Moody's cuts Fleming

Moody's Investors Service downgraded Fleming Cos., Inc., affecting $2.3 billion of debt. Ratings lowered include Fleming's $975 million secured credit facility to Ba3 from Ba2, $355 million 10 1/8% senior notes due 2008 and $200 million 9¼% senior notes due 2010 to B2 from Ba3, $400 million 10 5/8% senior subordinated notes due 2007, $150 million 5¼% convertible senior subordinated notes due 2009 and $260 million 9 7/8% senior subordinated notes due 2012 to B3 from B2. The outlook is stable.

Moody's said it cut Fleming because it believes the company's national distribution presence does not provide the exceptional competitive advantage previously contemplated in our ratings and that the company's capital strength may be reduced with divestiture of its retail operations.

Incorporated in the ratings is an evaluation of Fleming's debt protection measures relative to similarly rated credits, the possibility that retail assets with a book value of about $600 million will be sold for less than book value, and the uncertainty related to resolution of the Kmart bankruptcy, Moody's said.

Directly, or indirectly through its customers, Fleming competes with respected retailers such as Wal-Mart, Target and the national supermarket chains, Moody's noted.

Also impacting Moody's views of the risks facing Fleming are the intense competition within the fragmented distribution industry, the necessity to continually replace clients lost in the consolidating supermarket industry, and the challenges in effectively integrating actual and anticipated distribution acquisitions.

However, Fleming benefits from stability as the only national grocery distributor, the potential leverage reduction resulting from divestiture of the retail segment, and the company's adequate liquidity, particularly given Moody's expectation that the company will improve working capital efficiency to historical norms and use excess cash for balance sheet improvement.

Moody's lowers Pilgrim's Pride outlook

Moody's Investors Service lowered its outlook on Pilgrim's Pride Corp. to negative from stable. Ratings affected include Pilgrim Pride's $200 million 9.625% senior unsecured notes due 2011 at Ba3. Moody's does not rate the company's $530 million senior secured credit facilities.

Moody's said it revised Pilgrim Pride's outlook because of the persistence of a challenging business environment and the company's still high financial leverage since its $285 million debt-funded acquisition of WLR Foods in January 2001.

U.S. poultry markets have remained weak since the acquisition and industry margins compressed., Moody's noted An oversupply of chicken, exacerbated this year by a Russian ban on imports from the U.S. (which only recently was lifted) has depressed fresh poultry prices.

Looking forward, feed costs are expected to increase due to lower grain harvests this year, and economic weakness could impact prepared food demand, Moody's added.

Pilgrim Pride's leverage remains high for its ratings level, Moody's said. Total debt at June 30, 2002 was $541 million (including $60 million of receivables sales as part of debt). Debt/Capitalization at the end of the fiscal third quarter on June 29, 2002 was 60%.

Moody's puts Broadwing on review

Moody's Investors Service put Broadwing Inc. on review for possible downgrade affecting $3.1 billion of debt and preferred securities. Ratings affected include Broadwing's $900 million revolving credit facility, $750 million term loan A, $450 million term loan B, $200 million term loan C and $50 million senior secured notes at Ba3, $400 million convertible subordinated debt at B2, $155 million 6.75% series B perpetual convertible preferred stock at B3, Broadwing Communications Inc.'s $46 million senior subordinated debt and $395 million 12.5% junior exchangeable preferred stock due 2009 at B3 and Cincinnati Bell Telephone Co.'s $150 million senior unsecured debentures and $140 million guaranteed medium term notes at Ba1.

Moody's said it began the review because it is concerned that Broadwing's funding needs, especially those of its broadband operations, will continue to challenge an already tight liquidity position that is exacerbated by amortization requirements and covenant compliance pressure.

Absent an amendment or refinancing event, Moody's said it believes the scheduled tightening in Broadwing's senior secured bank covenants may cause compliance pressure in 2002.

At the end of June 2002, Broadwing recorded liquidity of $221 million, comprising $23 million in cash and $198 available under its bank revolver, with availability under the bank revolver scheduled to reduce to $131 million by year-end 2002, Moody' said.

