Moody's ups Holmes ratings

Moody's Investors Service said it assigned B1 ratings to The Holmes Group Inc.'s $75 million revolving credit facility and $240 million first lien term facility and a B3 rating to the company's $105 million second lien term loan.

In addition, Moody's raised Holmes' senior implied rating to B1 from B2.

The outlook is stable.

Moody's said the senior implied ratings upgrade reflects improved operating performance, an improved liquidity profile resulting from the proposed transaction, and Moody's expectation of significant deleveraging over the next several years.

The assigned ratings also reflect the company's high leverage and weak balance sheet, its participation in the competitive and low margin small consumer appliance industry, and its high customer concentrations.

Moody's cuts Polypore

Moody's Investors Service said it downgraded the senior implied and senior unsecured issuer ratings of Polypore Inc. by two notches, reflecting the terms of private equity sponsor Warburg Pincus' agreement to acquire the company for about $1.15 billion, including transaction fees.

Moody's also assigned a prospective Caa1 rating to Polypore's proposed $200 million of guaranteed senior subordinated unsecured notes due 2012 and a prospective Caa1 rating to Polypore's proposed €165 million of guaranteed senior subordinated unsecured notes due 2012. Moody's also assigned a prospective B1 rating to Polypore's proposed $495 million of guaranteed senior secured credit facilities.

Moody's downgraded the senior implied rating to B2 from Ba3 and the senior unsecured issuer rating to Caa1 from B2.

Moody's review for possible downgrade of Polypore's ratings that was initiated on Feb. 3 has been concluded, and the company's outlook is now stable, the agency said.

Warburg Pincus' total purchase consideration, which represents an approximately 7.7x multiple of Polypore's March 31, 2004 last-12-months adjusted EBITDA, will be financed by a combination of new guaranteed senior secured credit facilities, new guaranteed senior subordinated unsecured notes, and equity.

Polypore's total pro forma outstanding debt upon closing its sale to Warburg Pincus will increase to about $820 million, or about 285% of the approximately $285 million of total debt that the company had in place as of fiscal year end Jan. 3, 2004.

S&P cuts Amscan ratings

Standard & Poor's said it lowered its corporate credit rating on party goods manufacturer Amscan Holdings Inc. to B+ from BB-.

S&P has also assigned its B+ bank loan rating and its 3 recovery rating to Amscan Holdings Inc.'s proposed $250 million senior secured credit facilities due 2012. In addition, S&P assigned its B- senior subordinated debt rating to Amscan's proposed $175 million senior subordinated notes due 2014.

The outlook is stable.

S&P said the downgrade reflects the increased consolidated debt burden the company will take on after its proposed acquisition by AAH Holdings Corp., a new entity jointly controlled by affiliates of Berkshire Partners LLC and Weston Presidio. The transaction will add about $96 million of incremental debt to the company's credit profile and substantially increase debt leverage and weaken credit measures.

Proceeds from the new credit facilities and notes offering will be used to finance the proposed acquisition by AAH Holdings Corp. and to repay about $277 million of outstanding debt currently residing at Amscan.

S&P said the ratings on Amscan reflect its highly leveraged financial profile, narrow business focus, and participation in the highly competitive, fragmented party goods industry. Somewhat mitigating these factors are the company's diverse product line and the solid growth prospects in its industry.

Moody's may cut United Agri

Moody's Investors Service said it placed the ratings of United Agri Products Inc. (senior implied at B2) and UAP Holding Corp. on review for possible downgrade.

Moody's said the action is prompted by the company's decision to go public using a transaction structure (Income Deposit Securities - IDS) that substantially increases the company's total debt outstanding as well as raises its interest and expected dividend payments. UAP's senior unsecured notes and UAP Holdings' discount notes will be refinanced in conjunction with the transaction.

Ratings placed on review for downgrade include UAP Holding Corp.'s senior unsecured discount notes due 2012 at Caa2 and United Agri Products Inc.'s $225 million guaranteed senior unsecured notes due 2011 at B3 and $500 million guaranteed senior secured revolver due 2008 at B1.

In the proposed transaction, the current owners will sell a substantial portion of their equity in a secondary transaction structured as IDS. Each IDS will comprise senior subordinated debt securities and equity securities of UAP Holdings. The existing unsecured notes of UAP will be repaid and partially refinanced with a new term loan.

Moody's lifts Coventry Health rating

Moody's Investors Service said it has upgraded the senior unsecured debt rating of Coventry Health Care Inc. to Ba1 from Ba3 and the senior implied rating and issuer rating of Coventry to Ba1 from Ba3.

