S&P keeps Protection One on watch

Standard & Poor's said Protection One Alarm Monitoring Inc. remains on CreditWatch negative including its corporate credit at B.

S&P said the CreditWatch continues despite clarifications of directives issued by the Kansas Corporation Commission that contributed to the listing on Jan. 15. The CreditWatch listing continues because of the uncertain credit impact of the likely sale of Protection One by 88% owner Westar Energy Inc. (BB+/Developing).

Recent directives from the KCC conditionally authorized Westar Energy and its Westar Industries Inc. financing arm to perform their respective obligations to Protection One under a credit facility and tax-sharing agreement between the companies, S&P noted. Protection One has relied on Westar Industries, to provide funds through its senior credit facility as a primary source of liquidity. As part of the agreement, the borrowing capacity under the credit facility has been reduced to $228.4 million from $280 million. Westar was also authorized by the KCC to extend the maturity date of the facility to Jan. 5, 2005, from Jan. 4, 2004, but Westar has not yet extended the maturity. The KCC has stipulated that the facility must be paid off upon the sale of the company and that it reserves the right to impose a deadline for the sale.

Moody's rates TriMas loan B1, lowers outlook

Moody's Investors Service assigned a B1 rating to TriMas Corp.'s proposed $90 million increase to the its term loan B, lowered the outlook to negative from stable and confirmed its existing ratings including its $150 million senior secured revolving credit facility due 2007 at B1, $350 million term loan B, due 2009 at B1 and $438 million 9.875% senior subordinated notes due 2012 at B3.

Moody's said the negative outlook reflects its view that TriMas will be challenged in its ability to materially reduce leverage over the near term given the company's relatively weak operating performance and acquisition strategy.

The current ratings reflect the company's substantial leverage, minimal coverage of interest, weak balance sheet and limited operating liquidity as well as an aggressive acquisition strategy, the difficulties of integrating new businesses and the challenges that come from managing a large number of diverse businesses, Moody's said.

For the 12 months ended March 30, 2003, TriMas' leverage, on an adjusted basis, was high at just under 6.0x, and EBIT coverage of interest was weak at just over 1.0x, while tangible book equity is significantly negative when incorporating intangible assets in excess of $900 million, the rating agency said. In regards to liquidity, as of March 30, 2003, the company had about $30 million of cash on its balance sheet and borrowing capacity of approximately $33 million on a combined basis under its bank revolver and A/R securitization facility due in part to covenant restrictions. The company did however have about $116 million of additional borrowing capacity for potential acquisitions.

The ratings are supported by TriMas' diverse business mix, which should provide some stability to operating performance as business cycles vary between segments, the company's market share in various small niche markets where it has a dominant position, as well as its relatively good margins and continued focus on cost cutting initiatives, Moody's said. The company has identified significant downsizing opportunities to date and has consolidated several facilities to gain efficiencies while closing or selling under performing operations. The ratings confirmation also reflects Moody's expectation that the company will successfully complete its pending bank financing.

S&P rates Georgia-Pacific notes BB+

Standard & Poor's assigned a BB+ rating to Georgia-Pacific Corp.'s new $350 million 7.375% senior notes due 2008 and $150 million 8% senior notes due 2014 and confirmed its existing ratings including its senior unsecured debt at BB+ and the senior unsecured debt of Fort James Corp., James River Corp. of Virginia', Great Northern Nekoosa Corp. and G-P Canada Finance Co. at BB+. The outlook is negative.

S&P said the ratings reflect broad product diversity, with good market and cost positions in tissue, disposable tableware, and containerboard. This is offset by more cyclical building products, pulp, and paper operations; aggressive debt leverage; and manageable but rising asbestos-related outlays.

Conditions in many of Georgia-Pacific's markets have been negatively affected by the weak economy, as well as oversupply and poor pricing, S&P said. Recent results have suffered from costs associated with production downtime, competitive tissue market conditions, and higher energy and fiber costs, but administrative cost reductions are helping to offset rising pension and medical costs.

Although debt has been reduced with asset sale proceeds since the primarily debt-financed acquisition of Fort James Corp. in 2000, debt levels remain high ($11.9 billion as of March 31, 2003, excluding capitalized operating leases and unfunded postretirement obligations). Debt rose somewhat during the first quarter due primarily to an increase in working capital.

New asbestos claims filed during the first quarter exceeded management's expectations by 10% (the excess is due to higher unimpaired claims), which could increase settlement costs later this year, S&P added. However, the balance of claims outstanding declined slightly during the quarter as the number of settlements exceeded the number of new claims filed. Management currently estimates the company's asbestos liability through 2012 will total $1.2 billion, or $665 million net of anticipated insurance recoveries. The impact of potential federal legislation establishing an asbestos trust fund is uncertain at this time. However, the current ratings would not support a dramatic increase in near-term asbestos-related outlays.

