S&P cuts Fleming, on watch

Standard & Poor's downgraded Fleming Cos. Inc. and put it on CreditWatch with negative implications. Ratings lowered include Fleming's $250 million 10.5% senior subordinated notes due 2004, $250 million senior subordinated notes due 2007, $250 million senior subordinated notes due 2011 and $260 million 9.875% senior subordinated notes due 2012, cut to B from B+, $130 million 5.25% convertible senior subordinated notes due 2009, also cut to B from B+, $355 million 10.125% senior notes due 2008 and $200 million 9.25% senior notes due 2010, cut to B+ from BB-, $600 million revolving credit facility due 2007 and $350 million term loan due 2008, cut to BB from BB+, and Core-Mark International Inc.'s $75 million 11.375% senior subordinated notes due 2003, cut to B from B+.

S&P said the downgrade was in response to lowered expectations for earnings and credit protection measures.

Most of the disappointment stems from weak retail operations, which the company has decided to divest, S&P said. However, distribution earnings are also somewhat softer than expected. Although the company has diversified its wholesaler customer mix away from independent supermarkets, the independent customer's difficulties in the current competitive supermarket environment are having a negative impact on Fleming's distribution business.

The CreditWatch listing reflects uncertainties related to the divestiture of Fleming's retail division, including the timing and amount of asset sale proceeds and the impact of lost wholesale volume, S&P said. Although application of proceeds for debt reduction is expected to mitigate the impact of lower cash flow, management will be challenged to smoothly manage this process while maintaining focus on executing its core distribution business.

Maintenance of volume at key customer Kmart Corp. and smooth integration of the Core-Mark acquisition remain ongoing concerns, S&P added. Kmart's operating results since the bankruptcy filing have been poor, and future declines in Kmart volume could further lower profitability, though this would be mitigated by related working capital reductions.

Moody's cuts GSI

Moody's Investors Service downgraded The GSI Group, Inc. including cutting its $100 million 10¼% senior subordinated notes due 2007 to Caa1 from B2. The outlook is stable.

Moody's said the downgrade reflects lower-than-anticipated sales growth, primarily due to greater-than-expected volatility in emerging markets and low commodity prices over the past several years.

In addition, GSI's high inventory levels continue to consume working capital, constraining free cash flow available for repayment of debt, Moody's said.

Moody's said the stable outlook reflects its expectation that GSI's cash flow will not deteriorate significantly from current levels and its bank group will continue to provide adequate liquidity.

GSI remains highly levered and its balance sheet weak, particularly for a company impacted by cyclical and seasonal factors, Moody's added. As of June 2002, debt was at a seasonal high of $153 million, with average last-12 months debt of $144 million - yielding a total last 12 months debt/EBITDA of 5.7x (total debt/EBIT of 8.7x).

Moody's cuts Amerco

Moody's Investors Service downgraded Amerco including cutting its senior unsecured debt to Ba2 from Ba1. The outlook is stable.

Moody's said it lowered Amerco because it expects that adjusted debt will continue to be high while financial performance, which has recently been hurt by losses at its insurance operations, will continue to be weak.

The downgrade also reflects weak cash flow from operations, which requires an ongoing sale of assets and access to financial markets for refunding, and a reduced liquidity position, which is aggravated by the high seasonality of its rental operations, Moody's said.

Positives are U-Haul's strong name recognition in the consumer rental market, a steady growth in the core rental operations Moody's expect to continue, reasonable extension into storage markets, and a substantial, largely unencumbered asset base, the rating agency added.

For the last five years, adjusted indebtedness has grown steadily, mostly through increases in off-balance sheet lease financing for equipment. Lease expense nearly doubled over the last five years to $172 million for fiscal 2002. EBITDAR (earnings before interest and taxes, plus depreciation plus lease expense), at $408 million for the last fiscal year and flat over the last three years, is expected to improve only modestly over the near term, Moody's said. Adjusted debt to EBITDAR is relatively high at 5x (using the modified present value method).

