S&P lowers Calpine outlook

Standard & Poor's lowered its outlook on Calpine Corp. to negative from stable. Ratings affected include Calpine's secured bank loans at BBB-, secured lessor notes at BB, senior unsecured debt at B+ and preferred stock at B.

S&P said it revised Calpine's outlook in response to erosion in the capital and bank markets for refinancings and Calpine's $5.5 billion refinancing requirement over the next two years.

Recently, investment-grade and speculative-grade companies in the energy sector have encountered difficulties in refinancing bank loans and other maturities coming due; credit spreads have dramatically increased and banks are also requiring cash sweeps and prepayment provisions, S&P said.

The current investment climate foreshadows a difficult refinancing for Calpine's coming maturities and Calpine has insufficient cash flow to retire the debt with internal cash flow, the rating agency added.

Additionally, the refinanced debt may be at higher interest rates, which could place negative pressure on Calpine's credit profile, S&P said.

But despite difficult market conditions, S&P noted that Calpine has successfully raised $3.0 billion of new capital so far in 2002.

Moody's rates Dex Media East loan Ba3, notes B2, B3

Moody's Investors Service assigned a B1 rating to Dex Media East LLC's planned $1.49 billion senior secured credit facility, a B2 rating to its planned $350 million senior unsecured notes due 2009 and a B3 rating to its planned $700 million senior subordinated notes due 2012. The outlook is stable.

Proceeds from the offering will be used to fund the purchase of Dex Media East LLC by sponsors Welsh, Carson, Anderson & Stowe and The Carlyle Group.

Moody's said the ratings reflect high pro-forma financial leverage and low coverage of interest expense relative to the ratings category. Total pro-forma debt well exceeds revenue, adjusted EBITDA less capital expenditures covers pro-forma interest expense less than two times and free cash flow is less than 10% of total debt.

The ratings also reflect Dex Media East LLC's strained balance sheet, notably the absence of tangible equity, Moody's added.

Moody's said the strained financial metrics exacerbate business risks arising from operating as a stand-alone entity and separation of the operations into East and West businesses.

Positives include Dex Media East's market leadership, the advantages of its incumbent position, and the predictability of its cash flow, Moody's added.

Moody's expects the quality of earnings and assets should remain good throughout at least the intermediate term, given the recession-resistant nature of the industry, the company's relatively low operating cost structure, minimal credit losses, and acceptable account churn rates relative to the competition.

Moody's rates Wynn Resorts notes B3, loan B2

Moody's Investors Service assigned a B3 rating to Wynn Resorts Las Vegas, LLC's planned $340 million second mortgage notes due 2010 and a B2 rating to its $750 million revolving credit facility due 2008 and $250 million delayed draw term loan due 2009. The outlook is stable.

The ratings are subject to the successful completion of a $450 million initial public offering.

Approximately $375 million of the IPO proceeds combined with a $1 billion secured bank credit facility, $340 million second mortgage notes and a $188.5 million furniture, fixtures and equipment financing will be used to construct the Le Reve project on the north end of the Las Vegas Strip, Moody's noted. Approximately $40 million of the IPO proceeds will be used to develop a casino resort in Macau through an unrestricted subsidiary.

Moody's said its ratings incorporate the construction, development and ramp-up risks associated with the $2.4 billion casino project that will take approximately 30 months to complete, and in many respects, be larger and more costly than any Las Vegas mega-resort built so far.

While there are certain protections in place to mitigate potential problems associated with construction and development, a portion of the project will not be subject to a guaranteed maximum price construction contract, and only about 80% of the drawings will be complete by the time the proposed IPO is expected to close, Moody's said.

Other risks include Le Reve's single asset profile, significant reliance on destination travel and high-end gaming, and ability to achieve the projected return on investment, Moody's said. While many of the Las Vegas mega-resorts generate a significant level of annual cash flow, many of those same projects have not achieved the returns originally anticipated.