The outlook is stable.

Moody's said the rating upgrade is a result of the sustained improvement in Coventry's operating performance combined with its membership and revenue growth over the last several quarters, and an expectation of continued improvement going forward.

The rating agency said these strengths are somewhat mitigated by Coventry's appetite for acquisitions, its high percentage of government-related business, the fact that its business expertise is concentrated in the hands of a few key members of top management at the company, and the risks associated with operating healthcare plans in 14 separate marketplaces.

S&P: Goodyear on negative watch

Standard & Poor's said that its BB- corporate credit and other ratings on Goodyear Tire & Rubber Co. remain on CreditWatch with negative implications where they were placed on Dec. 11, 2003.

The CreditWatch placement followed Goodyear's announcement that an internal investigation had identified possible improper accounting issues in its overseas operations. The CreditWatch also reflected concerns about the firm's poorly performing North American tire operations.

S&P said the internal accounting investigation has now been completed and will result in adjustments to previously reported financial statements, but S&P has concluded that the adjustments will have no impact on the company's ratings.

Nevertheless, the continuing CreditWatch placement reflects S&P's intention to review Goodyear's operating prospects, and ratings could still be lowered if it appears that Goodyear will not achieve meaningful improvement in its North American tire operations during the next few years.

Goodyear Tire & Rubber Co.'s senior secured debt is rated BB+ and senior unsecured debt is rated B.

Moody's: D.R. Horton outlook positive

Moody's Investors Service said it raised the outlook on D.R. Horton Inc. to positive from stable. At the same time, Moody's confirmed all of the company's existing ratings, including the senior implied rating, issuer rating, and the ratings on the company's senior notes at Ba1 and on its senior subordinated debt at Ba2.

Moody's said the ratings also acknowledge the company's enviable operating performance (105 consecutive quarters of year-over-year earnings growth), success at integrating prior acquisitions, strong equity base, geographic diversity, and tight cost controls.

At the same time, Moody's said the ratings continue to incorporate Horton's somewhat higher-than-average business risk profile given its previously healthy appetite for acquisitions, which its current strategy does not totally disavow. In addition, capacity under its large bank credit facility ($1 billion, with a $250 million accordion) gives the company ample dry powder to releverage the balance sheet on short notice.

Ratings affirmed include the company's B1 rating on its $150 million 8.375% senior notes due June 15, 2004; $200 million 10.5% senior notes due April 1, 2005; $215 million 7.5% senior notes due Dec. 1, 2007; $385 million 8% senior notes due Feb. 1, 2009; $244 million 9.375% senior notes due July 15, 2009 (issued by Schuler Homes and assumed by D.R. Horton in the merger of February 2002); and $200 million 7.875% senior notes due Aug. 15, 2011.

Also affirmed at B1 were the company's $250 million 8.5% senior notes due April 15, 2012; $200 million 6.875% senior notes due May 1, 2013; and $100 million 5.875% senior notes due July 1, 2013. Affirmed at Ba2 were the company's $150 million 9.75% senior subordinated notes due Sept. 15, 2010; $200 million 9.375% senior subordinated notes due March 15, 2011; and $145 million 10.5% senior subordinated notes due July 15, 2011 (issued by Schuler Homes and assumed by D.R. Horton).

S&P lifts Yum! from junk

Standard & Poor's said it raised its ratings on quick-service restaurant operator Yum! Brands Inc. to BBB- from BB+. The outlook is stable.

S&P said the upgrade reflects the significant improvement in operating performance and debt reduction that Yum! has achieved since its spin-off from PepsiCo Inc. in 1997, its consistently high free cash flow, and S&P's expectation that the company will maintain a prudent financial policy as it continues its growth strategy.

The ratings on Yum! reflect the company's good levels of profitability, its solid position in the quick-service sector of the restaurant industry, and satisfactory cash flow protection measures. These factors are somewhat mitigated by the company's participation in the intensely competitive quick-service segment of the restaurant industry and the complexity of operating multiple brands, the agency said.

S&P: Northeast Gen cut to junk

Standard & Poor's said it lowered its rating on Northeast Generation Co.'s senior secured bonds to BB+ from BBB-. The outlook remains negative.

Select Energy and Northeast Generation are affiliates, both of which are owned 100% by Northeast Utilities (BBB+/negative/--). Select Energy buys the power produced by Northeast Generation under a three-year contract.

