S&P upgrades EchoStar

Standard & Poor's upgraded EchoStar Communications Corp. including raising

EchoStar Communications Corp.'s $1 billion 4.875% convertible subordinated notes due 2007 and $1 billion 5.75% convertible subordinated notes due 2008 to B from B- and Echostar DBS Corp.'s $1.625 billion 9.375% senior notes due 2009 and $700 million 9.125% senior notes due 2009 to BB- from B+. The ratings were removed from CreditWatch with positive implications. The outlook is stable. S&P also assigned a BB- rating to EchoStar DBS' new $1 billion 10.375% senior notes due 2007.

S&P said the upgrade reflects EchoStar's improving financial profile supported by good operating performance.

The ratings on EchoStar reflect the company's position as the fourth largest provider of pay TV services, healthy subscriber growth and modest churn, improving cash flow and credit measures, and significant liquidity from a large, uncommitted cash balance, S&P said. Offsetting factors include strong competition from upgraded cable operators that can offer a broader array of interactive services, competition from DirecTV, a low price strategy that could restrain margin potential amid rising programming costs affecting the industry, financial risk from heavy subscriber acquisition spending, and risk from potential broadband investments.

EchoStar's subscribers and revenue grew by about 20% in the past year, helped by the increasing number of markets where the company offers local broadcast signals, S&P said. Local signals put the company's video product on par with cable and will be available to about 80% of U.S. households by the end of 2003, up from about 72% as of March 2003, driving further growth. Expanded distribution of EchoStar systems from national retailers, including Wal-Mart Stores Inc. and Radio Shack, which previously sold only DirecTV equipment, should also support subscriber gains.

EchoStar's EBITDA margin has improved in the past year to 16.5%, which is below the profitability of well-run cable operators largely because of considerable subscriber acquisition spending that has funded rapid growth, S&P said. Assuming EchoStar maintains a low monthly churn rate, which was about 1.6% in 2002, profitability should improve as subscriber growth slows. EBITDA to interest is modest, at about 1.8x, while gross debt to EBITDA is high at nearly 7.0x. Net debt to EBITDA is about 4.0x.

At year-end 2002, EchoStar had about $2.3 billion cash, pro forma for the February 2003 repayment of the $375 million 9.25% notes and excluding $151 million in cash reserved for satellite replacement.

Given strong trading prices of EchoStar's high coupon debt, the company may find it attractive to redeem its 9.375% and 10.375% senior notes when they become callable in February and October 2004, respectively, S&P said.

Without the $600 million merger breakup fee paid to Hughes in December 2002, EchoStar would have generated $231 million in free cash flow in 2002. EchoStar should generate free cash flow in 2003, despite higher expected capital spending.

Debt maturities are insignificant prior to 2007, when $2 billion in notes is due.

S&P says Lucent unchanged

Standard & Poor's said Lucent Technologies Inc.'s ratings are unchanged including its corporate credit at B- with a negative outlook on the announcement that Lucent has reached an agreement to settle all pending shareowner litigation against the company, without any admission of wrongdoing, pending final court approval.

The company will take a charge related to the settlement of about $420 million in its March 2003 quarter. Lucent will pay the plaintiffs $315 million in cash or stock at Lucent's option, less any insurance recovery, in addition to about 200 million common stock warrants valued at about $100 million, and certain administrative costs. Distribution is not likely until some time in its fiscal year ending September 2004.

Lucent's ratings continue to reflect the significant challenges the company faces in a very uncertain communications marketplace, mitigated by a cost structure more in line with market conditions, S&P said.

S&P cuts AMR, Continental, Delta, Northwest

Standard & Poor's downgraded four large U.S. airlines, cutting AMR Corp. to CCC from B-, Continental Airlines Inc. to B from B+, Delta Air Lines Inc. to BB- from BB and Northwest Airlines Corp. to B+ from BB-. Subsidiaries are similarly lowered. AMR Corp. and American Airlines remain on CreditWatch with developing implications while the other three remain on CreditWatch with negative implications.

S&P said the downgrades reflect financial damage from reduced revenues and deeper losses leading up to and during the Iraq war, and the risk of further deterioration should the war prove long and difficult, or if significant terrorist attacks occur.

