Moody's cuts Navistar

Moody's Investors Service downgraded Navistar International Corp. and Navistar

Financial Corp., affecting $1.16 billion of securities including Navistar International's senior debt, cut to Ba3 from Ba1, and subordinated debt, cut to B2 from Ba2, and Navistar Financial's subordinated debt, cut to B2 from Ba2. The outlook is stable.

Moody's said it lowered Navistar because it expects the company's cash generation and debt protection measures will remain under considerable pressure through 2003 as a result of the continuing downturn in the North American truck market and the decision by Ford Motor Co. that it will not install the V-6 engines developed by Navistar for use in Ford's light trucks and SUV's.

As a result, Moody's expect that Navistar's manufacturing operations will generate negative cash from operations during 2003, and that debt protection measures will remain stressed during this period.

Moreover, despite the recent improvement in portfolio quality at Navistar Financial, this unit will likely remain very highly leveraged on a managed asset basis, with adjusted debt to equity of about 10:1.

The stable outlook anticipates that Navistar will successfully complete a refinancing of approximately $200 million of manufacturing company debt that matures during 2003, Moody's added. The outlook also reflects Moody's expectation that the $549 million cash position of the manufacturing company and the range of committed bank and ABS facilities of Navistar Financial, will provide adequate liquidity for Navistar as the downturn in the truck market continues.

Moody's rates Hollinger notes B2, loan Ba2

Moody's Investors Service assigned a B2 rating to Hollinger International Publishing Inc.'s planned $300 million of senior unsecured notes due 2010 and a Ba2 rating to its $310 million of senior secured credit facilities. The existing senior unsecured issuer rating was lowered to B2 from Ba2 and the senior implied rating to Ba3 from Ba2. The outlook is stable. Moody's will withdraw the existing bank and note ratings after the refinancing.

The downgrade in the senior implied rating reflects Hollinger's concentration in two markets, challenges within the newspaper publishing sector and its higher leverage.

As a result of the planned refinancing of Hollinger's capital structure, the company will have higher leverage because, as a part of the transaction, Hollinger will provide a $100 million payment to Hollinger International in order to eliminate the holding company total return equity swaps and pay other indebtedness, Moody's said.

However, the ratings are supported by the significant market share of Hollinger's key assets, and their consequent long-term value, Moody's said.

Hollinger's ratings also reflect Moody's concerns regarding the deterioration in the top line performance of the company's businesses (Chicago, U.K. and Community Group) as a result of the slow recovery of the print advertising market and the very competitive environments in which they operate.

Further, Hollinger is vulnerable to its concentration in two critical newspaper assets, the Chicago Sun-Times and the Daily Telegraph.

The ratings also incorporate the company's tolerance for high leverage and weak free cash flow, in part due to sizable management fees (about $22 million), dividend payments as well as the potential share re-purchases as permitted by the company's debt agreements.

Moreover, Hollinger faces the issues that impact newspaper operators more broadly, including the significant competition for newspapers' share of advertising revenues, economic cyclicality, volatile paper prices, labor and production costs, and the potential for long-term decline in circulation, Moody's said.

Moody's rates O'Charley's loan Ba2

Moody's Investors Service rated O'Charley's Inc.'s $285 million secured credit facility at Ba2. The outlook is stable.

The loan consists of a $135 million four-year revolver and a $150 million six-year term loan B. Security is a first-priority lien on all assets and the loan is guaranteed by the company's operating subsidiaries.

"Moody's believes that collateral coverage is strong because of real estate ownership at 111 O'Charleys locations. However, this class of debt is not notched above the senior implied rating because there will be virtually no junior debt classes to absorb the first loss in a distressed scenario," Moody's said.

Approximately $220 million is expected to be drawn on the credit facility and, together with new common equity, will fund the acquisition of affiliates of the Ninety Nine Restaurant and Pub and refinance the current revolver.

Ratings reflect intense competition within the sector, the projected use of almost all cash flow for cash interest payments and new store construction, the company's market presence relative to higher rated restaurant companies and integration challenges, Moody's said.

Ratings also reflect good margins and average unit volumes at both companies, a solid history of opening profitable new stores, decent consumer recognition in the company's core trade areas, positive contribution to corporate overhead from all stores, the equity component of the acquisition and expectations for further increases in away-from-home dining, Moody's added.

Pro-forma for the transaction, lease adjusted debt will equal about 3.4 times EBITDAR and EBITDA will cover interest expense and capital expenditures about 0.9 times.

Moody's rates Hercules bank facility Ba1

Moody's Investors Service assigned a prospective Ba1 rating to Hercules Inc.'s planned senior secured $150 million revolving credit facility and $200 million term loan and confirmed the company's existing ratings including its senior secured revolving credit facility and senior secured debt at Ba1, senior unsecured notes at Ba2, junior subordinated debentures at Ba3 and trust preferreds at Ba3. The outlook remains stable.

The new financing replaces an existing undrawn revolver, refinances a $125 million bond maturity in 2003 and provides additional working capital.

Moody's said it believes that Hercules' remaining business lines - Performance Products (pulp and paper products and Aqualon) and Engineered Materials and Additives (FiberVisions, Rosin and Terpenes) - face certain operating challenges including weak demand.

