cash cost position has meaningfully increased, heightening Massey's vulnerability to industry cycles. Indeed, cash costs, which were $20.39 per ton during fiscal year ending Oct. 31, 1999, significantly increased to $30.39 per ton during the two month November-December 2001 "stub" period. Much of the increase in costs was tied to one-time events such as flooding, a slurry spill in Martin County, difficult longwall moves, and training/inefficiency issues associated with new employees.

Massey's financial performance, during the six months ended June 2002 was weak, S&P said. Particularly, funds from operations (annualized) to total debt and EBITDA (adjusted for charges) to interest ratios of 20% and 4.3x., respectively. However, expected reductions in debt should return these measures to levels indicative of its ratings at 30% and 5x respectively.

S&P cuts Samsonite, on watch

Standard & Poor's downgraded Samsonite Corp. and put it on CreditWatch with negative implications. Ratings affected include Samsonite's $100 million domestic term loan due 2005, $50 million foreign term loan due 2003 and $100 million revolving credit facility due 2003, cut to B- from B, $350 million 10.75% senior subordinated notes due 2008, cut to CCC from CCC+, and $175 million redeemable exchangeable preferred stock, cut to CCC- from CCC.

S&P said its actions are in response to heightened concern about Samsonite's ability to improve its financial profile now that Artemis SA, which currently owns approximately 30% of Samsonite's common stock, has withdrawn its proposal to participate in a deleveraging transaction of the company.

In addition, S&P said it remains concerned about Samsonite's ability to improve its cash flows sufficiently in order to meet its upcoming financial obligations, including interest payments on its subordinated debt and future debt maturities, as well as expected required pension plan contributions.

In addition, the company has a large layer of preferred stock that accretes at 13.875% and becomes cash pay after June 15, 2003, otherwise the dividend rate will increase by 2%, S&P said. This factor has created a growing liability on Samsonite's balance sheet with the need to make cash payment of dividends putting additional pressure on future cash flow coverage measures.

Moody's cuts AMD outlook

Moody's Investors Service lowered its outlook on Advanced Micro Devices, Inc. to negative from stable. Ratings affected include AMD's senior implied rating of B2.

Moody's said the action follows AMD's announcement of significantly lower than expected revenues and a substantial loss for the third quarter.

With cash flow from operations less capital expenditures in the first half of the year of negative $268 million; over $400 million of planned capital expenditures in the second half of the year, significant revenue and earnings weakness in the third quarter; and no signs of market strengthening over the near term, the negative outlook reflects concerns that liquidity will be further pressured, Moody's said.

At June 2002, AMD had $1.1 billion of cash and marketable securities. Debt maturities relating to its microprocessor facility in Dresden, Germany (Fab 30) approximate $100 million in the rest of calendar 2002 and $216 million in calendar 2003. The company had $75 million outstanding under a $200 million secured revolving credit facility that matures July 2003. AMD's $500 million senior convertible note (with a $23.38 conversion price relative to its current stock price of around $4) does not have its first put date until 2009, Moody's noted.

The prior stable outlook had anticipated weak demand in the personal computer sector as well as intense microprocessor price competition from Intel, which would contribute to near term losses for AMD, Moody's added. These trends, however, have been more severe than expected.

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