S&P cuts PDVSA Finance to junk

Standard & Poor's downgraded PDVSA Finance Ltd. to junk.

Ratings lowered include PDVSA Finance's $400 million class A notes, $300 million class B notes, $300 million class C notes, $400 million class D notes, $400 million class E notes, $400 million class F notes, $250 million class H notes, $250 million class I notes, $100 million class J notes, $500 million class K notes and €200 million class G notes to BB+ from BBB-.

Moody's puts Shaw, Star Choice on review

Moody's Investors Service put Shaw Communications Inc. and Star Choice Communications Inc. on review for possible downgrade, affecting C$3 billion of debt. Ratings covered by the review include Shaw's C$275 million 7.05% senior unsecured notes due 2005, C$300 million 7.40% senior unsecured notes due 2007, $440 million 8.25% senior unsecured notes due 2010, $225 million 7.25% senior unsecured notes due 2011 and $300 million 7.20% senior unsecured notes due 2011, all at Baa3; $142 million 8.45% series A trust preferreds due 2046, C$98 million 8.54% series B trust preferreds due 2027, $172 million 8.50% trust preferreds due 2097 and C$147 million 8.875% trust preferreds due 2049, all at Ba1; and Star Choice Communications Inc.'s $150 million 13% senior secured note due 2005 at B3.

Moody's said it began the review because it is concerned that Shaw may not generate meaningful free cash flow, even several years from now, in relationship to a debt load in excess of C$3.5 billion (C$4.3 billion including unsupported debt).

While capital expenditures are declining, they remain significant, Moody's said, adding that it believes the spending is critical for Shaw to compete against DTH and DSL alternatives.

Moody's also expects Star Choice to incur negative free cash flow over the next few years, which will likely need to be funded by Shaw.

Moody's puts Rogers Cable on review

Moody's Investors Service put Rogers Cable Inc. on review for possible downgrade affecting C$2.3 Billion of debt. Ratings affected include Rogers' $292 million 10% senior secured second priority notes due 2005, C$450 million 7.60% senior secured second priority notes due 2007, $350 million 7.875% senior secured second priority notes due 2012, $75 million 10.0% senior secured second priority debentures due 2007, C$300 million 9.65% senior secured second priority debentures due 2014 and $200 million 8.75% senior secured second priority debentures due 2032, all at Baa3, and $114 million 11% senior subordinated guaranteed debentures due 2015 at Ba1.

The Ba1 senior unsecured rating of Rogers Communications, Inc., Rogers Cable's parent company, and the Ba3 senior unsecured rating of Rogers Wireless, a sister company of Rogers Cable, remain under review for possible downgrade.

Moody's said it put Rogers Cable on review because of concern that the company may not generate meaningful free cash flow, even several years from now, in relationship to over C$2.3 billion of debt.

Moody's said it expects Rogers Cable to continue to invest heavily in its cable network to complete its upgrade plan and offer new services, even if at lower levels than incurred in the last few years.

Furthermore, Moody's said it is concerned that the approximately C$900 million of net debt and preferred securities at Rogers Communications, coupled with its own negative free cash flow, may eventually put pressure on Rogers Cable to make distributions to its parent that would adversely impact its own creditworthiness.

Fitch cuts Venezuelan heavy oil projects to junk

Fitch Ratings downgraded to BB+ from BBB- the senior secured debt ratings of the four Venezuelan heavy oil projects - Petrozuata, Cerro Negro, Sincor, and Hamaca and removed them from Rating Watch Negative. Ratings affected include Petrozuata Finance Inc.'s $300 million 7.63% series A bonds due 2009, $625 million 8.22% series B bonds due 2017 and $75 million 8.37% series C bonds due 2022; Cerro Negro Finance, Ltd.'s $200 million 7.33% bonds due 2009, $350 million 7.90% bonds due 2020 and $50 million 8.03% bonds due 2028; Sincrudos de Oriente Sincor, CA's $1.2 billion senior bank loans borrowed by the sponsors of Sincor Finance Inc.; and Petrolera Hamaca, SA $1.1 billion senior project loans.

