Moody's lowers Foamex outlook

Moody's Investors Service lowered its outlook on Foamex LP and Foamex Capital Corp. to negative from positive and confirmed its existing ratings. Debt affected includes Foamex's $148.5 million 9.875% senior subordinated notes due 2007 and $51.6 million 13.5% senior subordinated notes due 2005 at Caa2, $300 million 10.75% senior secured notes due 2009 at B3 and $100 million senior secured revolving credit facility due 2005, $39.3 million senior secured term loan B due 2005, $35.7 million senior secured term loan C due 2006, $51.7 million senior secured term loan D due 2006, $16.3 million senior secured term loan E due 2005 and $19.2 million senior secured term loan F due 2005 at B2.

Moody's said it revised Foamex's outlook in response to a sharp decline in Foamex's anticipated third quarter earnings as well as uncertainty resulting from recently announced management changes.

On Oct. 16 the company sharply lowered its third quarter earning guidance due to rising raw material costs and higher SG&A expenses resulting primarily from the formation of Symphonex and the termination of the sale of the GFI carpet cushion business, Moody's said.

The company expects third quarter EBITDA to be in the range of $7-$9 million, down from $33.2 million in the same quarter last year.

Moody's added that it expects higher raw material costs (primarily TDI and polyol) to continue to adversely impact Foamex's earnings and cash flows in the coming quarters as the company is likely to be able to pass through only portion of the higher costs to customers.

According to Foamex, it has obtained waivers with regards to its covenants from its bank lenders through Nov. 30, 2002, and is currently in negotiations to amend its financial covenants, the rating agency noted.

S&P puts Foamex on watch

Standard & Poor's put Foamex LP and Foamex Capital Corp. on CreditWatch with negative implications.

Ratings affected include Foamex's $100 million revolving credit facility due 2005, $100 million senior secured term C due 2006, $110 million senior secured term B due 2005, $110 million senior secured term D due 2006, $31.59 million senior secured term E due 2005 and $25 million term F bank loan due 2005, all at BB-, $100 million 13.5% senior subordinated notes due 2005 and $150 million 9.875% senior subordinated notes due 2007 at B- and $300 million 10.75% senior secured second-lien notes due 2009 at B.

S&P keeps Alamosa on watch

Standard & Poor's said Alamosa Holdings Inc. remains on CreditWatch with negative implications including its corporate credit rating at B-.

S&P said Alamosa remains on watch after the company's announcement of low net subscriber growth and higher churn for the third quarter of 2002 and significantly lower guidance for net subscribers at the end of the year.

We are concerned that the trend in slowing subscriber growth, combined with a significant deterioration in churn, could make it difficult for Alamosa to substantially improve its EBITDA and meet several recently amended bank maintenance covenants in the first half of 2003, and, irrespective of covenants, we are concerned about the company's limited liquidity, S&P said.

The company's announcement seems to indicate that problems with sub-prime credit quality subscribers under the ClearPay program remain and may continue to adversely impact bad debt expense, S&P said. With a subscriber base that has over 30% in sub-prime customers, the weak economy, and intense competition, Alamosa could find it challenging to improve its EBITDA in the near term.

To mitigate the risk of not meeting recently amended senior leverage, total leverage, fixed charge coverage, pro forma debt service, and interest expense coverage tests as they become effective in the first half of 2003, the company would have to profitably add a large number of quality subscribers, limit further drawdown of its credit facility, and resolve all problems relating to ClearPay in the very near term, S&P said.

Moody's confirms FMC

Moody's Investors Service confirmed FMC Corp. including its new first priority senior-secured bank credit facilities at Ba1, second-priority secured debt (which includes $355 million in newly issued

bonds and about $500 million in outstanding debt issued under FMC's existing indenture) at Ba2 and unsecured debt - principally industrial revenue bonds - at Ba3.

Moody's confirmation follows completion of the company's financial restructuring. FMC has substantially improved its overall financial liquidity profile which now consists of its new, mostly undrawn, $250 million bank credit facility, a $40 million facility specifically for letters of credit, and a $135 million cash account that will be available to cash collateralize letters of credit and similar obligations, Moody's added.

Moody's said the ratings reflect FMC's diversified business portfolio, its good business scale with nearly $2 billion in revenues, and its leading market positions in such products as peroxides and soda ash.

FMC's results are somewhat less susceptible to economic cycles and are generally less impacted by volatile feedstock costs than most commodity chemical manufacturers, the rating agency noted.