S&P said the rating action reflects the near-term expiration of the Select Energy contract and the potential that Select Energy may not extend the contract on terms favorable to the Northeast Generation bondholders.

Under S&P long-term gas price assumption of $3.25 per million BTU, Northeast Generation's stand-alone operations do not support an investment-grade rating, the agency concluded.

S&P rates XM Satellite floaters CCC+

Standard & Poor's said it assigned its CCC+ rating to XM Satellite Radio Inc.'s proposed $125 million senior secured floating-rate notes due 2009.

At the same time, S&P affirmed its CCC+ corporate credit rating on the company and its parent, XM Satellite Radio Holdings Inc.

The outlook is stable.

Proceeds will primarily be used to refinance existing debt.

S&P said the ratings reflect concern about XM's substantial debt load, the prospects for continued large EBITDA losses until XM substantially increases its subscriber base, and the uncertain demand for subscription-based satellite radio.

These concerns are only partly offset by the company's good near-term liquidity, consistent growth and operational execution, and support from strategic investor GM.

Moody's rates Boyd loan Ba2

Moody's Investors Service said it assigned a Ba2 rating to Boyd Gaming Corp.'s proposed $1.5 billion senior secured bank credit facility and affirmed the company's existing ratings.

Ratings affirmed include the senior implied rating at Ba2, the speculative grade liquidity rating at SGL-1, $400 million senior secured revolver due 2007 at Ba1, $198.5 million senior secured term loan facility due 2008 at Ba1, $200 million 9.25% senior unsecured notes due 2009 at Ba3, $250 million 8.75% senior subordinated notes due 2012 at B1, $300 million 7.75% senior subordinated notes due 2012 at B1, $350 million 6.75% senior subordinated notes due 2014 at B1, and the senior unsecured issuer rating at Ba3.

The outlook remains stable.

At Coast, on review for possible upgrade are the company's Ba3 senior implied rating, B1 senior unsecured issuer rating and B2 rated $325 million 9.5% senior subordinated notes due 2009.

Proceeds from the facility will be used to fund a portion of the pending acquisition of Coast Casinos Inc. (parent of Coast Hotels and Casinos Inc.), to refinance Coast's existing debt, to refinance Boyd's existing bank debt, and for general corporate purposes. The new facility will be comprised of a $1 billion revolving credit facility due 2009 and a $500 million term loan B facility due 2011.

Moody's said Boyd's pending acquisition of Coast will greatly expand the company's presence in the Las Vegas locals market, a growing market with a high barrier to entry and stable regulatory environment. Coast is an established operator in that market with a proven operating and development track record as well as good internal and external growth prospects.

Key risks, the agency noted, include the impact of higher taxes in Illinois and Indiana, heightened competition in Tunica, Miss., and New Orleans, and the combined entity's aggressive capital spending plans.

Moody's: Georgia-Pacific outlook stable

Moody's Investors Service said it affirmed Georgia-Pacific Corp.'s ratings (senior implied Ba2; issuer Ba3 and senior unsecured Ba3) and changed the outlook to stable from negative.

Similarly, the outlooks for Fort James Corp., G-P Canada Finance Co. and Fort James Operating Co. were changed to stable from negative, with the applicable senior unsecured ratings for those entities affirmed at Ba2, Ba3 and Ba2, respectively. Moody's also affirmed Georgia-Pacific's speculative grade liquidity rating as SGL-3.

Moody's said the stable outlook reflects the debt reduction benefits from pending asset divestitures, combined with maintenance of adequate liquidity. In the context of a slightly more stable and profitable business platform resulting from divesting the volatile pulp and the low margin building products distribution segments, this lower debt level better balances positive versus negative influences.

In aggregate, Georgia-Pacific's ongoing cash flow generating capability has not yet reached the potential that management foresees, and credit metrics continue to be representative of the current rating.

Moody's may upgrade Ryland

Moody's Investors Service said it placed the senior implied rating of The Ryland Group Inc. under review for possible upgrade to Baa3 from Ba1.

At the same time, Moody's confirmed all of the company's other ratings, including its issuer rating and ratings on its senior notes at Ba1 and rating on its senior subordinated debt at Ba2.

The outlook was raised to positive from stable.

In its review, Moody's said it will focus on the company's commitment to maintaining an investment-grade profile, the sustainability of its improved financial and operating results, and its liquidity.

