Moody's rates Salem notes B3, lowers outlook

Moody's Investors Service assigned a B3 rating to Salem Communications Holding Corp.'s planned $100 million of senior subordinated notes due 2011, confirmed its existing ratings and lowered the outlook to stable from positive. The rating on the existing $100 million 9.5% senior subordinated notes due 2007 will be withdrawn when they are refinanced.

Moody's said it lowered its outlook on Salem to reflect the higher proportion of development stage stations within Salem's total portfolio of radio stations and the consequent negative impact on cash flow.

Coupled with the company's high capital expenditures (particularly in comparison to its peers), Salem has not de-levered as quickly as originally anticipated, Moody's said.

In addition, Moody's notes Salem's ratings continue to incorporate the risks posed by the company's high financial leverage and inadequate cash flow coverage of interest after capital expenditures; the significant costs associated with growing the company's contemporary Christian music stations; risks inherent in the company's acquisition strategy; the capital costs related to upgrading acquired stations; the highly competitive nature of the radio broadcasting industry; and exposure to the cyclical advertising environment (albeit mitigated by the company's block programming).

Moody's rates Amscan's loan B1, raises outlook

Moody's Investors Service assigned a B1 rating to Amscan Holdings Inc.'s proposed $200 million senior secured credit facilities. Furthermore, the ratings outlook was revised to stable from negative, reflecting sustained improvements in revenue and profitability levels driven by new distribution initiatives, value-enhancing acquisitions, cost control efforts and the stabilization of the party superstore channel.

The loan consists of a $30 million senior secured revolver due 2007 and a $170 million senior secured term loan due 2007. The term loan will be used to repay the company's current term loan and revolver.

The loans will be guaranteed by domestic subsidiaries and will be secured by most of the assets of the borrower and guarantors, by all domestic subsidiary stock and by 65% of foreign subsidiary stock.

Ratings reflect high leverage, moderate fixed charge coverage, weak free cash flow relative to debt and participation in a highly competitive market segment with significant sales concentrations and largely non-branded products, Moody's said.

Supporting the ratings is the company's broad product array, proven design and innovation capabilities, long-standing customer relationships within the party superstore channel, leading market position and strong license portfolio in metallic balloons, the somewhat recession-resistant nature of the party goods industry due to low price points, the experienced senior management team and the demonstrated support of equity sponsor, Goldman Sachs Capital Partners, Moody's added.

S&P rates Salt notes B, lowers Compass outlook

Standard & Poor's assigned a B rating to Salt Holding Corp.'s planned $60 million senior discount notes due 2012. The outlook is negative. S&P also confirmed its existing ratings on subsidiary Compass Minerals Group Inc. including its senior secured bank loan at BB- and subordinated notes at B and revised its outlook on the company to negative from stable.

The outlook revision reflects a more aggressive financial posture than had been initially incorporated into Compass's ratings, S&P said.

The issuance of the proposed notes eradicates the company's progress towards strengthening its credit measures. Indeed, S&P said it had anticipated that Compass would focus on reducing its total debt to EBITDA to about 3.5x and the company was on track with $70 million of debt reduction prior to this deal. However, as a consequence of the new notes, this ratio will increase to 4.6x.

The proposed discount notes will be issued as a result of the sale of its 13¾% series A cumulative senior redeemable preferred stock of Salt Holdings by the majority shareholder - Apollo Management V LP. Pursuant to the company's preferred stock agreement, the sale of the preferred stock by Apollo triggers its conversion to debt. The interest on the discount notes, although non-cash, accrete during the first five years and require cash payment of interest thereafter, S&P said.

S&P rates Insight Midwest notes B+

Standard & Poor's assigned a B+ rating to Insight Midwest LP's $175 million 9.75% senior notes due Oct. 1, 2009 and confirmed the company's ratings including Insight Midwest's senior unsecured debt at B+ and Insight Midwest Holdings LLC's senior secured bank loan at BB+. The outlook is stable.

S&P said Insight Midwest's ratings reflect its favorable business profile, derived from the stable cash flows of its well-clustered midsize cable television markets and the potential for new revenue from digital and broadband services. These factors are offset by the company's aggressive debt profile, a result of acquisitions and system upgrades.

Despite ongoing competition from direct broadcast satellite and high overall aggregate market penetration of cable and DBS, the company experienced year-over-year growth in overall subscribers at Sept. 30, 2002, albeit at a modest level of less than 1% on a same-store basis, S&P said. This contrasts with recent subscriber losses experienced by several other major cable operators.

