Moody's adjusts Adelphia's ratings

Moody's Investors Service adjusted its rating on Adelphia Communications Corp. and its subsidiaries, lowering some and confirming others. The actions conclude Moody's review.

"Rating differentials generally reflect our expected relative recovery values for individual instruments under an imminent bankruptcy filing as anticipated," Moody's said. The rating outlook remains negative.

Affected Adelphia Communications ratings include: senior unsecured notes and debentures lowered to Caa2 from Caa1, convertible subordinated notes lowered to Ca from Caa2, convertible and exchangeable preferred stock lowered to C from Ca, senior unsecured issuer rating lowered to Caa3 from Caa1 and senior implied rating lowered to Caa2 from B2.

As for the company's subsidiaries: FrontierVision Holdings senior unsecured discount notes were confirmed at Caa1. FrontierVision Operating Partners senior subordinated notes were confirmed at Caa1 and senior secured bank debt was lowered to B2 from B1. Olympus Communications senior unsecured notes were confirmed at Caa1. Olympus Cable Holdings senior secured bank debt was lowered to B2 from B1. Century Communications senior unsecured notes and discount notes were lowered to Ca from Caa1. Century Cable Holdings senior secured bank debt was lowered to Caa1 from B1. Century-TCI senior secured bank debt was lowered to B3 from B1. Parnassos senior secured bank debt was lowered to B3 from B1. And, UCA et al senior secured bank debt was lowered to Caa1 from B1.

The rating actions reflect "our estimated relative expected loss severity for the company's many different instruments from the top to the bottom of its capital structure. Under the now much more certain bankruptcy scenario as currently anticipated, and on a potentially imminent basis, expected credit losses in general will likely be greater than previously anticipated," Moody's said.

According to Moody's, creditors of Olympus Cable Holdings and FrontierVision Operating Partners are in the best relative recovery position. Creditors of Olympus and FrontierVision's holding companies are also fairly well protected, Moody's said. Century Cable Holdings and UCA bank debt have a perceived risk of absorbing some losses. Parnassos bank debt is expected to fare better than Century and UCA, however, it is still seen as carrying some risk, Moody's said.

Senior unsecured noteholders of Adelphia are better positioned than senior unsecured creditors of Century. "We believe that Adelphia noteholders can reasonably be expected to realize still good recovery value approximating as much as 75%-80% or more, while Century bondholders could suffer loss severity of as much as 50% or more," Moody's said. "Convertible subordinated noteholders and preferred stock holders are not expected to fair nearly as well and may in fact recover very little, if anything, relative to the face value of their claims. The common equity of the company will almost certainly be wiped out in its entirety."

The negative outlook reflects the absence of audited financial statements and disclosure of true financial conditions.

S&P cuts Tri-Union

Standard & Poor's downgraded Tri-Union Development Corp. including lowering its $130 million 12.5% senior secured notes notes due 2006 to D from B-.

S&P said the action follows Tri-Union's announcement it did not make its June 1 payment of $8.1 million interest on its senior secured notes due 2006.

Tri-Union did, however, make a $20 million debt amortization payment also due June 1, S&P noted.

The company has stated that it intends to make the interest payment within the 30-day grace period.

If Tri-Union makes the interest payment within the grace period, S&P said it will re-evaluate the ratings and outlook.

S&P rates Marietta notes B-

Standard & Poor's assigned a B- rating to Marietta Corp.'s planned offering of $75 million senior secured notes due 2009. The outlook is stable.

The note offering will be used to refinance existing debt and to partially fund the acquisition of a largely U.S.-based restaurant chain, S&P said.

S&P said the ratings reflect Marietta's high debt leverage and weak credit ratios pro forma for the note offering, seasonal nature of sales, dependence on the performance of the lodging sector and participation in the highly competitive personal care industry.

In addition, Marietta's proposed acquisition could affect its performance given the diversion of management's focus and the unrelated nature of the restaurant business, S&P said.

Partially offsetting the negatives are Marietta's good market position in the U.S. guest amenities business, which accounted for 67% of fiscal 2001 revenues, S&P said. Marietta estimates that its market share in U.S. guest amenities is about 25%.

With fiscal 2001 revenues of about $130 million, Marietta is a small player in the multi-billion dollar personal care industry, S&P noted. However, the strength of its domestic market position in guest amenities should enable the company to continue to effectively compete in the U.S. with other players, some of which have larger financial resources.

S&P said it expects fiscal 2002 credit protection measures (pro forma for the note offering) will be in line with the rating with EBITDA interest coverage of about 2 times and debt to EBITDA between 4x-5x.

S&P expects credit ratios will strengthen over time, given management's focus on sales growth and improving the company's cost structure.

Moody's puts Bell Canada on upgrade review

Moody's Investors Service put Bell Canada International Inc.'s C$160 million 11% senior unsecured notes due 2004 rated Ca on review for possible upgrade.

Moody's said the recently announced sale of Bell Canada International's interest in Telecom Americas Ltd. to America Movil for US$366 million in cash and short-term notes and the release of US$250 million of guarantees relating to Telecom Americas issued by BCI combined with remaining assets may provide sufficient funding to fully repay BCI's bank loans, notes and guarantees. However Moody's noted the ability to repay the debt is dependent on the outcome of several pending lawsuits against BCI.