Although fuel prices have fallen since the war began, aiding airlines somewhat, an accelerating erosion in passenger traffic will further undermine already weakened airline liquidity, S&P added.

The U.S. airline industry trade group, the Air Transport Association, recently reported that passenger traffic of major U.S. airlines had fallen 5%-10% on domestic routes during the first week of the war, with declines of 10%-20% on trans-Pacific routes, and 20%-30% on trans-Atlantic routes, S&P noted. Advance bookings (reservations) have fallen much more substantially, indicating sharper traffic declines ahead.

The airlines downgraded have each announced cost-cutting and capacity reduction measures in response, which should partly offset the loss of passengers.

In addition, American Airlines is in intensive negotiations with its unions seeking $1.8 billion of annual labor expense cuts in a bid to avert bankruptcy. Delta ($2 billion of unrestricted cash and $500 million of bank line availability at Dec. 31, 2002) and Northwest ($2.1 billion of unrestricted cash) continue to have the best liquidity positions. Continental is incurring the narrowest losses, but its unrestricted cash ($1.2 billion at Feb. 28, 2003) could prove insufficient if the war lasts several months or if terrorism accelerates the decline in traffic, S&P said. AMR's already heavy losses have worsened, and its once substantial unrestricted cash balance ($1.9 billion) is shrinking.

Federal government aid for airlines in some form appears probable, but it will likely be limited in amount, compared to what the airlines are seeking, and could be delayed. Accordingly, this is not expected to materially change the airlines' credit situation, S&P said.

Ratings could be lowered further if financial damage from the war and any terrorism worsens materially. Ratings on AMR could be raised if the company achieves targeted labor agreements and liquidity appears sufficient to meet near-term needs, S&P said.

Fitch sees airlines facing restructuring, consolidation

Fitch Ratings said the current operating environment points towards restructuring and consolidation in the U.S. airline industry and added that any government support package likely to receive congressional approval would do little to help.

"Fitch believes that a more limited industry assistance plan, aimed primarily at easing the burden of security on the major airlines, stands the best chance of receiving bipartisan support in Washington," the rating agency said Friday.

"Absent the impact of a major federal liquidity infusion that might provide a cash buffer for United in its effort to restructure under Chapter 11 protection, it is difficult to see how a more modest assistance package could offset the impact of a new airline operating environment that appears to be pushing the industry inexorably toward restructuring and consolidation. Reflecting upon the ineffectiveness of the September 2001 government assistance package in establishing a solid foundation for financial recovery, the approval of a similarly ambitious war relief package in 2003 appears highly unlikely."

Fitch said the largest single risk related to the war in Iraq is the dramatic fall-off in passenger traffic - particularly on international routes - that is currently clouding the airlines' short-term revenue and cash flow forecasts.

For all of the major U.S. network carriers the demand and fuel price shocks tied to the war complicate the task of returning to positive operating cash flow and better liquidity positions in 2003, Fitch added. Even before the risk of war and spin-off terrorism grew in February and early March, the U.S. majors were facing a sluggish revenue environment characterized by persistent weakness in passenger yields, a poor business/leisure fare mix and lingering overcapacity - particularly in the domestic network.

The dim outlook for a meaningful recovery in industry unit revenue during 2003 comes at a time when all of the major airlines (excluding Southwest) have excessive levels of leverage in their capital structures and generally lack the cash flow generation capacity to service fixed financing obligations (principal and interest payments, aircraft and facilities rents and required cash contributions to defined benefit pension plans), Fitch said.

Fitch cuts Reliant Resources

Fitch Ratings downgraded Reliant Resources, Inc. including cutting its senior unsecured debt to CCC+ from B. The Rating Watch was revised to Evolving from Negative.

Fitch said the action reflects the significant uncertainty surrounding Reliant Resources' ability to restructure or refinance approximately $5.9 billion of bank debt, including the $2.9 billion Orion acquisition bridge facility maturing today.