Fitch cuts Trenwick

Fitch Ratings downgraded Trenwick Group, Ltd. and its subsidiaries including cutting the senior debt to CCC from BB-, preferred capital securities to CC from B+ and preferred stock to CC from B. The ratings remain on Rating Watch Evolving.

Fitch said it believes that Trenwick's already very limited financial flexibility has been exacerbated by A.M. Best's recent downgrade of its primary operating companies' financial strength ratings. These downgrades trigger an event of default under Trenwick's bank agreement that give the banks the right to require Trenwick to collateralize $230 million of letters of credit outstanding under the agreement.

Fitch added that it also believes that the Best downgrades significantly limit Trenwick's ability to participate in the reinsurance market going forward. Many brokers require a minimum of an A- Best rating to place reinsurance with a particular carrier. In addition, Trenwick has yet to secure financing for its Lloyds operation for the 2003 account-year and Fitch believes that the company's ability to obtain such financing is doubtful. Without obtaining such financing, Trenwick will be unable to underwrite at Lloyds in the 2003-account year.

Fitch raises Flowers Foods outlook

Fitch Ratings confirmed Flowers Foods, Inc.'s senior secured credit facilities at BB+, affecting $180 million of outstanding debt and raised its outlook to positive.

Fitch said the improved outlook reflects expectations of lower leverage and improving cash flow from Mrs. Smith's.

Fitch said its ratings for Flowers Foods consider the consistent cash flow generated by the company's largest division, Flowers Bakeries which holds the number one position in fresh baked goods in 16 Southern States (serving 40% of the US population). The rating is supported by management's conservative financial policies; improving credit statistics; and low near-term capital requirements following $425 million of capital investment over the past five years.

The rating also reflects the continued difficulties at Mrs. Smith's, the company's second largest division as measured by revenue and lowest EBITDA contributor, Fitch added. While Mrs. Smith's holds the number one retail position in frozen pies, frozen desserts and cobblers in the United States, it has experienced operational issues including problems at its Spartanburg and Stilwell plants, as well as over-capacity. Mrs. Smith's EBITDA margins are expected to improve, but remain the weakest of Flower's three divisions, in the near-to-intermediate term.

Total debt at July 13, 2002, was $260 million, a reduction of $72 million since the March 2001 spin-off of Flowers Food, Inc. and $61 million since July 14, 2001, Fitch said, adding that it expects debt to decline to less than $200 million by the end of 2002. For the latest twelve months ended July 13, 2002 total debt-to-EBITDA improved modestly to 2.1x from 2.2x for the year ended Dec. 29, 2001 and EBITDA-to-interest incurred grew to 5.1x from 3.2x.

Fitch puts TXU Europe on evolving watch

Fitch Ratings revised its Rating Watch on TXU Europe Ltd. to Evolving from Negative, affecting its senior unsecured debt at C.

Fitch said its action follows the announcement that TXU Europe has agreed to sell a package of assets, comprising the majority of its cash-generating U.K. business, to Powergen UK plc for £1.37 billion in cash, plus the assumption of a related receivables securitization program.

The sale follows a precipitous decline in the credit quality of TXU Europe, Fitch noted. While the sale does capture value from part of the U.K. business that may otherwise have continued to decline at an accelerated rate, it is far from clear that the remaining business of TXU Europe will be able to support the level of liabilities that Fitch estimates will remain. Fitch's Rating Watch Evolving indicates that TXU Europe's ratings could go up, stay the same, or go down.

Further rating changes will be determined by the actions of the creditor group. Positive rating action could follow some or all of the following: payment of the overdue interest on Energy Group Overseas BV's $200 million 7.425% bonds; presentation of a plausible recovery plan, including successful negotiation of the above-market PPAs; resolution of the potential put event on the £275 million 7.25% sterling bond due 2030; and evidence of continued access to lending markets.

Negative rating action could follow if the overdue interest payment is not met during the remaining grace period; if further interest or other payment delays occur; and/or if a standstill upon which the majority of creditor parties can agree is not achieved.

S&P upgrades Hawk

Standard & Poor's upgraded Hawk Corp., removed it from CreditWatch with positive implications and assigned a stable outlook. Ratings affected include Hawk's corporate credit rating, raised to B from B-. S&P assigned a B+ rating to Hawk's new $3 million capital expenditure facility due 2006 and $50 million revolving credit facility due 2006 and a B- rating to its $65 million 12% senior notes due 2006. The B rating on its $35 million secured term loan due 2003 and $50 million secured revolver due 2003 and the CCC+ rating on its $100 million 10.25% senior notes due 2003 were withdrawn.

S&P said the action follows Hawk's announcement that it completed an exchange offer for its $65 million 10.25% senior unsecured notes due 2003 and put in place a new bank credit facility.