Broadwing's second quarter of 2002 senior secured debt leverage of 2.78 times compared to a covenant of 3.25 times. This covenant reduces to 3.0 times at the end of September 2002, resulting in considerable tightness, Moody's said.

Moody's cuts Venture Holdings

Moody's Investors Service downgraded Venture Holdings Co., LLC affecting $845 million of debt. Ratings lowered include Venture's $175 million guaranteed senior secured revolving credit facility maturing 2004, $75 million guaranteed senior secured term loan A maturing 2004 and $200 million guaranteed senior secured term loan B maturing 2005, cut to Caa1 from B2, $125 million 11% guaranteed senior notes due 2007 and $205 million 9.5% senior notes due 2005 cut to Caa3 from Caa1 and $125 million 12% guaranteed senior subordinated notes due 2009 cut to Ca from Caa2. The outlook is negative.

Moody's said the downgrade is in response to the decision by the German district court to start formal insolvency proceedings against German automobile parts producer Peguform, Venture's largest subsidiary.

Despite indications that significant progress had been made with negotiations among the company's bankers, customers, and possibly other constituents with regard to efforts to obtain the approximately €200 million of additional financing commitments determined by the temporary administrator to be necessary to extract the Peguform assets from insolvency, the company was unable to comply with the Sept. 30, 2002 deadline, Moody's noted. The institution of formal insolvency proceedings against Venture's largest subsidiary therefore occurred and has furthermore triggered an event of default under the company's U.S. senior secured bank credit agreement.

Acceleration of the bank debt would invariably result in bankruptcy proceedings for the company's U.S. operations.

Moody's said it expects that without a substantial reduction in bank outstandings the banks could not avoid acceleration in the absence of an indefinite deferral of the approximately $24 million of aggregate bond interest payments coming due in December 2002 and January 2003.

For these reasons, the ongoing prospects and viability for Venture remain extremely uncertain, Moody's said.

Moody's said it speculates that concerns about Venture's liquidity in Europe emanated from a significant mismatch between the company's U.S. debt service requirements and the existence of a substantial portion of the company's cash flow generation capabilities in Europe. This mismatch was created by the fact that all of the financing for Venture's May 1999 acquisition of Peguform was U.S.-based.

By virtue of this financing structure, it was necessary to repatriate a significant amount of cash from Venture's European operations on a steady basis. The degree to which repatriation was required was exacerbated during 2001 into early 2002, due to the particularly weak U.S. automotive production volumes in combination with the still strong European production volumes, Moody's continued. Peguform notably did not have any of its own funded debt, nor did it have any other material indebtedness other than accounts payable and accruals.

S&P cuts AES China

Standard & Poor's downgraded AES China Generating Co. Ltd. and put the company on CreditWatch with negative implications.

Ratings affected include AES China's $180 million 10.125% notes due 2006, cut to B+ from BB-.

Moody's rates Golfsmith notes B2

Moody's Investors Service assigned a B2 rating to Golfsmith International, Inc.'s planned $93.75 million seven-year secured senior notes. The outlook is stable.

The $75 million of cash proceeds from the senior secured notes, together with cash equity of $49 million and cash on hand of $31 million, will largely be used to finance the leveraged buyout of the company, Moody's noted.

The ratings recognize the effect that poor performance at a few stores could have on overall results given the relatively small store count, as well as Moody's belief that cash flow generation is meaningfully sensitive to small variations in growth rates, the rating agency said.

The significant seasonality in golf equipment sales and the expectation that a substantial proportion of the revolving credit facility will be used for seasonal inventory purchases impacts the view of the risks facing the company, Moody's said. The intense competition within the fragmented golf equipment retailing industry, difficulties in replacing declining print-catalogue sales with internet sales, and uncertainties in the outcome of an accelerated growth rate also constrain ratings at the current level.