Fitch said the actions reflect its continued concerns with Venezuela's prolonged political and macroeconomic uncertainty as the country faces sharp economic contraction, accelerating currency depreciation, a lack of a coherent macroeconomic plan and increasing social and political tensions.

Petrozuata, Cerro Negro, Sincor and Hamaca are all domiciled in Venezuela, and are involved in the development of the country's extra heavy crude oil reserves. Debt holders at each project solely rely on the ability of the project to generate sufficient cash flows from operations to meet scheduled debt service obligations, Fitch noted. Each project's revenues are largely derived from the sale of syncrude exports.

The ratings of these projects have been higher than the sovereign rating of Venezuela given the legal and structural features of the related financings that partially mitigate sovereign risk concerns, Fitch said. Fitch added that it believes that a sovereign's potential inclination to interfere in these types of projects is a function of the political and economic environment within the country. While the four Venezuelan heavy oil projects' structures and strategic importance provide substantial disincentives to the Venezuelan government to interfere, the potential for such actions would be heightened as the sovereign's credit quality further deteriorates.

The BB+ rating on the four heavy oil projects reflects Fitch's view that the heightened risk associated with sovereign-related concerns is similar at all four projects and is a constraining factor to their ratings.

S&P upgrades Korean banks

Standard & Poor's upgraded six Korean banks including raising Korea Exchange Bank's $200 million 13.75% upper tier II subordinated notes due 2010 to B from B- and Chohung Bank's $200 million adjustable rate lower and upper tier II subordinated notes due 2010 to BB- from B+ and to B+ from B respectively.

S&P said the action reflects recent improvement in the financial profile of the Korean corporate sector, which together with measures taken by the Korean government and the banking sector should limit any resurgence of asset quality problems.

The average ratio of problem assets, defined as precautionary and below, to total lending at the six banks continued to decline to 6.63% at June 2002 from 8.50% at December 2001, S&P noted.

Although the high level of corporate debt remains a concern, particularly taking into account the uncertain global economic outlook, a recent reduction in financial leverage should enable Korean corporations to better withstand any adverse business cycle in the future, S&P added.

Fitch rates DR Horton BB+

Fitch Ratings assigned a BB+ rating to D.R. Horton, Inc.'s senior unsecured debt, covering $1.87 billion in outstanding senior notes and the company's $805 million revolving credit agreement. Fitch also assigned a BB- rating to D.R. Horton's $495 million senior subordinated notes. The outlook is stable.

Fitch said its ratings are based on D.R. Horton's above-average growth during the recent economic expansion, execution of its business model, steady capital structure and geographic and product line diversity.

The company has been an active consolidator in the homebuilding industry which has kept debt levels a bit higher than its peers, Fitch noted. But management has also exhibited an ability to quickly and successfully integrate its many acquisitions.

Risk factors include the inherent (although somewhat tempered) cyclicality of the homebuilding industry, Fitch said. The ratings also manifest the company's aggressive, yet controlled growth strategy, moderate bias towards owned as opposed to optioned land and its relatively heavy speculative building activity (which has lessened of late).

The company has expanded EBITDA margins over the past several years on healthy price increases, volume improvements and steady operating expense ratios and has produced record levels of home closings, orders and backlog in excess of expectations for this unprecedented lengthy upswing in the housing cycle, Fitch said. EBITDA margins have increased from 9.5% in 1997 to 12.6% in 2001 and are 11.9% currently, including Schuler Homes which was acquired in February of 2002.

S&P keeps Del Monte on positive watch

Standard & Poor's said Del Monte Foods Co. remains on CreditWatch with positive implications and added that it anticipates raising the company's corporate credit rating one notch to BB- from B+ on the closing of its merger with H.J. Heinz Co.'s North American pet food and U.S. seafood, private label soup, and infant feeding operations. The likely upgrade is based on the current terms and conditions of the merger.

The transaction, as contemplated, will result in $1.1 billion of debt being added to Del Monte, and Heinz shareholders will own 74.5% of the new Del Monte company.