With the refinancing of its senior notes and bank credit facility, Hawk has reduced near-term refinancing risk, including its debt amortization payments, and has modestly improved the company's liquidity position, S&P said.

Hawk continues to be negatively affected by soft market conditions, especially in the aerospace market, S&P noted. In response, the company has taken steps to improve its cost structure, by eliminating overhead and by shifting production to its lower cost China and Mexico facilities.

However, Hawk remains aggressively leveraged with total debt to EBITDA of around 5.6 times and EBITDA to interest of about 2.3x as of June 30, 2002, S&P said. In the intermediate term, credit measures are expected to strengthen as a result of Hawk's improving cost structure and as market conditions gradually improve, with total debt to EBITDA expected between 4x-5x and EBITDA to interest coverage expected around 2.5x-3x.

Fitch lowers Bally Total Fitness outlook, cuts notes

Fitch Ratings lowered its outlook on Bally Total Fitness Holdings Corp. to negative from stable, downgraded its senior subordinated notes to B from B+ and confirmed its senior secured bank facility at BB-.

Fitch said the downgrade of the notes reflects its current notching guidelines which require a two-notch differential between senior secured debt and subordinated debt.

Bally Total Fitness has grown via acquisition and the building of new clubs over the past several years. The combination of acquisitions and the growth of its financed membership business model have resulted in an increase in total leverage, Fitch said. Total adjusted leverage has increased slightly for the 12 months to June 30, 2002 to 6.5 times against 6.3x for fiscal 2001. EBITDAR/interest plus rents has increased to 1.5x for the 12 months to June 30, 2002 versus 1.4x for fiscal 2001.

Softness in new member sign-ups, which represent approximately 30% of Bally Total Fitness' revenues, as well as slightly lower operating margins from aggressive club expansion will likely result in EBITDA for fiscal 2002 in line with fiscal 2001, Fitch said.

Going forward, Fitch anticipates that the company will reduce capital spending in the near term in order to integrate and focus on recent acquisitions as well as improve operating margins and EBITDA. The company has several avenues of outside liquidity including its secured bank line as well as parcel sales of its receivables portfolio.

The outlook change reflects a more challenging retail and economic environment, Fitch added.

Moody's lowers Jack in the Box outlook

Moody's Investors Service lowered its outlook on Jack in the Box, Inc. to stable from positive and confirmed its ratings including its $175 million senior unsecured revolving credit facility due March 2003 at Ba2 and $125 million 8 3/8% senior subordinated notes due 2008 at Ba3.

Moody's said the revision is in response to recent changes in Jack in the Box's strategy and Moody's belief that the heightened risk profile relative to previous expectations will inhibit a rating upgrade until the success of the new strategy becomes clearer.

The uncertainty surrounding the success of new strategic directions, in which the company will roll out the restaurant/convenience store/gas pump combination unit beyond the experimental stage, explore acquisition of new restaurant concepts, refranchise a meaningful fraction of company-operated stores, and own a higher fraction of real estate, constrains the ratings at the current level, Moody's said. Relative to the company's previous strategy, going forward Moody's will more closely monitor the financial health of the franchisees.

After the expected refinancing of the bank facility, the stable outlook recognizes that a rating upgrade over the medium term is uncertain until the company proves the success of its new strategic initiatives, Moody's added. The rating agency does not expect Jack in the Box will soon substantially narrow the gap (using measures such as lease adjusted leverage and fixed charge coverage) with higher rated restaurant companies.

Moody's assigns Rite Aid SGL-3 liquidity rating

Moody's Investors Service assigned an SGL-3 liquidity rating to Rite Aid Corp.

Moody's said the SGL-3 rating reflects its estimate that Rite Aid's operating cash flow will likely approach breakeven over the next 12 months, thereby making it reliant on cash balances and revolving credit facility borrowings to fund capital expenditures and upcoming debt maturities.

The company is expected to remain in compliance with the financial covenants in its bank credit agreement, which was amended in February 2002, Moody's said. However, the quarterly tightening of the amended financial covenants could pose problems for Rite Aid over the next year if there is not a commensurate increase in cash flow.

Rite Aid is targeting EBITDA of at least $565 million for the 12 months ending February 2003. Its obligations over the next 12 months include about $320 million of cash interest expense, $60 million of 6% dealer remarketable securities due October 2003, and $30 million of mandatory principal payments, Moody's said. Since a substantial proportion of Rite Aid's stores are relatively new, the company can scale back repair and maintenance capital expenditures over the next year, if necessary.

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