While the initial extension previously granted to Reliant Resources on Feb. 18 for the Orion bridge maturity gave some indication that Reliant Resources and its lenders were working collectively towards a solution, the further delay in reaching a refinancing accord has raised the probability of default in the near term, Fitch said.

The Rating Watch Evolving status reflects the possibility that Reliant Resources may still be successful in achieving a restructured bank agreement in the near-term.

Moody's cuts Asat

Moody's Investors Service downgraded ASAT Ltd. including cutting ASAT Finance LLC's $100.75 million 12.5% guaranteed senior unsecured notes due 2006 to B3 from B1. The outlook is stable.

Moody's said the downgrade is in response to continued weakness in the technology sector and its impact on ASAT's operating cash flow, the length of time needed to execute its corporate strategy, its high leverage and its diminished liquidity.

The rating action reflects the company's poor operating performance over an extended period of time, with little sign yet of recovery, Moody's added. Quarterly improvements in revenues, which began in the third quarter of 2002, have stalled in the third quarter of 2003. The company expects revenues to drop 5-10% in the current quarter. EBITDA, negative through 2002, had turned positive in first quarter of 2003 to $0.8 million and improved still further in the second quarter to $5.4 million. As of the third quarter 2003, however, it had declined once again, to $3.6 million.

The stable rating outlook reflects Moody's belief that, even if the long-awaited upturn in the electronics sector is delayed until late in 2003 or early in 2004, ASAT should be able to preserve its remaining cash and continue to meet its financial obligations. If, however, end user demand declines further, the company's move to China proves more challenging than expected, or major customers either defect or default, the rating could move lower. Alternatively, if end user demand increases sooner than expected, leading to a sustainable increase in capacity utilization and hence material improvements in margins, cash flow and liquidity, the ratings may rise.

S&P cuts Sol Meliá

Standard & Poor's downgraded Sol Meliá SA including cutting its €200 million 1% convertible bonds due 2004, lowered to BB from BBB-, Sol Melia Finance Ltd.'s €106.9 million 7.8% preference stock, cut to BB- from BB and Sol Melia Europe BV's €340 million 6.25% bonds due 2006, cut to BB from BBB-. The ratings were removed from CreditWatch with negative implications. The outlook is stable.

S&P said the downgrade reflects its view that it is unlikely Sol Meliá will regain an investment-grade financial profile over the next 2 to 3 years, given the company's current levels of financial leverage in an uncertain travel environment.

Although Sol Meliá's operating performance was relatively in line with that of its European peers in 2002, its free cash flow generation was significantly less than expected because hotel and lodging companies continued to suffer from an economic slow down and weak demand for travel, S&P said.

This was the result of a 3% year-on-year EBITDA decline in 2002 on the back of operating losses in Tunisia, as well as higher-than-expected capital expenditure. Sol Meliá has subsequently reduced its exposure to the Tunisian market.

S&P said the stable outlook reflects Sol Meliá's solid competitive position in Spain, as well as its plans to reduce capital spending over the next two years, which should lead to a gradual recovery in lease-adjusted credit measures, bringing them in line with the current ratings.

S&P rates True Temper loan BB-

Standard & Poor's assigned a BB- rating to True Temper Sports Inc.'s new $40 million senior secured credit facilities and confirmed its existing ratings including its subordinated debt at B-. The outlook is stable.

S&P said the senior secured facilities are rated one notch higher than the corporate credit rating. The collateral package includes a first-priority perfected security interest in substantially all of the present and future assets of the company and its subsidiaries, and a first-priority pledge of all of the outstanding capital stock or other equity securities of the company and each of the company's subsidiaries. S&P said the distressed enterprise value of the company would be sufficient to fully cover the bank debt in the event of a default.

S&P added that True Temper's ratings reflect its leveraged financial profile, narrow business focus, and the golf equipment industry's dependence on discretionary consumer spending. Somewhat mitigating these factors is the company's dominant market position in the steel golf shaft market.

Fiscal 2002 sales were down 3.3% from the previous year because of continued soft economic conditions and the weak retail environment. S&P said it believes that the continued weakness in economic conditions presents a significant challenge for the company, as golf equipment sales reflect discretionary consumer spending. Still, in 2002 True Temper improved EBITDA margins to 29.9% from 28.9% the previous year as the result of a reduced overall cost structure, improved productivity, and a shift in its product mix toward higher margined steel shafts.