Positive factors include the significant equity component of the project and Steve Wynn's reputation as a developer of high quality must-see casino resort properties, Moody's said. Also helping the ratings is Las Vegas' position as a primary destination resort.

S&P changes Vivendi watch to developing

Standard & Poor's changed its CreditWatch on Vivendi Univeral SA to developing from negative. Ratings affected include Vivendi's bonds, convertible and exchangeable bonds and bank debt at B+, Houghton Mifflin Co.'s notes at B+, Seagram Co. Ltd.'s debentures, notes, bonds and adjustable conversion rate equity security units at B+ and Joseph E. Seagram & Sons Inc.'s debentures, bonds, senior notes and senior quarterly income debt securities at B+.

S&P said the change is in response to news that Vivendi has reached an agreement with two international banks to refinance the $1.62 billion bridge loan at its U.S. media subsidiary Vivendi Universal Entertainment with a new secured bridge loan for the same amount, maturing in June 2003.

Although liquidity will remain tight over the next 18 months, S&P said it believes that the group has overcome most of its near-term refinancing challenges.

Completion of management's asset-disposal program and enhanced cash flow generation will be key for a gradual strengthening of Vivendi's financial flexibility, but existing cash balances and available credit lines are deemed sufficient over the intermediate term, S&P added.

Moody's cuts Stagecoach to junk

Moody's Investors Service downgraded Stagecoach Group plc to junk, affecting $894.3 million of debt. Ratings lowered include Stagecoach's $500 million 8.625% senior unsecured notes due 2009 and €400 million 6% senior unsecured notes due 2004 to Ba1 from Baa3. The outlook is negative.

Moody's said it lowered Stagecoach because the company's actual performance has weakened and Moody's expects that the under-performance of Stagecoach's subsidiary Coach USA will continue.

Further goodwill charge-offs in the near term may reduce net worth to the extent that covenant headroom in Stagecoach's bank loan facilities are reduced to levels that impact financial flexibility, Moody's added.

Operating cash flow generated from Stagecoach's U.S. subsidiary Coach is considerably below Moody's expectations as a result of significantly lower-than-anticipated revenues. Furthermore, the subsidiary's future prospects remain uncertain, with revenues continuing to be negatively affected by the poor state of the U.S. coach and bus market.

Coach is currently subject to a high-level review by Stagecoach management. Moody's said it believes that Stagecoach will scale back its commitment to the U.S. market through either sales and/or further closures of businesses, which could result in further restructuring charges.

Prospects for the U.K. rail division, another important contributor to group operating cash flow, have also become more uncertain, Moody's said. Given that the Strategic Rail Authority is now looking to renew train operating company franchises on shorter terms, it is unlikely that Stagecoach's subsidiary South West Trains will obtain a new 20-year franchise. Although SWT is expected to be awarded a shorter franchise, this would be subject to negotiation and there remains the possibility that SWT and the SRA will fail to agree on new terms, and that the existing franchise will expire without renewal.

Moody's upgrades Clondalkin

Moody's Investors Service upgraded Clondalkin Industries plc, affecting €425 million of debt. Ratings raised include Clondalkin's €125 million 10.625% senior notes due 2010, upgraded to B2 from B3, and €300 million senior secured credit facilities (at Edgemead Ltd.) to Ba3 from B1. The outlook is stable.

Moody's said the upgrade reflects Clondalkin's strong performance track record to date and the company's demonstrated ability to grow internally generated cash flows and substantially de-leverage the business (in large part through term debt prepayments).

For the 12 months ended June 30, 2002, the company reported net debt/EBITDA (excluding subordinated PIK shareholder loans) of approximately 3.7x, compared to 4.3x for fiscal 2001 and approximately 5.3x at the time of the initial rating assignment in January 2000, Moody's noted. EBITDA/net cash interest expense was approximately 2.6x for the 12 months ended June 30, 2002.

