Moody's raises Dade Behring outlook

Moody's Investors Service raised its outlook on Dade Behring, Inc. to positive from stable including its senior secured revolving credit facility due 2007 and senior secured term loan due 2008 at B1 and 11.91% senior secured global notes due 2010 at B3.

Moody's said that since emerging from bankruptcy in October 2002 Dade Behring's financial performance has improved considerably. The rating agency said it believes that further improvements are likely, given that the company has not only maintained but also expanded its franchise and that prospects for its new products appear bright.

The positive rating outlook reflects Moody's belief that Dade will continue to reduce debt as improving prospects, greater operating efficiency and a reduced debt burden generate moderately growing free cash flow.

Contrary to Moody's fears, despite its recent bankruptcy, Dade has managed to increase its installed base of instruments without interruption. It has also successfully introduced its StreamLab instrument, which has enabled it to take a more substantial position in the high-volume in vitro diagnostic test market.

Future product introductions promise to help the company capitalize on its progress. By automating routine tasks, Dade's instruments help labs to minimize both labor costs and human mistakes. Dade should therefore be able to capitalize on industry trends favoring improved cost control and operator efficiency.

Since emerging from bankruptcy, Dade's financial performance has improved and Moody's said it believes the trend is likely to continue. A combination of better gross profit margins and lower interest expense, coupled with much reduced debt levels, has significantly enhanced the company's credit profile and should continue to do so for the next year to 18 months. Moody's expects rent-adjusted debt/EBITDAR to fall to about 3.0x and EBITDAR/interest expense + dividends + rent to rise to about 3.0x over the rating horizon.

S&P rates Bio-Rad notes BB-

Standard & Poor's assigned a BB- rating to Bio-Rad Laboratories Inc.'s new $200 million senior subordinated debentures due 2013 and confirmed its existing ratings including its senior secured debt at BBB-. The outlook is stable.

S&P said the rating reflects Bio-Rad's history of using significant debt-financed acquisitions to supplement growth and its defensible, but niche, positions in the life-science and clinical laboratory markets.

During the past three years, overall sales have almost doubled, S&P noted. Its solid positions in each market reflect longstanding customer relationships and its history of successful product introduction. In the life sciences markets, it has particular strengths in electrophoresis and gene transfer products. Results have particularly benefited from the company's position as the sole supplier of tests for Bovine Spongiform Encephalitis, a.k.a. mad cow disease.

Despite the company's defensible positions in the markets of in vitro diagnostics and life sciences, Bio-Rad Labs remains a relatively small player in each, competing with significantly larger companies that are more diversified and have greater financial resources, S&P said. Moreover, Bio-Rad's heavy international presence, which accounts for about 65% of sales, subjects its revenues to swings in exchange rates and ongoing changes in global economic conditions.

Financially, the company has returned to its historically conservative posture, as it steadily reduced the borrowings used to fund a series of acquisitions in the diagnostic market by about $150 million since 1999, S&P said. Pro forma for the new issue, lease-adjusted total debt to capital was reduced to about 37% from a peak of 55%. Total debt to EBITDA will be about 1.3x, while funds from operations to debt has risen to more than 54%. There is no defined benefit pension plan.

Moody's rates A&P liquidity SGL-3

Standard & Poor's assigned a speculative-grade liquidity rating of SGL-3 to The Great Atlantic &

Pacific Tea Co., Inc.

Moody's said the SGL-3 rating reflects its belief that the company will run a free cash flow deficit over the next 12 months, but its adequate liquidity resources will allow the company to meet its short-term operating and financial obligations.

Moody's believes that the company will partially rely on cash balances and revolving credit facility borrowings to fund cash outflows. The company is expected to remain in compliance with the financial covenants in its bank credit agreement, which was last amended in June 2003, even though the compliance cushion is expected to narrow with every quarter.