Moody's also noted Golfsmith has potential scale advantages from its status as the largest golf equipment retailer (and associated position as the largest purchaser of golf equipment from several manufacturers), the revenue diversity deriving from significant mail-order operations, and the relatively high asset liquidation value relative to the secured debt commitment. The frequency of retail and catalogue purchases by a core customer base of enthusiast golfers, the positive contribution to corporate overhead from virtually all stores, and the plan to build most new stores in existing markets reduce the potential challenges to the company.

Moody's said it assigned a stable outlook because it expects the company will continue the pattern of positive cash flow generation from existing and newly opened stores, keep an adequate liquidity cushion, and modestly improve leverage.

S&P puts Consolidated Container on watch

Standard & Poor's put Consolidated Container Co. LLC on CreditWatch with negative implications. Ratings affected include Consolidated Container's $185 million 10.125% senior subordinated notes due 2009 at CCC and $90 million revolving credit facility due 2005, $150 million term A loan due 2005 and $235 million term B loan due 2007 at B-.

S&P said the watch placement reflects heightened concerns about Consolidated Container's liquidity position (including tightening financial covenants and increasing debt maturities) in light of its ongoing operating challenges and more stringent credit standards.

Since the third quarter of 2001, Consolidated has faced severe operating challenges at its various plants, particularly in new product introductions for key customers, S&P said. In response, management has been implementing several restructuring measures aimed at reducing plant labor and repairs and maintenance costs, containing product quality related issues, and establishing unified information systems.

Although management's ongoing efforts towards an operational turnaround have led to some improvement in operating margins in the second quarter of 2002, lower-than-expected volume growth in key customer contracts and increasing raw material prices (plastic resins) have pressured Consolidated's financial performance, S&P said. Accordingly, EBITDA interest coverage is about 1.5 times and leverage remains very aggressive with total debt (adjusted for capitalized operating leases) to EBITDA at about 7x for the 12-month period ended June 30, 2002.

Under the company's credit agreement, which was amended through February 2003, $15 million of the revolving credit facilities mature on Jan. 5, 2003, and the company faces an interest payment on its 10.125% senior subordinated notes on Jan. 15, 2003, S&P said. The credit facility and the senior subordinated notes have cross-default provisions, and financial covenants under the amended credit agreement tighten considerably in the third and fourth quarter of 2002. Debt maturities increase significantly to about $48 million in 2003, and accelerate further in subsequent years. Consequently, the company's ability to satisfy ongoing debt service requirements is highly reliant on successfully negotiating an amendment with its lenders.

Fitch cuts Amerco

Fitch Ratings downgraded Amerco's senior unsecured debt to BB+ from BBB, preferred stock to BB- from BBB- and commercial paper ratings to B from F2 and kept them on Rating Watch Negative. Fitch also assigned a BB+ rating to Amerco's proposed $275 million senior unsecured notes due 2009.

Fitch said the watch reflects a significant level of debt refinancing requirement over the near term, including a $100 million maturity due Oct. 15, 2002.

The rating actions were based on a combination of weaker operating performance in Amerco's consolidated businesses, which has caused leverage to rise, heighten refinance risk introduced through terms of its new bank revolving credit facility, the and managerial issues, including concerns regarding corporate governance, Fitch said.

Inconsistency has been the hallmark of Amerco's last two fiscal years, Fitch said. Amerco's earnings declined sharply from the levels reported in 2000 due to issues at the company's Republic Western Insurance Co. unit. Aside from the operating issues facing Amerco, changes in financial statement reporting, weaknesses cited in internal controls, lukewarm response by the banking community to Amerco's effort to refinance its revolver, and the firing of its long-time auditors contributed to the inconsistency.

While it appears that most of the changes are completed, management will need to put together a string of good clean quarters to help restore market confidence, Fitch said.

Storage Acquisition Corp.'s debt is non-recourse to Amerco and not included in the calculation of the company debt covenants. However, Mark Shoen, who owns 15.6% of Amerco's common equity, is the sole owner of Storage Acquisition. Therefore, Fitch believes that Amerco would provide some level of support in the event Storage Acquisition encounters some difficulties. Management recently indicated that no significant future transactions are expected between Storage Acquisition and Amerco and plans to separate the two companies are being contemplated.