To date, the company has repaid approximately €84.0 million in term debt, compared to approximately €58.4 million in required amortization under the terms of the senior secured credit facilities, Moody's said.

In addition, the company has repaid all outstandings under its €35.0 million revolving credit facility, which has remained undrawn and fully available since the end of 2000.

Fitch cuts TXU Europe

Fitch Ratings downgraded TXU Europe Ltd., cutting its senior unsecured debt to C from CCC. The ratings remain on Rating Watch Negative.

Fitch said the action follows confirmation that TXU Europe has failed to make a coupon payment due Oct. 15 on Energy Group Overseas BV's $200 million 7.425% bonds guaranteed by TXU Europe Ltd. As a result of this non-payment, a cure period of 30 days has commenced.

S&P cuts Atlas Air, on watch

Standard & Poor's downgraded Atlas Air Worldwide Holdings Inc. and put it on CreditWatch with negative implications. Ratings lowered include Atlas Air, Inc.'s $150 million 10.75% senior notes due 2005 and $150 million 9.375% senior notes due 2006, cut to CCC+ from B-, $300.254 million 7.38% passthrough series 1998-1A due 2018, cut to BBB+ from A+, $115.481 million 7.68% passthrough series 1998-1B due 2014, cut to BB from BBB, $123.18 million 8.01% passthrough series 1998-1C due 2010, cut to BB- from BB, $268.208 million 7.2% Class A-1 passthrough series 1999-1 due 2019, cut to BBB+ from A+, $43.544 million 6.88% Class A-2 passthrough series 1999-1 due 2009, cut to BBB+ from AA-, $111.91 million 7.63% Class B passthrough series 1999-1 due 2015, cut to BBB from BBB+, $119.904 million 8.77% Class C passthrough series 1999-1 due 2011, cut to BB- from BB, $124.639 million 8.707% passthrough series 2000-1 A due 2020, cut to A- from AA-, $44.741 million 9.057% class B passthrough series 2000-1 due 2016, cut to BBB- from A- and $47.937 million 9.702% class C passthrough series 2000-1 due 2010, cut to BB from BB+.

S&P said it lowered Atlas Air because of concerns about the company's near-term liquidity position.

The rating actions on the passthrough certificates reflect a deterioration in the value of Boeing 747-400 freighter aircraft, the collateral for the securities.

Atlas announced on Oct. 16 that it is initiating a re-audit of its financial results for 2000 and 2001, following a determination that certain adjustments must be made to prior year results, S&P noted. The restatement of financial results may affect compliance with covenants in financial agreements, creating even more pressure on an already constrained liquidity position in the near term.

Atlas has stated that a definitive test of financial covenants will require completion of the re-audit, which is not expected before early 2003, S&P added. As a result of the re-audit, the company expects to delay the filing of its third-quarter 2002 Form 10-Q.

Atlas has stated that adjustments will be required in the areas of inventory obsolescence, maintenance expense, and allowance for bad debt and that, on a preliminary basis, it believes the cumulative impact through 2001 will reduce after-tax income by roughly $60 million to $65 million and increase year-to-date 2002 net income by $5 million to $10 million, S&P said. Atlas reported a loss of $61 million in 2001.

Although Atlas was in compliance with covenants as of June 30, 2002, S&P said it had already expected that covenant compliance would have been tight through the rest of 2002 and that the company would have had to amend covenants for 2003 and beyond. The company's Oct. 16 announcement is likely to make bank negotiations more challenging.

Moody's cuts TXU Europe

Moody's Investors Service downgraded TXU Europe Ltd. Ratings lowered include TXU Europe's senior unsecured debt, cut to Ca from Caa2, TXU Europe Capital I's preferred stock, cut to C from Caa3, and Energy Group Overseas BV's senior unsecured debt, cut to Ca from Caa2.

Moody's said the downgrade follows TXU Europe's failure to make the Oct. 16 scheduled interest payment on its $200 million bonds due 2017.

