S&P cuts Ahold, still on watch

Standard & Poor's downgraded Ahold Koninklijke NV including cutting its notes and bonds to B+ from BB+, subordinated bonds and convertibles to B from BB and preferred stock to B- from BB-. The ratings remain on CreditWatch with negative implications.

S&P said the action follows Ahold's announcement that accounting irregularities at its U.S. Foodservice arm were materially larger than expected.

The rating actions reflect Ahold's tight liquidity, which will remain so barring major divestments, S&P said.

The group's tight liquidity is a function of its limited leeway under the currently available secured facilities of $1.3 billion and €600 million ($680 million); the uncertainties about its ability to access a $915 million unsecured tranche; and the group's debt repayments in the second half of the year, in particular the repayment in September 2003 of a €678 million subordinated convertible bond, which will constrain liquidity even if Ahold gets access to the unsecured tranche, S&P added.

Although Ahold retains an investment-grade business profile in light of its leading positions in food retail on the East Coast of the U.S., as well as in the Netherlands and Scandinavia, liquidity will remain the key driving factor of ratings in the foreseeable future, S&P said.

S&P rates Key Energy notes BB

Standard & Poor's assigned a BB rating to Key Energy Services Inc.'s proposed $150 million senior unsecured notes due 2013 and confirmed its existing ratings including its senior secured debt at BB, senior unsecured debt at BB and subordinated debt at B+. The outlook is stable.

S&P said the transaction allows Key to repay outstanding indebtedness under its revolving credit facility and refinance higher cost debt issues.

The ratings on Key reflect the company's leading position in the U.S. onshore well services market and a somewhat aggressive capital structure, S&P said.

Key has demonstrated notable resiliency in the recent industry downturn, S&P noted. The company has steadfastly applied excess cash flow to debt reduction, bringing total debt to about 41% of total capital as of March 31, 2003. Management has publicly stated that it intends to continue its debt reduction initiatives, targeting a 25% debt-to-capital ratio over the next two years.

Key is expected to post adequate credit measures for the rating category, S&P said. Assuming a modest increase in oilfield services demand in the second half of 2003, Key should post EBITDA interest coverage of about 4.0x and EBITDA to interest plus capital expenditures above 1.5x.

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