S&P lowers Houghton Mifflin outlook, rates discount notes B

Standard & Poor's lowered its outlook on Houghton Mifflin Co. to negative from stable, confirmed its existing ratings including its corporate credit at BB- and assigned a B rating to HM Publishing Corp.'s new $150 million senior discount notes due 2013.

Issue proceeds will be used to pay a special dividend to its common stockholders, Thomas H. Lee Partners LP, Bain Capital Partners LLC and the Blackstone Group.

The transaction results in a modest increase in financial risk at a time when educational publishing industry trends are under state and local budgetary pressures, S&P said.

Houghton Mifflin's ratings reflect high financial risk resulting from the 2002, $1.66 billion leveraged acquisition of the company and the $150 million special dividend, only partly offset by its strong business position in educational publishing and relatively stable operating performance.

The $150 million special dividend increases debt to EBITDA (after subtracting capitalized prepublication capital expenditures) to a pro forma level of 7.0x for the 12 months ended June 30, 2003, from an actual level of 6.3x, S&P said. Pro forma EBITDA coverage of cash interest coverage remains unchanged at 1.85x, though coverage of total interest declines to 1.6x.

Moody's rates Dobson facility Ba3

Moody's Investors Service assigned a Ba3 rating to the $700 million of senior secured credit facilities being arranged for Dobson Cellular Systems Inc. and confirmed Dobson Communications Corp.'s ratings including its senior implied at B1 with a stable outlook.

Moody's said the Ba3 rating on the Dobson Cellular credit facility considers the reasonable leverage of the borrower and the good collateral coverage available to the lenders.

The Dobson Cellular operations comprise all of Dobson's cellular properties, excluding American Cellular Corp., and are the result of the combination of the former Dobson Operating Co. and the Dobson/Sygnet operations which at June 30, 2003 served 867,600 subscribers.

Moody's estimates that the Dobson Cellular generated approximately $250 million of cash from operations for the 12 months to June 2003.

Dobson has stated that it projects 2003 capital spending to be $145 million which would yield free cash flow at the Dobson Cellular level of $105 million. Moody's considers this to be a healthy level of free cash flow generation when compared to Dobson Cellular's debt load of $550 million (the $150 million revolver Moody's expects to remain undrawn).

Further, that $550 million of Dobson Cellular debt represents less than 30% of the total debt and preferred stock obligations of Dobson Communications Corp. providing additional comfort in Moody's Ba3 rating on the Dobson Cellular bank debt.

S&P rates NationsRent notes BB-

Standard & Poor's assigned a B+ corporate credit rating to new NationsRent Cos. Inc., which will become the name of NationsRent Inc., on the closing of Nations Rent Cos. Inc.'s proposed note offering and assigned a BB- rating to the proposed offering of $225 million senior secured notes due 2010. The outlook is stable.

S&P said the secured notes are rated one notch higher than the corporate credit rating because of the strong likelihood of full recovery of principal from the net proceeds on the sale of the equipment in the event of a default.

NationsRent's ratings reflect its below-average business position as a large provider of rental equipment in a large number of high-growth markets to diverse customers, offset by exposure to the cyclical construction and industrial markets, relatively high debt leverage, and aggressive financial policy, S&P said.

Demand for rental equipment slowed considerably from 2000 to 2003 with relatively flat sales. The equipment rental industry will remain challenging for fiscal 2003, with limited near-term rental revenue growth rates expected and with the potential for low- to mid-single-digit growth beyond fiscal 2003, S&P said. The potential growth reflects the continued outsourcing trends and efforts by customers to reduce fixed-capital investments, and no major recovery in the U.S. economy is assumed.

The industry is highly fragmented and is currently plagued by considerable overcapacity. Years of over-investment by consolidators, including NationsRent, had resulted in a glut of equipment that only now may be showing signs of being worked off.

The balance sheet is now considerably less leveraged than prior to its bankruptcy, with pro forma total debt to EBITDA at about 4x (adjusted for operating leases) in 2003 and EBITDA to interest coverage of 3.2x, S&P said. Nevertheless, industry fundamentals are weak, and operating risk remains high. S&P expects total debt to EBITDA (adjusted for operating leases) to average around 4x in the intermediate term. In addition, EBITDA interest coverage ratio is expected to average 2.5-3x over the next few years.

S&P says Greif unchanged

Standard & Poor's said Greif Inc.'s ratings are unchanged including its corporate credit at BB with a positive outlook in response to the announcement that it has purchased full ownership of its joint venture CorrChoice Inc.

The purchase, which will be substantially funded by Grief's portion of CorrChoice's cash and cash equivalents of approximately $110 million is expected to be accretive to Greif's earnings immediately, S&p said.

S&P added that it had factored the cash flow and potential purchase of CorrChoice into its ratings and the possible strengthening of Greif's credit protection measures.

Moody's rates Georgia-Pacific liquidity SGL-3

Moody's Investors Service assigned an SGL-3 speculative-grade liquidity rating to Georgia-Pacific Corp.

The SGL-3 rating, which indicates adequate liquidity, is supported by the company's committed sources of financing, mainly the availability under its $3 billion revolving credit facility, and its ability to continue to monetize selected non-core assets.

The rating also considers Georgia-Pacific's low level of profitability and the potential need for covenant relief should operating results deteriorate or significant asset writedowns occur, Moody's added.

Throughout 2003, the company has improved its liquidity, primarily using proceeds from $2 billion in long-term debt issuance to reduce short term debt (including borrowings on the revolving credit facility and the capital markets bridge facility).

Competitive markets for tissue and building products limit Georgia-Pacific's ability to cover its liquidity requirements through internally generated cash, although expected EBITDA of about $2.2 billion in 2003 should more than cover its interest and capital spending requirements, Moody's said.

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