The addition of Storage Acquisition has increased Amerco's balance sheet footings at March 31, 2002. Storage Acquisition and its subsidiaries added $558 million of debt and an equity deficit of $20 million to Amerco's balance sheet at March 31, 2002. As a result, Amerco's leverage, including off-balance sheet leases and Storage Acquisition debt, stood at 4.14 times at March 31, 2002.

S&P rates Golfsmith notes B

Standard & Poor's assigned a B rating to Golfsmith International Inc.'s planned $75 million 8.375% senior secured notes due 2009. The outlook is stable.

S&P said the ratings reflect Golfsmith's relatively small size, its lack of business diversification, and high leverage. These risks are somewhat mitigated by the company's good market position in the golf equipment industry.

Golfsmith enjoys a good market position in the $6 billion golf equipment industry, S&P said. The company holds a 12.6% share of the specialty off-course golf equipment sector and a 4% share of the total golf equipment industry.

The golf equipment industry is highly fragmented with the top-20 participants controlling less than 25% of the market, S&P noted. The industry has historically grown at a 1% to 2% range due to the steady increase in golf participation over the past 40 years. The industry is expected to continue to grow at this pace due to favorable demographic trends.

The company is the number-1 or number-2 provider of most major brands of golf equipment and is the only golf company with vertically integrated proprietary brands, S&P said. Still, Golfsmith is relatively small with $229 million of revenue and $29 million of EBITDA in 2001. The lack of scale and business diversification leaves Golfsmith vulnerable to changes in the market environment.

Golfsmith's operating performance has been inconsistent over the past few years. The company's EBITDA before rent margin fell to 7.3% in 2000 from 10.1% in 1999 due to problems implementing a new management information system, which caused abnormally high merchandise out-of-stocks and poor customer service, the closure of two stores, reduced advertising, soft conditions in some markets, and lower catalog circulation, S&P said. However, this margin improved to 12.4% in 2001 primarily due to the absence of system problems. Operating performance is expected to show further progress over the next few years as the company has closed underperforming stores, reduced headcount, updated some stores, improved inventory management, and upgraded systems.

S&P rates Massey Energy loan BBB-, puts existing notes on watch

Standard & Poor's assigned a BBB- rating to Massey Energy Co.'s proposed $525 million of senior secured bank loans to replace its existing $400 million of unsecured revolving credit facilities. S&P also put Massey Energy's $300 million 6.95% senior unsecured notes due March 2007 rated BBB- on CreditWatch with negative implications.

S&P said the watch placement on the notes reflects their potential disadvantaged position in the capital structure due to security to be granted under the proposed bank facility.

S&P noted that specific assets secure the new bank facility. Although the collateral includes high quality accounts receivables and inventories, which should realize substantial recovery, S&P said it expects that the remaining collateral will incur substantial devaluation in a default scenario. In addition, strategic assets, including land, coal reserves, and mining permits, which are among the most valuable assets, are not part of the collateral. S&P said that in the event of a default or bankruptcy, the secured debt holders are unlikely to receive full compensation but can be expected to recover a substantial amount of principal - at least 80%, assuming a fully drawn bank facility.

Massey's ratings reflect its substantial, quality coal deposits, contracted production, and high costs. With primarily all of Massey's 2.1 billion tons of reserves located in the Central Appalachia region, the company benefits from this region's high-BTU (British Thermal Units), low-sulfur, and substantial metallurgical coal deposits. Relative to its peers, Massey's reserves contain a higher percentage (41%) of metallurgical coal deposits, which usually receive a higher premium versus steam coal (preferred by electric utilities), given its favorable properties.

Nevertheless, Massey's productivity measures continue to be constrained by its limited use of the efficient longwall mining method, environmental regulations, and ongoing permitting issues, S&P said. In addition, Massey's average cash cost position has meaningfully increased, heightening Massey's vulnerability to industry cycles. Indeed, cash costs, which were $20.39 per ton during fiscal year ending Oct. 31, 1999, significantly increased to $30.39 per ton during the two month November-December 2001 "stub" period. Much of the increase in costs was tied to one-time events such as flooding, a slurry spill in Martin County, difficult longwall moves, and training/inefficiency issues associated with new employees.