True Temper remains highly leveraged. For the fiscal year ended Dec. 31, 2002, TTSI's lease-adjusted EBITDA coverage of interest expense was 2.6x and lease-adjusted total debt to EBITDA was 3.9x. However, on a consolidated basis, credit protection measures are somewhat weaker (due to the senior discount notes at the holding company), though they are in line with the rating.

Moody's rates Town Sports notes B2, loan B1

Moody's Investors Service assigned a B2 rating to Town Sports' planned $250 million senior unsecured notes and a B1 rating to its new $50 million secured revolving credit facility to be issued as part of the recapitalization. The B2 rating on the company's existing notes will be withdrawn when the transaction is completed. The outlook remains stable.

Moody's said the ratings reflect Town Sports' high debt and lease adjusted leverage, limited free cash flow after capital expenditures and geographic concentration. They also reflect Town Sports' successful management of its business model during the recent period of economic turmoil, its diverse customer base and its track record for paying down debt.

The ratings acknowledge that Town Sports is recapitalizing in part by paying off its $62.1 million senior preferred stock with proceeds from its $250 million senior unsecured note offering thereby reducing support to creditors, Moody's said. However, the largest use of proceeds will be to redeem the existing $125 million 9¾% senior notes. The ratings on the company's new senior secured revolver is notched above the senior implied because it is secured and comprises a small percent of the company's total debt and is small when compared to the company's property plant and equipment at the end of 2002 of $211 million.

The stable ratings outlook reflects the company's strong growth track record in terms of clubs, revenues, and margins. The company also has a history of paying down debt. Additionally, Moody's believes that the benefits derived from exercising will continue to support the company's business model.

The restructuring results in higher leverage as evidenced by total debt (including preferred stock) to EBITDA for 2002 increasing to 4.1x pro forma from 3.7x. Adjusted for leases, debt to EBITDAR at the end of 2002 increases to 5.8x pro forma. For 2002, Town Sports EBITDA coverage was approximately 2.8x pro forma for the transaction.

S&P keeps Amerco on developing watch

Standard & Poor's said Amerco's undefaulted ratings including its unsecured debt at CC remain on CreditWatch with developing implications.

S&P's comments came after Amerco said it has accepted a proposal for a new four-year $865.8 million secured credit facility. If completed, proceeds would be used to refinance some of Amerco's debt and for working capital purposes.

The financing, if successful, would enable Amerco to complete the restructuring process that began in October 2002, when the company did not pay a $100 million debt maturity. Amerco's auditors have determined that its continuation as a going concern is dependent, in part, on its success in completing the financial restructuring that it is currently pursuing.

The company hopes to close and fund the new credit facility in May 2003. If the company is successful, ratings could be raised modestly, S&P said. If unsuccessful, the company would very likely default on other financial obligations, which could result in a Chapter 11 bankruptcy filing.

Moody's cuts Texas Industries, still on review

Moody's Investors Service downgraded Texas Industries, Inc. including cutting its senior unsecured credit facility to Ba3 from Ba2 and the trust preferred stock issued by TXI Capital Trust I to B2 from B1. The ratings remain on review for possible downgrade.

Moody's said the downgrade reflects the substantial weakening in Texas Industries' operating performance and Moody's expectation that weak business conditions and rising raw material and energy costs will continue to limit prospects for near term improvement in the company's performance.

Consequently, Moody's said it anticipates that cash flow will fall short of prior expectations and debt protection measurements will weaken over the near term.

The weakened operating performance will challenge the company's ability to meet financial covenants in its bank credit facilities, for which waivers have been negotiated through May 2003, Moody's added. Nevertheless, the company will need to develop a comprehensive program to improve operating performance, ensure compliance with financial covenants and address upcoming debt maturities.

