S&P upgrades Stena

Standard & Poor's upgraded Stena AB including raising its $175 million 8.75% notes due 2007 and $200 million 9.625% callable notes due 2012 to BB from BB-. The outlook is stable.

S&P said the rating action follows continued positive progress in Stena's ferry operations, relative stability in financial performance owing to its diverse revenue base and S&P's expectations that the group will maintain an adequate financial profile in line with the new ratings.

Stena has continuously improved operating and financial performance in its Stena Line ferry business (which represented about 64% of sales in 2002) since the buyout in 2001 through a number of restructuring and rationalization efforts, and by gradually increasing the exposure to the more stable and profitable freight segment, S&P noted. This, in combination with a diverse revenue stream from its other main businesses, has also contributed to reducing earnings volatility.

S&P added that it expects Stena to continue to grow through relatively large investments, but large expansionary investments are expected to be balanced by internally-generated cash flows or disposals.

Stena's financial profile remains fairly aggressive, reflecting the capital intensity of its businesses, S&P said. Nevertheless, the size and relative stability of cash flow derived from the many long-term contracts in Stena's drilling and real estate divisions strengthen the group's interest-payment ability.

Moody's upgrades Polska Telefonia

Moody's Investors Service upgraded Polska Telefonia Cyfrowa Sp. zoo, affecting €1 billion of debt including its senior subordinated bonds, raised to Ba3 from B1.

Moody's said the upgrade reflects PTCs on-going progress in reducing debt through internally generated cash flows, Moody's expectation that PTC should be able to continue to generate meaningful levels of cash flow and further strengthen its financial profile through additional debt reductions and the company's continued ability to grow subscriber numbers and maintain a leading market position in the Polish mobile market.

PTC has performed strongly over the past year, increasing revenue, subscriber numbers, and free cash flow levels while reducing debt from internally generated cash flow. For the year ending 2002, PTC generated cash flow from operations (after interest expense) of PLN1.523 billion (2001: PLN1.162 billion) versus investments including license payments of PLN527 million (2001: PLN2.275 billion). Leverage at year-end 2002 (on a debt/EBITDA basis) reduced to 2.3-times (from 3.1-times at year-end 2001).

Subscriber growth also remained strong as the company counted 5.2 million subscribers at March 31, 2003 versus 4.0 million at the year-prior period. The company has maintained its leading market share in the competitive Polish mobile market with an estimated 35.4% share of Polish mobile subscribers at March 31, 2003.

The ratings continue to be constrained, however, by the ongoing challenges faced by the company as it attempts to continue to grow its subscriber base while controlling churn and maintaining ARPU metrics in a highly competitive environment, Moody's said. While overall penetration levels of 38.7% still allow for further market growth, Moody's believes that as penetration levels continue to increase, price competition and a shift towards lower-value subscribers will likely remain a key feature of the market.

S&P confirms Salton Sea

Standard & Poor's confirmed Salton Sea Funding Corp.'s $592 million senior secured bonds series B, C, E and F at BB and maintained a developing outlook.

S&P said the confirmation reflects the credit strength of the primary power offtaker, Southern California Edison Co. (BB/developing) and follows the rating agency's periodic review of the project.

S&P said the rating reflects that portfolio cash flows largely depend on eight project contracts whose pricing, although negotiated with Southern California Edison and approved by the CPUC in the recent settlement discussions, still expose lenders to regulatory and political uncertainty in the California power markets; the fixed capacity payments, combined with the negotiated energy price, will tend to be above market prices for nonrenewable energy sources; high fixed costs could disadvantage the plant's competitiveness in a purely competitive market.

However strengths are that project cash flows and royalties come from a portfolio of 10 geothermal power projects with excellent operating histories; debt service coverage in 2002 rose above 2001 coverage, increasing to 2.02x from 1.51x (excluding zinc-related debt service guaranteed by MidAmerican Energy Holdings Co.); going forward coverage should average about 1.7x; the projects have experienced successful operations, with availability and capacity factors in 2002 again nearing 100%, as they have for several years; the zinc facility, the construction of which fell well behind schedule due to problems with the original contractor, has begun limited operations; MidAmerican's guarantee of the debt allocated to the zinc project removes risk to lenders at the current rating.

S&P cuts CE Casecnan

Standard & Poor's downgraded CE Casecnan Water and Energy Co. Inc. including cutting its $171.5 million 11.95% senior secured notes series B due 2010 and $125 million 11.45% senior secured notes series A due 2005 to B+ from BB. The outlook is negative.