S&P revises Windsor Woodmont outlook

Standard & Poor's said it revised the outlook on Windsor Woodmont Black Hawk Resort Corp. to negative from developing and confirmed its CCC+ corporate credit and senior secured ratings.

S&P said the action is in response to weaker-than-expected operating results for the first quarter of 2002. In that period the company's property, The Black Hawk Casino by Hyatt in Black Hawk, Colo., generated $1.4 million in EBITDA, significantly below expectations.

The company has about $12 million in cash on the balance sheet, of which $2.3 million is restricted and less than $5 million is needed for operations, S&P said. The company's next interest payment in September, which amounts to $6.5 million, depends on the cash flow generated from the facility and if needed, excess cash balances.

Initial operating performance has been below expectations due to start-up operating inefficiencies, competitive market conditions, and significant property-level management turnover, S&P said.

In addition, the property has struggled to create customer loyalty since becoming the latest competitor to open. While the Black Hawk market has successfully absorbed capacity additions in the past, an absorption period is likely, S&P added.

Still, the market has continued its solid growth and competing facilities have performed well. Isle of Capri Black Hawk LLC has seen operating results significantly exceed expectations, while operations of Riviera Black Hawk Inc., an indirect subsidiary of Riviera Holdings Corp., have improved as it benefits from being the first casino on the main access route into Black Hawk.

Significant cash flow generation is limited in this market, however, due to issues of accessibility, including traffic congestion on weekends in the summer and severe weather in the winter, S&P said. In addition, betting limits have historically restricted significant upside cash flow potential.

Moody's raises Hercules' outlook

Moody's Investors Service confirmed the debt ratings of Hercules Inc. after the company repaid $1.6 billion of debt from proceeds of the sale of its Betz-Dearborn unit. In addition, the ratings outlook was revised to stable from developing because of the expectation that further major restructurings are less likely and that remaining business lines will generate positive cash flow.

Confirmed ratings include Hercules' senior secured revolver and senior secured debt at Ba1, senior implied, issuer rating and senior unsecured notes at Ba2 and junior subordinated debentures at Ba3 and preferred stock at Ba3.

Currently, the company's capital structure includes a $200 million revolver and $225 million of senior secured notes. Bank loan collateral consists of a lien on the company's property and assets. Senior secured notes collateral consists of a lien on property and assets, excluding working capital items, investment property and general intangibles. Unsecured debt includes $400 million in senior notes and about $625 million of junior subordinated preferred securities.

Ratings reflect operating challenges, consolidation among the paper and pulp customer base and rising raw material costs in the Aqualon division. Offsetting these factors is the company's cost saving initiatives.

Despite the company's asbestos related lawsuits, "Moody's believes that Hercules exposure can be managed within the rating category," Moody's said.

Moody's maintains H&E ratings

Moody's Investors Service said it maintained its first-time ratings on H&E Equipment Services LLC after the company restructured its bond offering. The outlook remains stable. Ratings are B3 for the proposed $200 million senior secured notes due 2012 and B2 for the proposed $150 million senior secured revolving credit facility due 2007. Moody's is not rating the $50 million new senior subordinated notes.

Moody's said that the revised financing structure would have no material impact on the company's overall credit profile or liquidity position.

Although the $25 million increase in the revolver from the original structure may result in a slight decrease in the recovery value of the senior secured notes, this is mitigated by the loss severity that would be absorbed by the $50 million new senior subordinated notes, Moody's said.

S&P rates Quest Diagnostics term loan at BBB-

Standard & Poor's assigned a BBB- rating to Quest Diagnostics Inc.'s proposed $275 million senior unsecured term loan and confirmed other ratings.

The debt is being issued to partially finance the proposed $1.1 billion acquisition of Unilab Corp.

Unilab is the largest provider of diagnostic testing services in the state of California and has operating margins, before depreciation and amortization, of more than 20%, among the highest in the industry.

This acquisition will greatly expand Quest's presence in this market, as the company will acquire contracts with about 150 large buyers in the state.

The acquisition of Unilab follows Quest's February cash acquisition of American Medical Laboratories Inc., which was purchased for about $500 million. Both acquisitions expand Quest's operations with minimal overlap of facilities and contracts.

However, due to the timing of the two purchases, there are concerns regarding integration.

Beginning in 1999, with its $1.3 billion, largely debt-financed acquisition of the clinical laboratory business of SmithKline Beecham PLC, Quest has built a successful record of acquisitions and is the leading national provider of clinical laboratory services in terms of revenues.

Still, competition is strong and pricing will remain an ongoing issue, as third-party payors continue to focus on containing health care costs, especially in the California market, because of managed care's significant penetration and current soft economic conditions.

Nevertheless, the use of stock in the Unilab transaction, and process improvement initiatives combined with increased testing volume, are expected to contribute to bolster credit protection measures. Accordingly, funds from operations to lease-adjusted debt is expected to be at least 30%, with pretax coverage of interest at about 6 times.

S&P expects that increased testing volume and geographical reach will improve the company's economies of scale and business position. Quest's ability to self fund its growth and successfully integrate acquired operations could lead to a higher rating.

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