Moody's ongoing review of Texas Industries' debt ratings will consider the company's plans to rebuild profitability given the weak business environment and the continued high costs of key production inputs such as energy. The review will also consider the company's ability to achieve a more permanent solution to the financial covenant shortfalls (beyond the period for which waivers have been granted) through improved performance, amendments or refinancing. Moody's will also consider the company's plans for refinancing its $125 million accounts receivable securitization facility maturing in May 2003, and the overall implication for existing creditors of the terms of any refinancing plan.

S&P says Corning unchanged

Standard & Poor's said Corning Inc.'s ratings are unchanged including its corporate credit at BB+ with a negative outlook on news that the company reached an agreement with the representatives of asbestos claimants to settle all current and future asbestos claims against Corning and its joint venture, Pittsburgh Corning Corp. and decided to record an after-tax $200 million charge in the first quarter.

The agreement is expected to be incorporated into a settlement fund as part of a reorganization plan for bankrupt PCC. If the reorganization plan is approved, which will require a favorable vote by 75% of the claimants and by the bankruptcy court, Corning will benefit by bringing this matter to closure, S&P said.

Corning's cash and investment position - along with ongoing and near-term cost reductions actions, a focus on operating cash generation, and disposal of non-core businesses - support satisfactory near-term liquidity.

The rating incorporates substantial progress toward profitability in 2003, S&P added. Ratings could be lowered if profitability prospects diminish, either due to insufficient cost reductions or weaker-than-expected end-markets.

S&P upgrades Kazkommertsbank

Standard & Poor's upgraded Kazkommertsbank including raising Kazkommerts International BV's $200 million 10.125% notes due 2007 to BB- from B+. The outlook is stable.

Moody's said the upgrade reflects the improved economic environment in the Republic of Kazakhstan (local currency BB+/positive; foreign currency BB/positive), improvements in Kazkommertsbank's funding profile and the bank's lower loan growth in 2002.

The rating action also reflects the EBRD's decision to acquire a 15% minority stake in Kazkommertsbank, S&P said. The expected presence of the EBRD should help improve Kazkommertsbank's corporate governance, funding and capitalization.

The reversal of the bank's policy on financing equity investments of its sister company, Central Asian Industrial Investments, has removed some risk, although the same individuals own Kazkommertsbank and Central Asian Industrial and therefore the bank remains indirectly vulnerable to any potential financial needs of its owners.

Fitch lowers Fairfax

Fitch Ratings downgraded Fairfax Financial Holdings Ltd. including cutting its senior debt to B+ from BB and TIG Holdings, Inc.'s senior debt to B and trust preferreds to CCC+. The outlook is negative.

Fitch said the actions reflect its view that Fairfax has become increasingly challenged over the past few years in its ability to meet its considerable holding company debt obligations, and that the margin of safety, at least in the near-to-intermediate term, is inconsistent with the prior ratings level.

Fitch's view revolves around four key concerns. First, Fitch estimates that holding company cash has currently been depleted to about C$250 million. This is the result of the retirement of Rhinos with cash earlier this year, as opposed to common stock proceeds, a questionable strategy in Fitch's view given the company's limited financial flexibility. Declines in cash also reflect a capital infusion into Lombard Insurance and the payment of common stock dividends.

Second, in light of declining bank line balances and an inability to economically tap the public capital markets, Fairfax's access to external liquidity sources has been lessened.

Third, the company's recent decision to increase its ownership in Odyssey Re to over 80% (in what Fitch views as a strategy to avoid a possible tax credit write-down in addition to increasing cash flow to the parent company) and the weak share price performance of Lindsey Morden Group Inc. (majority owned by ORC Re Ltd.) limits the benefit of selling stakes in these publicly traded companies to raise cash.

Fourth and most importantly, Fitch views 2003 subsidiary dividend capacity in light of operational and regulatory restraints as considerably lower than maximum capacity of C$670 million.