Insight Midwest also posted a solid 9.4% internal growth rate in advanced service revenue generating units in the third quarter of 2002 over the comparable period in 2001, S&P said. At Sept. 30, 2002, cable modem penetration was 6.5%. Nonetheless, the company's EBITDA margin did not benefit from the high contribution from the RGUs because of expenses related to the deployment of these new services and increases in programming rates and additional channels.

In October 2002, Insight Midwest announced a definitive agreement to exchange 13,000 cable subscribers in Georgia for 23,000 cable subscribers in Indiana and Kentucky from Comcast and $25 million in cash to be paid to Comcast. This transaction is expected to provide operating benefits to Insight Midwest, S&P said.

Material debt payment requirements begin in 2004, when the Insight Midwest Holdings credit facility starts to amortize, with $80 million of repayments required in that year, of which about $60 million is related to the Insight Midwest Holdings credit facility, S&P said.

Moody's rates Insight Midwest notes B2

Moody's Investors Service assigned a B2 rating to Insight Midwest, LP's proposed $175 million offering of new senior notes due 2009 and confirmed its existing ratings including its $500 million 10½% senior unsecured notes due 2010 and $200 million 9¾% senior unsecured notes due 2009 at B2, Insight Midwest Holdings, LLC $425 million senior secured revolver $425 million senior secured term loan A and $900 million senior secured term loan B at Ba3, Insight Communications Co., Inc.'s $400 million 12¼% senior unsecured discount notes due 2011 at Caa1, Coaxial, LLC's $55.87 million 12 7/8% senior unsecured discount notes due 2008 at Caa1 and Coaxial Communications of Central Ohio, LLC's $140 million 10% senior unsecured notes due 2006 at B3. The outlook remains negative.

Moody's said the ratings reflect Insight's high financial leverage and moderate debt service coverage on a consolidated basis; ongoing capital consumption and negative free cash flow generation as anticipated for most of the next year, with some uncertainty as to ultimate returns on incremental investment; a heightened competitive operating environment, as expected; and a complex corporate organization and capitalization structure.

These risks continue to be mitigated, however, by the company's large size; the technologically advanced state of its network infrastructure; good prospects for improved operating performance from systems that have recently been upgraded and those that are nearing completion; and good underlying asset value relative to existing obligations.

The company's liquidity profile will also notably be improved following the assumed successful completion of the proposed offering, Moody's said.

The negative rating outlook continues to incorporate Moody's concerns about the company's slower-than-anticipated operating momentum to date, nonetheless, and the related prospect of potential downward rating migration over the next 12 to 18 months if performance metrics do not improve fairly measurably.

Specifically, Moody's noted that cash flow growth has been at or below average levels for the comparable industry peer group, on a consolidated basis, notwithstanding the considerable lead-time that the company has enjoyed with respect to system upgrades and the ability to deliver multiple products and services.

Fitch rates Owens-Brockway notes BB

Fitch Ratings assigned a BB rating to Owens-Illinois' 8¾% $175 million senior secured notes, issued through its Owens-Brockway unit. The outlook remains negative.

Proceeds will be used to reduce a portion of the bank debt that matures in March 2004. This offering further reduces commitments for Owens-Illinois' bank debt.

The rating and outlook reflect Owens-Illinois' asbestos exposure, high indebtedness and refinancing requirements, Fitch said.

Total debt outstanding was $5.4 billion at September-end and approximately $1.7 billion in senior unsecured notes borrowed at the parent level is currently outstanding, $300 million of which will come due in April 2004. Fitch expects Owens-Illinois to refinance this amount as Owens-Illinois Group senior secured.

S&P cuts Cenargo, withdraws ratings

Standard & Poor's downgraded Cenargo International plc including cutting its $175 million 9.75% first priority ship mortgage notes due 2008 to CCC- from B-. The ratings are removed from CreditWatch with negative implications; the outlook is negative.

S&P then withdrew the ratings at the company's request.

S&P said the downgrade is a result of uncertainty surrounding Cenargo's ability to meet its near-term financial obligations.

The rating agency added that it has not been provided with timely and sufficient information by the company to evaluate its current liquidity position.

Cenargo has an $8.5 million interest payment due on Dec. 15 and about $2.4 million in lease payments due in December.