The review for upgrade was limited at this time to Ryland's senior implied rating because the company's bank credit facility is structurally senior to its publicly-rated senior notes and senior subordinated notes. The bank credit facility (which Moody's does not rate) carries the guarantees of Ryland's operating subsidiaries; the publicly-rated notes do not. Going forward, consideration for an upgrade of the company's publicly-rated notes will rest on elimination of their structural subordination to the bank debt.

S&P: Delta ratings unaffected

Delta Air Lines Inc. (B-/stable/--) reported a $383 million net loss, in line with previous guidance, and a reduction in unrestricted cash to $2.2 billion at March 31, 2004, compared with $2.7 billion at Dec. 31, 2003.

Standard & Poor's said its ratings, which were lowered to current levels March 17, and outlook on Delta are not affected.

Delta's CEO, Gerry Grinstein, portrayed the trend of losses and declining liquidity as "clearly unsustainable over the long term," and described the company's balance sheet as "severely damaged to the point of exhaustion."

He said that Delta would not seek to borrow further, aside from already committed regional jet financings. His comments were clearly aimed at the airline's pilots, from whom management is seeking substantial pay and benefit concessions. Grinstein nonetheless said that he believed Delta could achieve its cost goals "without court-supervised restructuring."

S&P does not expect that Delta's unrestricted cash balance will continue to decline as it did in the first quarter, when the company made a $400 million debt payment, because revenues (and thus operating cash flow) should strengthen in the second and third quarters and remaining 2004 pension and debt commitments are less onerous.

Still, Grinstein's comments indicate that the company is prepared to allow its liquidity to erode further as it pursues concessions from its pilots. S&P said it expects that Delta will eventually achieve a cost-saving pilot contract, but that may not occur until 2005 and may not incorporate all of management's goals.

Moody's may upgrade Domino's

Moody's Investors Service said it placed all ratings of Domino's Inc under review for upgrade.

Moody's said the review is prompted by the company's announcement that it intends to undertake an initial public offering for at least $300 million and Moody's expectation that proceeds from the primary offering will be used to pay down debt.

Moody's said it understands that the initial public offering will be comprised of a primary offering and a secondary sale from existing shareholders. According to the optional redemption provision of the senior subordinated note of 2011 indenture, the company has the right, but not the obligation, to call up to 40% of the issue at 108.25% of par with proceeds from primary equity offerings.

Ratings placed under review for upgrade include the company's $663 million secured bank facility at B1 and $403 million 8¼% senior subordinated notes due 2011 at B3, the B1 senior implied rating, and the B2 issuer rating.

S&P: Domino's ratings unaffected

Standard & Poor's said Wednesday that Domino's Inc.'s (B+/stable/--) announcement, in which the company stated that it plans to raise $300 million in an initial public offering of shares offered by both the company and existing shareholders, is viewed as a credit positive.

Upon completion of the offering, S&P said it will consider an outlook change to positive from stable if the company uses at least a third of the proceeds to reduce its leverage and continues its stable operating performance.

In June 2003, Domino's completed a recapitalization transaction, which added $400 million of incremental debt. Pro forma for a $100 million debt paydown from the share offering, lease adjusted total debt to EBITDA would decline to about 4.5x, from 5x at Dec. 28, 2003.

S&P: Birds Eye unaffected

Standard & Poor's said Wednesday that the ratings and outlook on Birds Eye Foods Inc. (B+/positive/--) would not be affected by the sale of the company's Freshlike canned vegetable business to Allen Canning Co. (unrated).

Terms of the transaction were not disclosed.

S&P said it expects that proceeds from the transaction will be used for debt reduction.

Moody's rates Transwestern Pipeline

Moody's Investors Service said it assigned a B1 senior secured rating to Transwestern Pipeline Co.'s term loan and a B1 senior implied rating, subject to a satisfactory review of final documentation.

Although on a standalone basis, Transwestern has a stable credit profile as a solidly capitalized regulated gas pipeline, its ratings are suppressed by its indirect ownership by Enron Corp., which is in Chapter 11. Transwestern is not a debtor in that bankruptcy proceeding.

The outlook is positive, reflecting the progress made to-date in the Enron bankruptcy, notably the recent formation of CrossCountry Energy LLC, the new intermediate holding company that is now the parent of Transwestern. Enron's equity interest in Transwestern and certain other pipeline holdings were transferred, free and clear of all liens and claims, into CrossCountry.

S&P: Calpine amendment credit neutral

Standard & Poor's said Wednesday that it views Calpine Corp.'s (B/negative/--) consent solicitation to amend the indentures of certain public notes as credit neutral.