S&P cuts Atlas Air

Standard & Poor's downgraded Atlas Air Worldwide Holdings Inc. and subsidiary Atlas Air Inc. including lowering the corporate credit rating to D from CCC- and senior unsecured debt to D from CC and removed them from CreditWatch, where they were placed Oct. 17, 2002. Pass-through certificates series 1998-1 class A were lowered to BB- from BB, class B to CCC from B- and class C to CCC- from CCC+; series 1999-1 class A-1 were lowered to BB- from BB, class A-2 to BB- from BB, class B to B- from B+, and class C to CCC- from CCC+; and series 2000-1 class A to BB from BB+, class B to B from B+ and class C to CCC from B-. The passthrough certificate ratings remain on CreditWatch with negative implications. The downgrades of the enhanced equipment trust certificates reflect the downgrade of Atlas Air Inc. as well as deterioration in collateral coverage.

S&P said the action follows Atlas' announcement that it is expanding restructuring discussions to include all lessors, bank lenders, and debt holders and that it is suspending all payments related to its bank debt, senior notes, and leased aircraft.

Moody's cuts Airtrain Citylink

Moody's Investors Service downgraded Airtrain Citylink Ltd. to Caa1 from B2 affecting A$105 million of debt. The outlook is negative.

Moody's said revenue continues to be significantly below that which was forecast for the rail link when the rating was originally assigned. In addition, ramp up has been slower than anticipated and operating costs are higher than projected.

While Airtrain has been working on a number of operating initiatives aimed at reducing cash operating expenses and improving passenger numbers, the result of such initiatives to date has been poor, Moody's added. The impact of war in Iraq on the passenger numbers for Brisbane Airport remains uncertain and this will also affect the patronage for Airtrain.

The negative outlook on Airtrain rating reflects Moody's concerns that there is unlikely to be a material improvement in patronage so that operations are likely to remain cash flow negative.

In the absence of any further restructuring of operating costs or markedly increased revenue Moody's said it anticipates that the bonds will encounter serious difficulties either later this year or early next year.

S&P withdraws Jason ratings

Standard & Poor's said it withdrew its ratings from Jason Inc. including its bank loans at B+ at the request of the company.

Moody's confirms Corning

Moody's Investors Service confirmed Corning Inc.'s ratings including its senior unsecured notes, debentures, IRBs and bank revolver at Ba2 , its mandatory convertible preferred securities at B1 and Oak Industries Inc.'s $100 million 4.875% convertible subordinated debt at Ba3. The outlook remains negative.

Moody's said the confirmation follows Corning's announcement of a proposed settlement covering Corning's and Pittsburgh Corning Corp.'s existing and future asbestos claims.

Although the settlement will result in a $200 million after-tax charge to be taken in the first quarter, Moody noted that if the proposed plan is successful, uncertainly surrounding the potential financial impact of asbestos litigation on Corning will be removed.

The company is still subject to challenges in its telecommunications businesses, whose markets are not expected to recover until 2004 at the earliest, hence the continuing negative outlook.

The rating confirmation reflects Moody's expectation that cash calls associated with the proposed settlement are manageable and do not start until 2005.

The rating confirmations also reflect the progress Corning has made through its intensive restructuring actions that have better aligned costs with lower telecom revenue generation. Moody's noted that the company's plan to be profitable by the third quarter of this year could be achieved, but requires fiber and cable volumes to be relatively stable, assumes pricing will not decline at the same rate as last year, and that the cash burn in photonics will diminish.

At the same time, Corning's debt protection measures are weak and will remain so over the near-to-intermediate-term, but the company has ample liquidity to meet its cash calls throughout 2003, Moody's said.

S&P lowers KinderCare outlook

Standard & Poor's lowered its outlook on KinderCare Learning Centers Inc. to negative from stable and confirmed its ratings including its senior secured debt at B+ and subordinated debt at B-.

Although KinderCare Learning Centers Inc. has a leading business position in the highly fragmented child-care industry, the speculative-grade ratings reflect recent, significant weak demand trends for child-care services, industry threats, and the company's heavy debt burden, which hasn't improved since its 1997 recapitalization, S&P said.

The outlook revision reflects the near-term refinancing risk associated with approximately $313 million of debt maturing Feb. 13, 2004, at a time when there are concerns about weak business trends, S&P said.