Massey's financial performance, during the six months ended June 2002 was weak, S&P said. Particularly, funds from operations (annualized) to total debt and EBITDA (adjusted for charges) to interest ratios of 20% and 4.3x., respectively. However, expected reductions in debt should return these measures to levels indicative of its ratings at 30% and 5x respectively.

S&P cuts Samsonite, on watch

Standard & Poor's downgraded Samsonite Corp. and put it on CreditWatch with negative implications. Ratings affected include Samsonite's $100 million domestic term loan due 2005, $50 million foreign term loan due 2003 and $100 million revolving credit facility due 2003, cut to B- from B, $350 million 10.75% senior subordinated notes due 2008, cut to CCC from CCC+, and $175 million redeemable exchangeable preferred stock, cut to CCC- from CCC.

S&P said its actions are in response to heightened concern about Samsonite's ability to improve its financial profile now that Artemis SA, which currently owns approximately 30% of Samsonite's common stock, has withdrawn its proposal to participate in a deleveraging transaction of the company.

In addition, S&P said it remains concerned about Samsonite's ability to improve its cash flows sufficiently in order to meet its upcoming financial obligations, including interest payments on its subordinated debt and future debt maturities, as well as expected required pension plan contributions.

In addition, the company has a large layer of preferred stock that accretes at 13.875% and becomes cash pay after June 15, 2003, otherwise the dividend rate will increase by 2%, S&P said. This factor has created a growing liability on Samsonite's balance sheet with the need to make cash payment of dividends putting additional pressure on future cash flow coverage measures.

Moody's cuts AES Tiete

Moody's Investors Service downgraded AES Tiete Holdings, Ltd.'s certificates to Ba2 from Baa3 and kept them on review for possible downgrade.

Moody's said the action reflects deterioration in the credit strength of power offt-akers.

Particularly, the rating action reflects Tiete's dependence upon cash flows from Eletropaulo Metropolitana Eletricidade de São Paulo SA (Eletropaulo, rated Caa1). Currently, sales to Eletropaulo account for less than half of Tiete's revenues. However, under the terms of Tiete's contracts, sales to Eletropaulo will grow to represent a majority of Tiete's revenues within several years.

Contractual provisions which allow Tiete's to divert incoming receivables from off-taker banks may offer some mitigation for declining offtaker credit quality, but these provisions have not been tested under stress, Moody's said.

Moody's cuts AES Red Oak

Moody's Investors Service downgraded AES Red Oak's senior secured debt to Ba2 from Baa3 and kept it on review for possible downgrade.

Moody's said the action reflects the downgrade and continuing review of Red Oak's tolling counterparty guarantor The Williams Cos.

The review of Red Oak will assess the ability and willingness of Williams to perform its obligations, and the outcome of the review will be primarily dependent upon the outcome of the review of Williams, Moody's said. Moody's continuing review of Red Oak will also assess the collateral provided by Williams, if any, pursuant to provisions under the tolling agreement.

Moody's cuts AES Ironwood

Moody's Investors Service downgraded AES Ironwood's senior secured debt to Ba2 from Baa3 and kept it on review for possible downgrade.

Moody's said the action reflects the downgrade and continuing review of Ironwood's tolling counterparty guarantor The Williams Cos.

The review of Ironwood will assess the ability and willingness of Williams to perform its obligations, and the outcome of the review will be primarily dependent upon the outcome of the review of Williams, Moody's said.

Moody's puts JDN Realty on upgrade review

Moody's Investors Service put JDN Realty Corp.'s senior unsecured debt at B1 on review for possible upgrade, affecting $300 million of debt.

Moody's said it began the review in response to the announcement that JDN Realty and Developers Diversified Realty have agreed to merge. Developers Diversified is rated Baa3 with a negative outlook.

Moody's said it views Developers Diversified's rating positively for the rated securities of JDN.

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