In the absence of up-to-date information, S&P said it considers that the company's poor liquidity position could have had a negative impact on its relationship with its suppliers and creditors, which may possibly have led to further pressure on liquidity.

Moody's rates Sovereign Specialty Chemicals' loan B1

Moody's Investors Service rated Sovereign Specialty Chemicals Inc.'s proposed $40 million term loan B due 2008 at B1. The company's existing term loan A due 2005, which will be reduced to about $16 million with proceeds from the new term B, and the existing $50 million revolver due 2005 are also rated at B1.

Furthermore, the outlook was raised to stable from negative due to the company's improved near-term debt maturity profile and financial liquidity following the expected issuance of the term loan B.

The company's $150 million senior subordinated notes due 2010 were confirmed at Caa1.

The term loan B will amortize at a rate of 1% a year with a balloon payment at maturity. The company will seek an amendment allowing for issuance of the term loan B and modify financial covenants.

"Moody's believes that there is acceptable collateral support for the debt. The creditors' position is further supported by strong covenant protection, including limitations on acquisitions and provisions for excess cash flow sweeps. Additionally, most of the company's fixed assets are domiciled in the U.S.," Moody's said in explanation of the facility being rated higher than the issuer rating.

Ratings consider continued weakness in the company's commercial segment, the prospects for a protracted recovery in the North American industrial market, expectations of a moderate sequential increase in raw material costs during fiscal year 2003, high debt leverage, weak coverage of interest expense, significant intangible assets and acquisition risk, Moody's said.

Supporting the ratings is the company's leading market positions in several of its niche business products, modest capital expenditure requirements, significant reductions in senior debt since Dec. 31, 2001, the diversity of its customer base and relatively stable operating performance despite challenging end-market conditions, Moody's added.

For the 12 months to Sept. 30, coverage of interest expense was 1.1 times and debt to capitalization stood at 89%.

S&P says Group 1 unchanged

Standard & Poor's said Group 1 Automotive Inc.'s ratings are unchanged including the corporate credit rating at BB with a stable outlook following the company's announcement that it has revised 2002 and 2003 earnings guidance.

Full-year 2002 diluted earnings per share guidance was lowered 4.5%, to $2.72-$2.77 from $2.85-$2.90, S&P noted. Full-year 2003 guidance was lowered to $3.10-$3.30 from $3.25-$3.35.

The reduced earnings expectations is based on weaker-than-expected vehicle sales during recent months, S&P said.

Group 1 is expected to adjust its cost structure to offset the softer market conditions.

Despite weaker demand, the company should generate double-digit earnings growth in 2003 due to improved dealership performance and acquisitions, S&P said. Group 1 is expected to continue to fund its ambitious growth initiatives with a balanced used of debt, equity, and internal cash flow.

S&P rates United Rentals notes BB-

Standard & Poor's assigned a BB- rating to United Rentals (North America) Inc.'s offering of $200 million additional 10.75% senior unsecured notes due 2008 and confirmed the company's existing ratings including its senior secured debt at BB, senior unsecured debt at BB-, subordinated debt at B+ and preferred stock at B. The outlook is stable.

S&P said the ratings reflect United Rentals' position as the largest provider of equipment rentals in the U.S.; its good geographic, product, and customer diversity; exposure to cyclical construction end markets; and its moderately aggressive financial policy.

Spending in September 2002 in United Rentals' key end-market - nonresidential construction - decreased by about 20% from the September 2001 level. The prospects for a near-term rebound are uncertain, at least until mid-2003. Weak end markets, coupled with industry overcapacity, have resulted in lower-than-expected rental rates. Although the company has higher utilization, it has also seen price declines of 5%-7% in the past quarter. This resulted in same-store sales declines of about 2%-3%, somewhat better than other industry participants, S&P added.

The company's third-quarter operating income was weaker than expected, causing the company to amend its fixed-charge coverage ratio on its credit facility, S&P said. United Rentals plans to exit certain markets and reduce headcount. About 35-45 locations will be closed, which should free up equipment to be moved to other locations and help to further curtail capital expenditure needs.

Offsetting equipment sales of $150 million-$175 million should put free cash flow at about $300 million in 2003, which Standard & Poor's expects to be used primarily to reduce debt in 2003. Incorporated into the rating is the expectation that debt leverage will average 3.0x EBITDA, and funds from operations to total debt (adjusted for operating leases) will range between 20%-25% over the intermediate term,. S&P added.

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