S&P said the action reflects CE Casecnan's tight liquidity position and concerns about the increased risks of arbitration of the offtake contract with the National Irrigation Administration, its major customer.

CE Casecnan has recently experienced delays in receiving payments from the NIA. Although Casecnan eventually received payment for the outstanding invoice, amounting to about $7.2 million, the company did not receive an explanation as to why it was delayed, S&P said.

An added uncertainty is NIA's claim that Casecnan's power contract is contrary to Philippine law and public policy, S&P continued. NIA has requested the arbitral tribunal to declare the project agreement void, or to remedy the alleged defects in its terms. The uncertainty over the strength of this agreement is a concern.

S&P said it is also concerned about Casecnan's tight liquidity position. The company is unable to fund its debt service reserve. Casecnan's debt service coverage ratio has remained at about 1x since the company began operations, which is significantly less than originally projected.

Moody's confirms Resona junior debt

Moody's Investors Service confirmed Resona Bank, Ltd.'s junior subordinated debt at B1, ending a review begun on May 19. Other ratings were unaffected by the review. The outlook is stable.

Mooyd's said the confirmation of the junior subordinated rating reflects its current assessment that the risk of interest deferral on the junior subordinated debt issued by Resona Bank and other supported subsidiaries has diminished.

In Moody's view, Resona's management has placed significant priority on the continued interest payment on its junior subordinated debts, despite the significant deterioration of Resona's regulatory capital ratio and erosion of its distributable profits for the fiscal year ended March 2003.

In Moody's view, regulatory intervention to force the suspension of interest on junior subordinated debt has not materialized in an effort to minimize systemic risk.

Moody's cuts Indiantown to junk

Moody's Investors Service downgraded Indiantown Cogeneration, LP's $466 million of senior secured debt to Ba1 from Baa3. The outlook is negative.

Moody's said it lowered Indiantown because of the project's weakened financial profile, particularly due to problems with operating performance, including outages during 2001 and 2002.

While Indiantown anticipates financial improvement in the next few years, prospective coverage ratios are anticipated to be in the 1.30x to 1.40x range, below the level that would be consistent with a Baa3 rating for a coal-fired project. The rating action also incorporates some uncertainty relating to the price redetermination of a coal purchase contract. While Indiantown has successfully transitioned from its previous coal supplier which filed for bankruptcy in 2001 to a new supplier with a major presence in the Central Appalachian region, the current contract's fixed price is short-term in nature and will need to be renegotiated later this year in order to provide greater certainty around expected future cash flows and future coverage ratios.

The rating action further considers that Indiantown will be required to use any excess cash to fund or repay third party obligations over the next several years relating to three letters of credit, the largest of which is used to support the project's six month debt service reserve, Moody's said.

The negative outlook incorporates the involvement of PG&E National Energy Group, Inc., as operator and as a partial owner, as well as the project's need to satisfy additional funding requirements over the next several years, Moody's said. To the extent that Indiantown is successful in securing replacement letters of credit, the rating outlook for Indiantown could stabilize.

Moody's cuts Allegheny Technology, on review

Moody's Investors Service downgraded the senior unsecured ratings of Allegheny Technologies Inc. to Baa3 from Baa2 including its 8.375% senior unsecured notes due 2011 and Allegheny Ludlum Corp.'s 6.95% guaranteed unsecured debt due 2025 and put the ratings under review for possible further downgrade.

The downgrade reflects the continuing erosion of Allegheny Technologies' financial performance that has resulted in a significant weakening of its debt protection measurements and Moody's expectation that challenging conditions in the company's core markets may continue for a prolonged period of time.

Moody's review will address the likely timeframe surrounding prospects for a recovery of Allegheny Technologies' financial performance and will examine both the structural and effective subordination of the existing notes to the newly established secured credit facility.

Moody's said its rating action was prompted by the continued negative trend in Allegheny Technologies' financial performance driven by volatility of energy costs and continuing weak business conditions. The operating loss for the four quarters ended March 31, 2003 of $48 million on $1.9 billion of revenues incorporates significant non-cash retirement expenses, but excludes restructuring and other charges. Adjusting for non-cash retirement expenses, operating profit would have been roughly $3 million for the trailing four quarters, which provides more clarity into the underlying weakness in Allegheny Technologies' performance.

Debt protection measurements weakened commensurately such that total debt to unadjusted EBITDA for the four quarters ended March 31, 2003 escalated to 14.2 times, Moody's said. Furthermore, while the company's success with reducing its managed working capital requirements during 2001 and 2002 surpassed its targets and supported its cash flow generation, Moody's notes that the ability to wring continued savings from this source may prove more challenging, going forward.

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