Demand has softened, influenced by a weak national economy, and the result has been an overall decline in occupancy rates, S&P said. However, the company's ability to enforce tuition increases has enabled it to maintain relatively stable same-store revenues despite lower occupancy. The prudent closing of underperforming centers and the opening of larger centers in more favorable locations has enhanced the revenue mix, however, return on capital declined to 11% in 2002 from 14% in 2000.

Still, KinderCare will remain challenged to sustain the favorable tuition trend, particularly if occupancy rates continue to decline and the economy remains weak for an extended period, S&P said.

S&P rates Town Sports notes B-, loan B+

Standard & Poor's assigned a B- rating to Town Sports International Inc.'s planned $250 million senior unsecured notes due 2011 and a B+ rating to its proposed $50 million secured revolving credit facility due 2008. S&P also confirmed the corporate credit rating at B. The outlook is stable.

The notes were not rated more than one notch below the corporate credit rating because S&P expects the company to have minimum or no outstanding balance on the revolver in the medium term.

The ratings reflect the company's aggressive, debt-financed expansion, heavy capital spending, and high debt levels compared with a relatively small cash flow base, S&P said. These factors are balanced against a strong position in the company's four major markets, improved geographic diversity, good same club revenue and membership growth, and better margins relative to industry peers.

Given that about 66% of the company's clubs are located in the New York Metropolitan area, its operating performance is somewhat vulnerable to regional economic cycles, S&P noted. Overall same club revenue growth has slowed in 2002, primarily due to slower increase in new memberships and ancillary revenue (e.g. personal training services). Membership price increases have also been limited to an inflationary level. The company's EBITDA margin, at about 22% in 2002, compares favorably to its peers due to effective clustering and good club management.

For the 12 months ended Dec. 31, 2002, pro forma operating lease adjusted EBITDA coverage of interest expense was 1.8x, and debt plus present value of operating leases over lease adjusted EBITDA was 5.8x, S&P said.

Moody's rates Westport Resources notes Ba3

Moody's Investors Service assigned a Ba3 rating to Westport Resources' $125 million senior subordinated note offering and confirmed its other ratings including its notes at Ba3 and convertible preferred stock at B1.

Moody's said the current refunding lengthens the maturity of Westport's debt structure.

The ratings are supported by factors currently offsetting higher leverage and weak 2002 internal reserve replacement as long as debt reduces substantially in 2003 and 2003 volumes, costs, and cash flows roughly meet expectations, Moody's said. Budgeted capital spending of $230 million under-spends 2003 cash flow by more than $100 million and Westport intends to sell $50 million to $100 million of assets to reduce debt further.

The El Paso purchase added a key core area of considerable scale, concentration, exploitation potential and diversified reliance on short-lived Gulf of Mexico (GOM) and South Texas production. Westport funded the purchase with $300 million of senior subordinated notes and $266 million in equity. The equity adequately shifted the fully priced acquisition's price and performance risk to the most junior level of capital.

S&P cuts Continental Airlines

Standard & Poor's lowered the ratings of Continental Airlines Inc., including senior secured debt to B from B+ and senior unsecured debt to CCC+ from B-, and is keeping the ratings on negative watch.

The downgrades, part of a review of four major U.S. airlines, reflect financial damage from reduced revenues and deeper losses leading up to and during the Iraq war, and the risk of further deterioration should the war prove long and difficult, or if significant terrorist attacks occur.

The corporate credit rating on Continental Airlines Inc. is based on a heavy debt and lease burden and relatively limited financial flexibility ($1.2 billion cash at Feb. 28 but no general bank facility and no unencumbered aircraft), which outweigh better-than-average operating performance and a modern aircraft fleet.

Fitch cuts KeySpan unit

Fitch Ratings confirmed KeySpan Corp.'s senior unsecured debt at A- and the A+ rating for Brooklyn Union Gas Co. senior unsecured debt, but downgraded to A- from A the rating for the senior unsecured debt of KeySpan Gas East Corp.

The affirmation of Brooklyn Union's rating reflects a strong standalone credit profile and balanced regulatory environment in New York, and access to low-cost tax-exempt financing. The one-notch downgrade of KeySpan Gas East reflects weaker than anticipated credit measures and weaker than expected interest coverage ratios.

The outlook is stable.

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