Moody's cuts RCN's bank debt

Moody's Investors Service downgraded RCN Corp.'s bank debt including cutting its $15 million senior secured revolving credit facility due 2006, $166 million senior secured term loan due 2006 and $373 million senior secured term loan due 2006 to Caa3 from Caa1 and confirmed its $321 million 11.125% senior unsecured notes due 2007, $326 million 9.80% senior unsecured notes due 2008, $145 million 11.00% senior unsecured notes due 2008 and $232 million 10.125% senior unsecured notes due 2010 at Ca. The outlook remains stable and the speculative grade liquidity rating remains at SGL-3.

Moody's said the action follows RCN's announcement of a tender offer for up to $290 million of its senior unsecured notes.

While confirming the remaining senior unsecured notes, Moody's noted reduced recovery prospects as anticipated given the further depletion of cash balances and the layering in of more senior secured debt.

If successful, this will be the third such distressed exchange that the company will have completed over the past 25 months which, when combined with at least two other private transactions in which two separate tranches of discount notes were also partially repurchased brings the total amount of less-than-par redemptions to about $1.2 billion face value, or more than 50% of the total amount of public debt raised during the period from 1997 to 2000, for less than 30 cents on the dollar on average.

Moody's said RCN's ratings continue to reflect Moody's belief that the company will need to further restructure its debt obligations over the course of the rating horizon and that the public notes, in particular, will be substantially impaired in any restructuring, as highlighted by the tender offer at prices below $0.38 on the dollar.

The company has been able to avoid a larger-scale, involuntary restructuring to date mainly by facilitating the sale of incumbent cable systems, the most recent of which is the just announced agreement to sell about 30,000 subscribers located in Carmel, N.Y.

However, Moody's said it believes that there are relatively few remaining assets that could be divested in a similar manner.

S&P upgrades Henry Co.

Standard & Poor's upgraded Henry Co. including raising its $35 million revolving credit facility bank loan due 2006 to B- from CCC+ and 81 million 10% senior notes series B due 2008 to CCC+ from CCC. The outlook is stable.

S&P said the upgrade reflects Henry's improved liquidity prospects as well as strengthened cash flow protection measures. The financial profile continues to benefit from substantially increased sales of the company's premium branded product.

Credit quality reflects the company's solid position in niche markets for roof and driveway sealing and waterproofing products as well as strengthened business fundamentals because of greater sales of its premium "Henry" branded product, S&P said. However, these positives are overshadowed by a modest revenue base ($200 million to $225 million annually), a narrow product offering in a mature, small, and highly competitive market, considerable operating margin vulnerability to petroleum-based raw materials costs, fragile financial ratios, aggressive debt leverage, and still modest liquidity.

Operating margins (before depreciation and amortization) have strengthened to 9% from 5% in previous years, despite higher raw materials costs. Improved internal cash flow generation bolsters the company's flexibility to address its heavy interest expense. Total debt to EBITDA has improved to 5.3x and EBITDA interest coverage is 1.8x, S&P said.

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