Moody's rates American Color Graphics B3

Moody's Investors Service assigned a B3 rating to American Color Graphics, Inc.'s proposed $280 million senior secured second priority notes due 2010 and confirmed its $185 million 12.75% senior subordinated notes due 2005 at B3. The outlook is stable.

Moody's said the ratings reflect American Color Graphics' high leverage, competitive pressure, relatively modest margins and the dependency of its business upon customer insert and premedia spending, both of which have experienced a protracted slowdown since 2001.

The ratings are supported by the company's generally positive free cash flow performance and a moderate improvement in leverage during recent quarters. In addition, the proposed refinancing of American Color Graphics' unrated credit facility will serve to remove amortization pressure and reduce the possibility of any future breach of bank covenants.

At the end of March 2003, American Color Graphics recorded debt and preferred stock of $289 million representing leverage of 5.0 times, Moody's said.

Sales for the quarter ended March 31, 2003 were 2% lower than the prior year quarter, however American Color Graphics has consistently recorded positive free cash flow results during the past several quarters.

S&P rates American Color Graphics notes B

Standard & Poor's assigned a B rating to American Color Graphic Inc.'s proposed $280 million senior secured second priority notes due 2010 and confirmed its existing ratings including its subordinated debt at B-. The outlook remains positive.

S&P said the ratings reflect American Color Graphic' dependence on a single industry segment (retail inserts), high debt levels, and the competitive market conditions of the overall print industry. These factors are offset by the company's good competitive position in the retail insert market, long-standing customer relationships, ample liquidity, and adequate credit measures for the rating.

American Color Graphic is the third largest printer in the retail insert market, behind Quebecor World and Vertis, with an approximately 8% share. While the retail insert market is a relatively small niche segment in the overall print industry, it continues to be a popular marketing choice among both retailers and consumers, given its high penetration, low-cost nature and ease of customization, S&P said. In addition, insert volumes tend to be less volatile when compared to other print segments, including financial printing.

In response to the lower volumes and competitive pricing pressures, the company has executed a restructuring plan for its print and pre-media segments, which included closing plants and relocating equipment, in an effort to reduce costs and improve efficiencies, S&P said. These initiatives are expected to yield the company meaningful cost savings that are expected to result in a modest improvement to the EBITDA margin during the next few years. While recent operating results showed a slight increase in print production volumes, the current competitive environment in the printing industry and the continuing weak economy are expected to prevent the company from growing its EBITDA base materially in the near term.

EBITDA for the fiscal year ended March 31, 2003, was $57.3 million, an approximately 17% decline over the prior-year, despite an over 7% increase in unit volume as a result of sales successes with a number of customer accounts, S&P said. During this period, however, the company experienced incremental costs associated with the addition of capacity and the repositioning of existing presses. As a result, the company's EBITDA margin decreased by more than 150 basis points to 11.4% as compared to the prior fiscal year. Pro forma total debt to EBITDA (excluding the increased costs and included the proposed notes) is around 4.6x and EBITDA coverage of interest is slightly more than 2x. In addition, if the company's $29.5 million in un-funded pension liabilities is included, total debt to EBITDA is around 5x.

Moody's rates Pioneer Natural Resources liquidity SGL-1

Moody's Investors Service assigned an SGL-1 speculative-grade liquidity rating to Pioneer Natural Resources Co.

Moody's said the liquidity rating primarily reflects its expectation that Pioneer will generate positive free cash flow in the near term, which should provide very good liquidity for at least the next 12-18 months to finance the company's operations. Further liquidity is provided by Pioneer's capacity to borrow under its $575 million unsecured revolving credit facility maturing in 2005. Currently high oil and gas prices are a key factor supporting the rating.

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