Of note is the amendment that would allow the company to incur liens on assets to secure obligations arising from power and fuel contracts for commercial and trading activities. This amendment could effectively reduce Calpine's liquidity needs by allowing Calpine to secure margins on power contracts with the assets themselves, rather than posting cash or letters of credit as collateral. It could also affect the recovery prospects of the lenders in a Calpine bankruptcy scenario.

However, under a typical power purchase arrangement, before any such counterparty lien could secure a payment obligation owed by Calpine, the power contract with the counterparty would have to be at a lower rate than the prevailing market rates. If power prices or spark spreads were at higher rates than the contract, it is likely that Calpine's uncontracted power assets would be performing well financially.

This fact leads S&P to conclude that there is a low probability of having liens against these assets and Calpine filing for bankruptcy simultaneously.

S&P: Ann Taylor outlook positive

Standard & Poor's said it revised its outlook on Ann Taylor Inc. to positive from stable. The BB- corporate credit rating was affirmed.

S&P said the outlook revision reflects an improving financial profile following Ann Taylor's solid operating performance in 2003, and S&P's expectations that this level of operating performance could be sustained.

According to the agency, the ratings continue to reflect the company's high business risk given its participation in the highly competitive and volatile specialty apparel industry, inconsistent operating performance, and the rapid growth strategy at the Ann Taylor Loft business. These factors are somewhat mitigated by the company's more focused merchandising strategy, improved inventory management, and adequate credit-protection measures.

S&P: Unifi on negative watch

Standard & Poor's said it placed its ratings on textile manufacturer Unifi Inc. on CreditWatch with negative implications, including the company's B+ long-term corporate credit and senior unsecured debt ratings.

The CreditWatch placement follows Unifi's recent announcement that it intends to create a wholly owned subsidiary to produce yarns in China and that it is looking for locations to establish this start-up business.

S&P said it is concerned about the additional capital investment for this venture as well as business risks associated with setting up business in a new country.

Another factor contributing to the CreditWatch listing is the company's weakening financial measures. Unit volume and pricing have declined in both the polyester and nylon yarn businesses, and this, along with the company's unabsorbed fixed costs, has put pressure on Unifi's margins. Furthermore, it is uncertain how the upcoming elimination of international quotas on apparel and textile goods will affect Unifi's business profile.

S&P: Mothers Work stable

Standard & Poor's said it revised its outlook on specialty maternity apparel retailer Mothers Work Inc. to stable from positive. Ratings, including the B+ corporate credit rating, were affirmed.

The bank loan rating is BB-, and the senior unsecured debt rating is B+.

S&P said the outlook revision reflects weaker-than-expected performance at the company and S&P's expectation that credit-protection measures will not improve in the near-to-intermediate term to levels previously anticipated.

Ratings reflect the high business risk associated with Mothers Work's participation in the narrowly defined maternity segment of the apparel retailing industry and the company's relatively small size, the agency said.

Moody's affirms Westar Energy

Moody's Investors Service said it affirmed the ratings of Westar Energy and its wholly owned subsidiary, Kansas Gas & Electric. The individual company outlooks have been changed to positive.

Westar's $900 million shelf registration has been assigned a prospective Ba1 rating for first mortgage debt and a prospective Ba2 rating for unsecured debt. Additionally the company's speculative grade liquidity rating is raised to SGL-2.

Moody's said the outlook changes reflect the success the company has demonstrated in meeting the goals of its debt reduction plan. This includes the sale of its Oneok stock ownership and more recently the successful closing of the sale of its Protection One subsidiary and its $240 million common equity offering.

The business restructuring effort has not only allowed the company to benefit from a reduction in business risk profile but also to significantly lower debt levels.

Moody's: KB Home outlook positive

Moody's Investors Service said it raised the outlook on KB Home to positive from stable. At the same time, Moody's confirmed all of the company's existing ratings, including the senior implied rating, issuer rating, and the ratings on the company's senior notes at Ba1 and on its senior subordinated debt at Ba2.

Moody's said the change in outlook reflects KB Home's improving financial results and profile and success at reducing its earnings concentration in California while the ratings themselves incorporate the company's leading share position in many of the markets that it serves, successful track record both in de novo expansions and in integrating acquisitions, and long history.

At the same time, the ratings consider the financial and integration risks that accompany an aggressive expansion strategy, the still-sizable concentration of land inventory values and profits in California, and the large, ongoing share repurchase program.

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