S&P cuts Pioneer-Standard, rates loan B+

Standard & Poor's downgraded Pioneer-Standard Electronics Inc. including cutting its $150 million 8.5% senior notes due 2006 to B+ from BB-. The ratings were removed from CreditWatch negative and a stable outlook assigned. S&P assigned a B+ rating to the company's new $100 million senior unsecured revolving credit facility due 2006 and withdrew the B- rating on Pioneer Standard Financial Trust's $125 million convertible trust preferred securities.

S&P said the downgrade reflects Pioneer-Standard's narrower business base, the expectation of weak profitability measures in the near term and the expectation of a more acquisitive growth strategy.

In February, Pioneer-Standard sold its Industrial Electronics Division to Arrow Electronics, Inc. for net proceeds of approximately $265 million, S&P noted. The remaining business has a good position in the North American market. The computer systems distribution market is highly competitive and relatively low-value-added. In addition, Pioneer-Standard has significant supplier concentration. Economic and IT spending weakness is expected to continue in the near term, which will pressure revenues and make ongoing cost-reduction initiatives more challenging. EBITDA margins are expected to remain below 3.5% over the near term.

Proceeds from the sale of the components segment were used in part to reduce outstanding debt to $131 million, down from $294 million as of Dec. 31, 2002. While debt protection metrics will benefit from lower funded debt levels, total debt (including capitalized operating leases) to EBITDA is expected to be at par with the rating level - approximately 4x - in the near-to-intermediate term. Profitability and cash flow from operations are expected to be weak in the near term as Pioneer-Standard reduces costs to a level more appropriate for its diminished revenue base, S&P said.

S&P says Kerzner unchanged

Standard & Poor's said Kerzner International Hotels Ltd. is unchanged including its corporate credit at BB with a stable outlook on news that the company plans to spend $600 million to expand its Paradise Island resort.

Kerzner plans to fund this expansion with free cash flow and additional borrowings, S&P noted.

At March 31, 2003, operating lease-adjusted debt to EBITDA was about 3.3x and is expected to increase over the intermediate term until construction is completed at the end of 2006, S&P said. Still, the company is expected to generate modest discretionary cash flow in the next few years, which S&P anticipates will be available to fund approximately 45%-50% of the announced projects.

The heaviest spending associated with the announced projects will occur beyond 2004. S&P said it anticipates that debt leverage will peak in the mid-4x area. If operating conditions are weaker than expected, or if additional growth-oriented spending causes leverage to rise above these levels, the outlook and/or ratings could be revisited.

S&P rates Nova Chemicals notes BB+

Standard & Poor's assigned a BB+ rating to Nova Chemicals Corp.'s planned $200 million senior notes due 2011 and confirmed its existing ratings including its corporate credit at BB+. The outlook is positive.

S&P said the Nova's ratings reflect the firm's average business profile as a leading North American petrochemical producer with an improving liquidity profile, offset by subpar credit measures reflecting volatile industry conditions.

Nova recently announced that it would be selling its 37% stake in Methanex Corp. for proceeds of about US$460 million. In April, the company also renegotiated its bank facility, extending its term to three years and significantly relaxing financial covenants. Nova also has announced its intention to issue debt in capital markets to refinance a possible put on a US$150 million bond issue.

These measures, and the possibility of further asset sales, are expected to greatly increase the company's cash position, relieve previous concerns related to near-term debt maturities, and improve availability under its committed credit lines, S&P said.

As of March 31, 2003, Nova had total debt of US$1.7 billion, which included US$270 million of capitalized operating leases and US$163 million of securitized receivables, S&P said. Total debt to capital stood at 51% (68% if preferred securities are treated as debt). The 12-month rolling EBITDA coverage of interest and preferred dividends is about 2.3x. Although these ratios highlight the necessity to improve the financial profile, management initiatives to generate cash from noncore asset sales, and better business prospects are expected to accelerate efforts to restore the financial profile in the next couple of years.

Pro forma for the sale of NOVA's stake in Methanex, the key ratio of funds from operations to adjusted debt (net of cash), would be about 20% compared with the 25% level considered appropriate at the current ratings, S&P said.

The positive outlook highlights the increased possibility of a modest upgrade in the next several years, given Nova's improved liquidity, reduced debt maturities, and the expectation of a recovery in key business lines that should support further improvement to the financial profile, S&P added.

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