Additional factors include consolidation among Hercules' paper and pulp customer base, and rising raw material costs in the Aqualon division.

Moody's noted that Hercules continues to successfully implement various cost savings initiatives, such as the redesign of work processes, inventory control, and IT systems. Including the cost savings due to eliminating Betz-Dearborn infrastructure, management estimates $150 million in annual savings.

Further, capital spending remains well below depreciation and amortization, in part reflecting substantial excess capacity, Moody's noted.

Financial leverage (Total debt including preferred securities to EBITDA) for 2002 is expected to be about 4.2 times, reflecting cyclical weakness in many of the company's end markets, Moody's said. As the economy recovers, and cost-savings initiatives continue to contribute to profitability, financial leverage is expected to decline to levels more consistent with the rating category.

S&P puts DeCrane on negative watch

Standard & Poor's put DeCrane Aircraft Holdings Inc. on CreditWatch with negative implications including its $100 million 12% senior subordinated notes due 2008 at B- and its $130 million senior secured credit facility at B+.

S&P said the watch placement reflects DeCrane's deteriorating financial profile due to the continued weakness in the commercial aerospace market, especially the business jet segment.

Poor operating results may also result in the violation of financial covenants in the company's $318 million secured credit facility in the near term, S&P said.

Revenues through the first nine months of 2002 have declined 17% due to the downturn in the corporate aircraft market and lower production of commercial jetliners, S&p noted. Recovery in both corporate and commercial aircraft production is not expected until at least 2004.

DeCrane has attempted to address the impact of lower volumes on profitability by closing facilities and reducing personnel, S&P said. However, operating income still declined 37% in the first nine months of 2002. The firm remains highly leveraged, with total debt to capital of almost 80%.

S&P puts PDV America on watch

Standard & Poor's put PDV America Inc. on CreditWatch with negative implications including its $500 million 7.875% notes due 2003 at B and Citgo Petroleum Corp.'s $200 million 7.875% senior notes due 2006 at BB-.

S&P said the watch placement is in response to the severe disruption of the operations of Petroleos de Venezuela SA (PDVSA), PDV America's ultimate parent, as a result of the work force strike that has curtailed crude oil and refined product exports.

PDVSA has declared force majeure on crude supply arrangements that contain margin stabilization provisions, S&P noted. This is diminishing the profitability and cash flow generation of Citgo's refineries, by forcing Citgo to refine crude oil from other suppliers.

S&P said it is concerned for the company's future credit quality because the disarray in Venezuela and PDVSA could affect Citgo by limiting its access to external capital as Citgo enters a year of heavy capital expenditures to meet clean fuels standards and large refinancing requirements.

Citgo's marketing margins also may be squeezed, as it is forced to source product from alternative vendors.

The duration of the CreditWatch listing will be influenced by Citgo's ability to close a new bank credit facility and S&P's assessment of the extent and severity of disruptions in Venezuela and their potential effect on Citgo and PDV America.

Citgo is expected to close on a new, $520 million unsecured bank credit facility that will replace the company's current $550 million facility, which matures in May 2003. The new facility will eliminate a material source of refinancing risk and ensure adequate liquidity until the August 2003 maturity of PDV America's $500 million senior notes.

Moody's rates PerkinElmer notes Ba3, loan Ba1

Moody's Investors Service assigned a provisional Ba3 rating to PerkinElmer, Inc.'s proposed $225 million senior subordinated notes due 2012 and a provisional Ba1 rating to its proposed senior secured credit facility consisting of a $100 million five-year revolving credit facility and up to $345 million six-year term loan. Moody's also confirmed PerkinElmer's $115 million 6.8% notes due 2005 and $404 million zero-coupon convertible debentures due 2020 at Ba2. The outlook is stable.

Moody's said the confirmation of existing ratings and newly assigned ratings reflect its ongoing concern that PerkinElmer continues to generate low returns on its asset base and concern that the company's weakened earnings and cash flow generation, which have been impacted by low levels of capital expenditures in the markets the company serves, will only slowly improve over the intermediate-term.

The ratings also reflect PerkinElmer's decision to defer the sale of its Fluid Sciences unit, resulting in relatively high debt levels and stretched-out paydown, Moody's said.

The ratings anticipate, however, that the company will successfully execute its plan for improving profitability and generating free cash flow, despite the weakened business environment.

The stable outlook reflects expectation that the company will successfully implement its refinancing and profit improvement strategies in the near-term. Protracted delay in achieving these strategies could have adverse rating implications, Moody's said.

S&P cuts Delhaize to junk

Standard & Poor's downgraded Delhaize America Inc. to junk and removed it from CreditWatch with negative implications. The outlook is stable. Ratings affected include Delhaize America's $1.1 billion 8.125% senior unsecured notes due 2011, $150 million 7.55% notes due 2007, $150 million 8.05% debentures due 2027, $150.3 million medium-term notes, $2 billion senior unsecured notes, $500 million revolving credit facility due 2005, $600 million 7.375% senior unsecured notes due 2006 and $900 million 9% senior unsecured bonds due 2031, all cut to BB+ from BBB-.