While TXU Europe has a 30 day grace period to make the payment, Moody's definition of default includes missed or delayed disbursement of interest and/or principal, including delayed payments made within a grace period.

Moody's cuts TXU Europe Funding

Moody's Investors Service downgraded TXU Europe Funding Ltd.'s €500 million secured 7% notes due 2005 to Ca from Caa2.

Moody's said the action follows the downgrade of the underlying bonds issued by TXU Eastern Funding Co. (rated Ca), which are unconditionally and irrevocably guaranteed by TXU Europe Ltd., also rated Ca.

Moody's cuts Allmerica

Moody's Investors Service downgraded Allmerica Financial Corp. and kept them on review with an uncertain direction, affecting $700 million of debt. Ratings lowered include Allmerica's senior debt, cut to B2 from Ba1.

Moody's said it downgraded Allmerica because of heightened concerns about the low level of statutory capital at its life insurance companies.

Given the sharp drop in the equity markets in the third quarter of 2002, Moody's said it expects a significant increase in the guaranteed minimum death benefit (GMDB) reserve on the life companies' statutory balance sheets, particularly at AFLIAC.

Since Moody's does not believe any new capital will be injected into the life operations from Allmerica, it expects the combined statutory capital position of FAFLIC and AFLIAC will be significantly diminished as of Sept. 30, 2002.

Moody's downgraded the senior debt rating of the holding company Allmerica Financial because of the linkage between the credit profile of the life subsidiaries and Allmerica. Under Allmerica's bond indenture, a court approved regulatory receivorship or conservatorship taken with regard to a "restricted subsidiary", which includes AFLIAC and FAFLIC, after 90 days would prompt a technical default of the bonds leading to an acceleration of the debt. Thus, Moody's views the possible default risk of the life insurers and their holding company to be highly correlated.

S&P says Peabody unchanged

Standard & Poor's said its assessment of Peabody Energy Corp. at a BB corporate credit rating with a stable outlook after the company's third quarter earnings report.

Despite another downward revision of projected EBITDA for 2002 to between $420 million and $435 million, credit protection measures are expected to be in line for the rating category, S&P said.

Based on the revised EBITDA measure, the EBITDA to interest ratio should approximate 4 times to 4.5x for 2002.

The company's limited exposure to soft spot market conditions has enabled Peabody to maintain financial performance indicative of its current rating, S&P said. Still, concerns remain about the tumultuous power generation market, uncertainties surrounding the eastern coal market, and the direction of coal prices.

S&P puts MTS on positive watch

Standard & Poor's revised its CreditWatch on MTS Inc. to positive from developing. Ratings affected include MTS' $100 million 9.375% senior subordinated notes due 2005 at CC and its $225 million revolving credit facility due 2002 at CCC.

S&P said the revision is in response to MTS' completion of the sale of its Japanese operations and simultaneous refinancing of its credit facility.

The transactions eliminated the substantial near-term liquidity issues facing MTS and strengthened its balance sheet and lengthened debt maturities until 2005, S&P said. Ratings could be raised following a review with MTS's management of the company's financing and operating strategies and liquidity availability for the holiday season.

S&P keeps Crown Cork & Seal on watch

Standard & Poor's said Crown Cork & Seal Co. Inc. remains on CreditWatch with negative implications where they were placed on Nov. 13, 2001. Ratings affected include Crown Cork & Seal's senior unsecured debt at CCC.

S&P said the watch placement reflected significant concerns regarding the company's refinancing risks and these concerns continue.

Although Crown has taken several steps to alleviate near-term debt maturities, including selling some non-core assets and performing equity for debt swaps, it has yet to successfully complete the more significant action of spinning off its Constar International Inc. subsidiary, S&P said. The proposed transaction is a key component in Crown's reducing its exposure to bank lenders.

