Moody's puts Fiat on review

Moody's Investors Service put Fiat SpA's Ba1 long-term debt rating on review for downgrade, affecting €12.7 billion of securities.

Moody's said the review was primarily prompted by the continued underperformance of Fiat Auto, the weakening profitability in the first quarter 2003 at its two other major operations, CNH and Iveco, and the substantial operational challenges the group is likely to be confronted with in the medium term.

Moody's review will focus on management's new restructuring plan, to be announced in June 2003, and its potential to restore the group's earnings and cash flow generating capabilities, thereby allowing financial flexibility to return to more adequate levels.

In particular, Moody's said it will assess the likelihood that the proposed plan in the short term will sufficiently mitigate cash outflows in the automotive segment by cost savings and cash flow improvements in the group's other businesses, while repositioning the automotive operations as a cash generator in the medium term.

S&P rates Kappa Beheer notes B

Standard & Poor's assigned a B rating to Kappa Beheer BV's planned €95 million 10.625% subordinated notes due 2009.

S&P cuts Quezon Power

Standard & Poor's downgraded Quezon Power (Philippines) Ltd. Co. including cutting its $215 million senior secured bonds due 2017 to B- from B. The outlook is negative.

S&P said the action follows a downgrade to Manila Electric Co. (CCC/Negative) due to an increase in pressure on Meralco's liquidity and the likelihood that the company is not able to meet its short-term financial obligations. Meralco offtakes Quezon Power's electricity under a long-term power purchase agreement.

If Meralco were to default on its debt obligations in the short-term or enter into debt reorganization or restructuring with its lenders, the timing and amount of the monthly payments to Quezon Power could become uncertain, S&P said.

Such an event may also result in a possible breach under Quezon Power's borrowing agreements with lenders, leading to a technical (non-payment) default. Under such a scenario, the rating on Quezon Power may be even more negatively affected, S&P added.

Despite the negative developments affecting Meralco, Quezon Power has sufficient liquidity to meet its debt servicing requirements over the next 12 months, S&P said. In addition, a recent settlement between Meralco and National Power Corp., allowing Meralco's independent power producers to effectively run as base load plants, demonstrates the benefit of these IPPs to consumers.

S&P rates Universal Compression notes B+

Standard & Poor's assigned a B+ rating to Universal Compression Inc.'s proposed $175 million senior unsecured notes due 2010 and confirmed its existing ratings including its senior unsecured debt at B+. The outlook remains stable.

S&P said it expects that the offering will strengthen Universal Compression's financial profile by extending its debt maturities and lowering its fixed charges, although the magnitude of improvement is insufficient to merit a change in either the outlook or rating on the company.

The ratings on Universal reflect the company's participation in the capital-intensive compression services industry, a fairly aggressive growth strategy, and aggressive debt leverage, S&P said. These weaknesses are tempered by the company's position as the second-largest participant in an industry with favorable, intermediate-term demand fundamentals and the capacity to generate free cash flows throughout most of the business cycle.

Moody's lowers Fairfax outlook

Moody's Investors Service lowered its outlook on Fairfax Financial Holdings Ltd. to negative from stable including its senior debt at Ba3 and Holdings, Inc.'s senior debt at B1.

Moody's said the negative outlook reflects concerns about the liquidity profile of the holding company and the prospect for material reductions in the holding company's sizable cash position over the medium term.

Holding company cash has historically been supportive of the ratings, but the company may need to use the cash to fund upcoming debt maturities and/or to pay other holding company expenses given what is likely to be constrained dividend capacity at the US operating insurers.

The company is taking a series of actions to improve its liquidity profile such as the planned initial public offering of Northbridge Financial Corp. However, these actions will only occur over time and its cash position may come under pressure.

This concern is further heightened by the holding company's significant financial leverage and by the declining availability of its bank lines. Moody's continues to believe that there is significant execution risk associated with the run-off of the TIG operation as it continues to be a drag on overall earnings and cash flows.

Somewhat offsetting these credit negatives are the company's high quality investment portfolio and a rapidly improving pricing environment, Moody's said. Efforts to re-underwrite and re-price ongoing businesses will contribute to the gradual improvement in profitability over the medium term.

Moody's rates Impress notes B2

Moody's Investors Service assigned a provisional B2 rating to the proposed €150 million senior guaranteed notes due 2007 of Impress Group BV and confirmed the existing ratings of the parent Impress Holding BV including its DEM200 million 9.875% senior subordinated notes due 2007 at B3. The outlook is stable.

The ratings reflect the highly competitive marketplace in which Impress operates and resultant on-going exposure to potential pricing pressures; uncertainty as to the company's ability to achieve margin improvements, particularly relating to the timing and extent of future price increases and raw material cost trends; continued exposure to crop yields and customer volume fluctuations; execution risks associated with the company's on-going cost reduction programs; a sizable pension deficit; and significant principal amortization requirements over the next several years, Moody's said.

More positively, the ratings reflect Impress' strong overall position in the metal packaging market and leading positions in selected market segments; an attractive line of value added products; an established and diverse base of well established customers; the company's ability to reduce costs and slightly improve leverage statistics (on a net debt/adjusted EBITDA basis) in what has been a relatively difficult operating environment; and the improved liquidity position expected to result from the company's bank covenant amendments and the proposed partial re-financing of the company's senior bank debt, which will reduce amortization requirements over the next several years.

While Impress has experienced some adverse operating conditions over the past several quarters (which have resulted in underperformance relative to the prior business plan), the company has maintained a relatively stable financial profile and managed to reduce leverage (on a net debt to adjusted EBITDA basis) from 2001 levels, Moody's said. The latter part of 2002 and first quarter of 2003 has been a relatively difficult period for Impress

As a result of these factors, net sales for the 12 months to March 31, 2003 decreased to €1.283 billion €1.355 billion for 2001. Adjusted EBITDA (before rationalization and impairment charges) was also down over the same period as a result of reduced revenues, the absence of substantial one-off gains from 2001, and higher pension charges and tin plate costs. These factors resulted in a slight reduction in adjusted EBITDA to €117.4 million at March 31, 2003 from €122.5 million at the end of 2001.

Moody's puts Crown American on upgrade review

Moody's Investors Service put Crown American Realty Trust on review for upgrade including its preferred stock at B3.

Moody's said the review was prompted by the announcement that Pennsylvania Real Estate Investment Trust signed a definitive agreement to acquire Crown American Realty Trust.

PennREIT will assume all of the debt and preferred stock of Crown American Realty Trust and issue new preferred shares to the current holders of Crown American's non-convertible senior preferred. The terms of the new PennREIT preferred shares will be substantially the same as those of the existing Crown American preferred shares.

Moody's review will focus on the terms of the transaction and the emerging business profile of PennREIT after this transaction, including leverage and coverage levels, the role of secured debt, integration risk, portfolio quality, and future business strategy of PennREIT. In particular, Moody's will examine the benefits of PennREIT's larger size, greater diversification and enhanced market leadership in the retail property sector in the mid-Atlantic that should accrue from this transaction.

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