Moody's confirms Key Energy, rates add-on notes at Ba3

Moody's Investors Service confirmed the ratings of Key Energy Services, including the $50 million of 5% convertible subordinated notes due 2004 at B2, and assigned a Ba3 rating to the company's $100 million add-on to its 8.375% senior unsecured notes due 2008. The outlook is positive.

Moody's expects weakening near term fundamental business conditions, but Key's lower leverage should enable it to withstand a downturn such as that experienced in 1998/99, with potential for credit accretion as conditions improve, depending on the length and depth of the downturn.

The outlook relies on Key's consistent public and private statements that it will continue to reduce debt to achieve a 30% to 35% debt/capitalization target, much lower levels of debt and leverage and to use an appropriate mix of debt and equity for strategic acquisitions, Moody's said. Continued debt reduction planned by Key in 2002 to the extent cash flow permits, could solidify financial flexibility that might support growth during the downturn, Moody's said. Key currently estimates trough EBITDA at $140 million based on cost savings, would provide meaningful free cash flow and could accelerate potential credit accretion. Over the past year, Key reduced debt by $143 million to $415 million and increased equity by $146 million to $556 million, bringing debt/capitalization down to about 43% at Dec. 31 from 58% at yearend 2000.

A.M. Best rates AmerUs convertible at BBB

A.M. Best Co. assigned a BBB rating to the $150 million 30-year convertible notes to be issued by AmerUs Group Co.

S&P upgrades AmerUs

Standard & Poor's raised its ratings on AmerUs Group Co., including its senior unsecured debt to BBB+ from BBB. AmerUs' proposed convertible was not specifically rated. The upgrade reflects improved operating performance, increased diversification of earnings and distribution sources and continuation of strong revenue growth. However, S&P placed its A counterparty credit and financial strength ratings on the unit IL Annuity on negative watch, reflecting AmerUs' decision to discontinue writing new business in IL Annuity, and said that if the ratings are lowered they are not expected to fall below the BBB range.

The outlook is stable, as S&P expects AmerUs' life insurance sales to increase 8% to 10% in 2002 because of higher distribution capacity and new products. Fixed annuity and other asset-accumulation product sales, though contingent on market conditions, are expected to increase 5%-7%. Improvement in GAAP earnings should follow continued strong earnings fundamentals and some merger expense efficiencies. Total leverage should remain at or below 25%, which is management's target position, while the consolidated capital adequacy ratio remains above 150%. Fixed-charge coverage is expected to remain in excess of 7 times.

Moody's rates Photronics convertibls at B2

Moody's Investors Service assigned a B2 rating to Photronics Inc.'s $200 million of 4.75% convertible subordinated notes due 2006 and confirmed the B2 rating on the $103.5 million of 6% convertible subordinated notes due 2004. Moody's withdrew the Ba3 rating on Photronics' $125 million guaranteed senior bank credit facility, which was terminated with some of the proceeds from the 4.75% convertibles.

The ratings take into account Photronics' planned $125 million of capital expenditures for fiscal 2002, a substantial increase over each of the past two years, which is in excess of fiscal 2001 EBITDA, Moody's said. Other factors, the agency said, is the company's debt to EBITDA ratio of 3.2 times, a significantly higher debt load, increased balance sheet leverage (56% debt to capitalization ratio) and a diminution in returns on assets of 6.1% and return on capital investment of 7.7&, based on EBITA, over the past year. These concerns are mitigated by the company's satisfactory 2.5 times EBITA coverage of pro forma interest requirements, a sizable cash position of about $153 million and reasonable prospects for bringing about the conversion of the outstanding 6% convertible subordinated notes.

The 6% convertible notes currently trade significantly above their conversion price and are subject to optional redemption at 102.5714, Moody's said. If Photronics is successful in forcing redemption of the $103.5 million 6% convertible subordinated notes outstanding, the company's debt to EBITDA ratio would be reduced to 2.3 times while its debt to capitalization would be about 40%, Moody's noted. The 6% convertible notes are convertible to common stock at a conversion price of $27.97 per share. The company's stock closed yesterday at a price of $31.61 per share.

S&P rates new Amgen convertible A

Standard & Poor's assigned an A rating to Amgen Inc.'s new $2.5 billion Liquid Yield Option Notes (LYONs) due 2032.

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