Crown is again seeking an IPO for Constar after initial attempts in July 2002 failed due to volatility in the equity market, S&P noted, but add that it is concerned that persistent volatility in the equity market may continue to impede Crown's efforts to complete the spin-off and refinance its onerous debt maturity schedule, specifically its $2.5 billion senior secured revolving credit facility due December 2003.

Should the proposed transaction be completed as planned, S&P said it will likely remove the ratings from CreditWatch. However, if Crown is unsuccessful in completing this transaction by the end of 2002, existing ratings on Crown could be lowered to reflect the high likelihood that it may be unable to meet its upcoming debt maturities.

S&P takes Holley Performance off watch

Standard & Poor's removed Holley Performance Products Inc. from CreditWatch with negative implications, confirmed its ratings and assigned a negative outlook. Ratings affected include Holley Performance's $25 million revolving credit facility due 2007 at CCC+ and $150 million 12.25% senior notes due 2007 at CCC-.

S&P said its action follows Holley Performance's payment of interest on its 12.25% senior notes that was due Sept. 15, 2002.

Holley was able to make the interest payment after receiving a $15 million cash infusion from its ultimate parent, an affiliate of a fund managed by Kohlberg & Co. LLC, S&P noted. The investment was in the form of $7.5 million of senior unsecured debt, which ranks pari passu with the senior notes, and $7.5 million of convertible preferred stock. Holley also received approval from its senior noteholders to amend the terms of the bond indenture to permit the company to incur additional indebtedness, up to $45 million.

After receiving the investment proceeds and making the interest payment, Holley has more than $8 million of availability under its loan agreement.

The ratings reflect Holley's still very weak financial profile, liquidity constraints, and poor operating performance, which more than offset its leading, niche positions in the automotive aftermarket, S&P said.

S&P warned that failure to improve operating results, increase cash flow generation and reduce debt leverage could result in increased financial stress and a downgrade.

S&P cuts Advanced Lighting

Standard & Poor's downgraded Advanced Lighting Technologies Inc. Ratings lowered include Advanced Lighting's $100 million 8% senior notes due 2008, cut to D from CCC-, and its $50 million credit facility, cut to CCC from CCC+.

S&P said the action follows Advanced Lighting's failure to make its $4 million interest payment on its 8% senior notes within the 30-day grace period.

The downgrade of the senior secured rating reflects Advanced Lighting's weakened financial position and the increased risk that the company could declare bankruptcy, S&P said.

Advance Lighting's auditors have included in the company's financial statements language about the uncertainty of its ability to continue as a going concern. Advanced Lighting is in discussions with its lenders and noteholders to address the company's failure to make its bond interest payment, the technical default under the credit facility, and its going concern issues, S&P added.

S&P puts Massey Energy on watch

Standard & Poor's put Massey Energy Co. on CreditWatch with negative implications. Ratings affected include Massey Energy's $250 million unsecured revolving credit facility due 2003, $150 million 364-day unsecured revolving credit facility, $250 million revolving credit facility due 2005 and $275 million term loan B due 2006, all at BBB-. The $300 million of senior unsecured notes at BBB- remain on CreditWatch with negative implications.

S&P said the action follows Massey Energy's unsuccessful attempt to replace its existing $400 million of unsecured bank credit facilities with a new $525 million bank facility.

The inability to refinance the facilities was largely due to potential lenders' concerns about Massey's exposure to the recent turmoil in the power generating and electric utility industry, S&P said.

The CreditWatch placement reflected the uncertainties surrounding Massey's current negotiations with its bank group to extend the Nov. 26 maturity on its existing 364-day $150 million unsecured bank facility, S&P added.

If Massey is unsuccessful in its attempt to extend this facility for another 364 days and has to invoke the facility's one-year term-out feature, this will be considered an erosion of existing bank support and financial flexibility, and would result in a downgrade, S&P added. Moreover, lack of bank support and access to capital markets, would impair the company's ability to refinance $285 million currently outstanding under its 364-day and three-year $250 million facilities that mature November 2003.

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