A&P's revenue and operating profit for the fiscal year ending February 2004 likely will decline relative to the prior year principally because of poor performance at the company's divisions outside of Ontario and the New York metro area. Moody's anticipates that cash flow (as measured by EBITDA) probably will fall below $200 million for the February 2004 fiscal year. Obligations over the next 12 months include cash interest expense of about $80 million, capital expenditures of about $175 million and redemption of the $22.1 million of 7.70% senior notes due January 2004. In addition, the company needs to maintain enough of a liquidity reserve to accommodate normal seasonal working capital fluctuations.\

S&P says US Airways unchanged

Standard & Poor's said US Airways Group Inc. and US Airways Inc.'s ratings are unchanged included their corporate credit ratings at B with a negative outlook after US Airways Group reported a pretax loss of $188 million before the government security cost reimbursement, compared with a pretax loss of $259 million in the second quarter of 2002.

The second-quarter results were affected also by two further somewhat unusual items: a $35 million write-down of deposits for future aircraft deliveries that the airline is unlikely to take and $92 million of stock-based compensation relating to employees' stake in the reorganized companies, S&P noted.

The pretax loss margin before the federal credit was negative 10.6%; setting aside also the other unusual items in addition it was negative 3.4%. The latter is probably more representative of performance going forward and was one of the better margins reported by large U.S. airlines in a difficult quarter.

This reflected mostly cost improvements and reduced debt costs achieved in the companies' Chapter 11 reorganization.

Moody's confirms Western Gas Resources

Moody's Investors Service confirmed Western Gas Resources, Inc.'s ratings including its senior subordinated notes at Ba3 and preferred stock at B1 and assigned a Ba1 rating to its senior secured credit facility. The outlook is stable.

S&P said Western Gas Resources' ratings reflect the support gas gathering and processing business gives its exploration and production business with excess cash flow and operational integration in certain strategic areas, potential upside from large reserve holdings in some of the fastest developing gas basins in the U.S., and demonstrated fiscal discipline.

However, Western Gas Resources' ratings are suppressed by the commodity price sensitivity of most of its businesses, its relatively small asset base and the possibility that, over the medium term, the company may make acquisitions, most likely gas reserves in the Rockies and potentially sizable.

Moody's notes that Western Gas Resources' growth in the foreseeable future - in both its E&P and G&P segments - are tied to the Powder River Basin, where drilling activity has been slowed by environmental and legal challenges.

Given Western Gas Resources' concentration in the Basin, there could be negative rating implications if these challenges are not resolved in a timely manner, Moody's said.

Moody's rates Tempur-Pedic notes B3, loan B1

Moody's Investors Service assigned a B3 rating to Tempur-Pedic, Inc. and Tempur Production USA, Inc.'s planned $150 million senior subordinated notes due and a B1 to their planned $20 million senior secured revolving credit facility due 2008, $30 million senior secured term loan A due 2008 and $135 million senior secured term loan B due 2009. Moody's also assigned a B1 rating to Tempur World Holding Co. Aps and Dan Foam Aps $20 million senior secured revolving credit facility due 2008 and $65 million senior secured term loan B due 2008. The outlook is stable.

Moody's said the ratings reflect growing consumer and retailer receptivity to the company's premium-priced niche bedding products, as well as the risks associated with taking on significant financial leverage while expanding capacity and participating in a rapidly evolving and competitive market segment.

Proceeds from the transactions will be used to pay a $158 million dividend to shareholders, fund a $40 million earn-out to former owners and to refinance existing indebtedness.

The ratings reflect Moody's concerns regarding Tempur's financial flexibility in light of its increased debt levels, particularly given the potential for profitability and cash flow pressures from its capacity expansion plans and given the competitive and rapidly developing nature of its business.

Although Tempur has experienced high growth rates and market shares for several years, it has been operating at current earnings levels for a very short timeframe, it does not own patents on its core technology and it has not yet established unaided brand awareness levels typical of dominant brands.

At the same time, Tempur's niche bedding products are part of an overall mattress industry that is much larger (approximately $5 billion) and is comprised of competitors and suppliers with large market shares. Sealy, Simmons and Serta represent over half all wholesale mattress sales.

Moody's believes that Tempur's market position or margins could come under pressure should competitors introduce their own visco-elastic foam mattresses, or if they incorporate the material into traditional mattresses and mattress pads. Further, the replacement cycle for Tempur's products are potentially longer than traditional mattresses, which heightens the product saturation concerns of this relatively new category.

Pro forma for the transactions, Moody's estimates Tempur's EBITDA less capex interest coverage at 2.6x, debt-to-EBITDA at 4.0x, and funds from operations less capex-to-debt at 6%.

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