S&P said it believes that the company's long-term financial performance will improve to meet expectations for the current rating given the diversity of the product portfolio and expected higher margins, relative to Del Monte's previous business.

Following the merger, Del Monte will take on about $1.1 billion of additional debt. Management will be challenged to integrate the new portfolio of brands with minor disruption to the retail trade while operating a company that is about double its current size, S&P said.

The Heinz brands have not had the level of support behind them in recent years necessary to maintain market share against competitors, S&P noted. However, Del Monte's commitment to increasing the promotional and brand spending while forming a core product category for the company should expand its existing product mix and provide long-term growth opportunities.

Moody's cuts JLG outlook

Moody's Investors Service lowered its outlook on JLG Industries, Inc. to negative from stable and confirmed the existing ratings including JLG's $175 million senior subordinated notes due 2012 at Ba2 and $250 million senior secured revolving credit facility due 2004 at Baa3.

Moody's said it revised JLG's outlook in response to continuing weak demand for access equipment as a result of the protracted economic downturn and depressed non-residential construction spending.

It also reflects the deteriorating financial and liquidity condition of the equipment rental sector, as well as the changing competitive landscape following the acquisition of Genie Holdings, Inc. by Terex, Moody's said.

Despite the outlook change, however, the ratings continue to recognize JLG's leading market position in the global aerial work platform market, strong brand recognition and premier product quality, and its sizable cash flow generation and restructuring efforts through the downturn, Moody's added.

S&P rates ClubCorp notes B

Standard & Poor's assigned a B rating to ClubCorp Inc.'s proposed $225 million senior unsecured notes due 2010 and a B+ rating to its $325 million revolving credit facility due 2004, $100 million term loan A due 2004 and $200 million term loan B due 2007.

S&P noted that if senior secured borrowings increase materially the senior unsecured debt could be lowered to two notches below the corporate credit rating.

Proceeds from the senior unsecured notes will be used to pay down the revolving credit facility and term loans.

S&P said the ratings reflect ClubCorp's diverse portfolio of golf related properties and business-sports clubs and relatively stable cash flow base from membership dues and fees. Offsetting factors include its aggressive financial profile, significant debt maturities, relatively constrained covenant cushion even under amended terms, and weak demand for upscale resorts and business-sports clubs.

S&P said it also expects that operating performance at company's country clubs and resorts will stabilize over the near term.

Financial risk is relatively high, given the significant maturities and the restrictive covenants in the credit facility, S&P said. EBITDA coverage of total interest expenses declined to 2.1 times for the 12 months ended June 11, 2002, versus 3.34x in 1999. EBITDA margin had also declined to 12% for the 12 months ended June 11, 2001, versus 14.1% in 1999, mainly due to economic weakness in 2000 and 2001.

S&P rates TimberWest notes BB+

Standard & Poor's assigned a BB+ rating to TimberWest Forest Corp.'s C$130 million 7% senior unsecured debentures due 2007. The outlook is stable.

Moody's puts Atlas Air on review

Moody's Investors Service put Atlas Air, Inc. on review for possible downgrade. Ratings affected include Atlas' $140.0 million secured aircraft revolver/term loan due 2005 at Ba2, its $137.5 million 10¾% senior unsecured notes due 2005, $153.0 million 9¼% senior unsecured notes due 2008 and $147.0 million 9 3/8% senior unsecured notes due 2006, all at B2, the series 2000-1 EETC class A at A2, class B at Baa2 and class C at Ba2, the series 1999-1 EETCs class A at A2, class B at Baa2 and class C at Ba2, and the series 1998-1 EETCs class A at A2, class B at Baa2 and class C at Ba2.

Moody's said it began the review because of a tightening in covenants in Atlas' senior secured debt facilities starting in the first quarter of 2003.

This may affect the company's ability to weather financial stress caused by unfavorable market conditions coupled with onerous short-term working capital requirements, Moody's said.

If the company cannot successfully amend or obtain waivers from lenders on certain covenant restrictions, effectively through 2003, then it is likely that Atlas will be in covenant breach, Moody's added.

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