S&P said it cut Delhaize America because of disappointing cash flow protection measures, which had been expected to improve incrementally over time from pro forma levels at the time of the company's acquisition of supermarket operator Hannaford Bros. Co. Coverage ratios are now expected to be at or below 2001 levels.

The below-average credit measures reflect debt incurred in the 2000 acquisition of Hannaford, exacerbated by a competitive climate that is hindering recovery, S&P said.

Although profitability over the past few years has been good, same-store sales and EBITDA margins faltered somewhat in 2002. This reflects intensified competition from both traditional and nontraditional food retailers, such as supercenters, which are rapidly expanding their presence - as well as economic softness, particularly in the Southeast where Food Lion, the company's largest banner, is concentrated. Comparable-store sales for U.S. operations are now expected to be down 1% to 1.5% for 2002, about average for the industry this year, but below 2001's 1% rise. Still, operating margins remain solid at nearly 10%, which ranks at the high end of rated supermarket companies.

Delhaize America's lease-adjusted EBITDA coverage is expected to remain adequate at about 2.8x, S&P said. Total debt to capital of 64% is higher than the company's 50% target. The company's plan to generate sufficient cash flow to deleverage has not materialized due to operational challenges and the one-time impact of an unfavorable Treasury lock hedge in 2001. Still, management is committed to reducing debt, and will consider paring back capital spending or the dividend to reach its goal.

S&P upgrades Sun Media, still on negative watch

Standard & Poor's upgraded Sun Media Corp. and kept it on CreditWatch with negative implications. Ratings raised include Sun Media's C$405 million term loan due 2006 and C$75 million revolving credit facility due 2006, raised to BB- from B+.

S&P added that Quebecor Media Inc., including its B+ corporate credit rating, and its subsidiaries, including Sun Media and Videotron Ltee, remain on CreditWatch with negative implications.

S&P said it upgraded Sun Media's secured debt to one notch above the corporate credit rating based on its review of recovery prospects and potential causes of default relative to the reduced size of the credit facility and the value of Sun Media's assets.

In particular, given Sun Media's moderately strong business and financial profile, the risk of default is partially driven by the relatively high leverage of the Quebecor Media group, S&P said.

Fitch cuts Cable & Wireless to junk

Fitch Ratings downgraded Cable & Wireless plc to junk including cutting its long-term rating to BB+ from A-. Fitch removed the ratings from Rating Watch Negative and assigned a negative outlook.

Fitch said the downgrade follows Cable & Wireless' announcement that it may need to place up to £1.5 billion of cash into an escrow or provide a bank guarantee to cover a tax indemnity given at the time it sold its 50% interest in One 2 One to Deutsche Telekom AG for £3.45bn in 1999.

On Nov. 13 Cable & Wireless announced substantial potential cash exit costs to cover the rationalization of its Global business in line with the outcome of its strategic review as well as significant additional operating lease commitments, Fitch noted.

Fitch said it believes Cable & Wireless should be in a position to maintain adequate financial flexibility if it is able to achieve management's target for turning Cable & Wireless Global's business cash flow positive (EBITDA minus capital expenditure) in the fourth quarter of its 2003/04 financial year.

This view is based on its low debt, significant free cash balances and a limited portfolio of non-core assets that could be monetized, Fitch said.

However, in the event that Cable & Wireless Global continues to consume cash and prove to be in need of further rationalization, coupled with any weakness in operating cash flow generation at Cable & Wireless Regional, then any consequential incremental cash costs could push Cable & Wireless into a borrowing position, Fitch said.

Moody's rates SPX notes Ba3, loan Ba2

Moody's Investors Service assigned a Ba3 rating to SPX Corp.'s proposed $250 senior unsecured notes due 2012 and a Ba2 rating to its proposed $500 million senior secured revolving credit facility due 2008 and $175 million senior secured term loan A due 2008. Moody's also confirmed SPX's existing $410 million senior secured term loan B due 2009 and $684 million senior secured term loan C due 2010 at Ba2 and its $859 million of Liquid Yield Option Notes (LYONs) due 2021 at Ba3. The outlook remains positive.

Moody's said the rating assignment and confirmation continue to reflect SPX's strong market position and increasing diversification, solid operating and financial performance through the economic downturn, substantial cash flow and good liquidity condition, and strong management team.

However, the ratings are constrained by the company's moderate debt leverage, significant goodwill and negative tangible net worth, active stock repurchase program, acquisitive growth strategy, and uncertainty in its future acquisition finance structure, Moody's said.

The positive outlook reflects Moody's expectation of continuing operational improvements at SPX and a more favorable operating environment over the medium term.

Factors that could cause Moody's to consider a positive rating action include sustained free cash flow generation, continued de-leveraging, and demonstrated commitment to its stated capital structure.

Factors that could cause Moody's to consider a negative rating action include major debt-financed acquisitions that result in higher debt and leverage and protracted weakness in key-end markets.

S&P rates SPX loan BB+, notes BB-

Standard & Poor's assigned a BB+ rating to SPX Corp.'s new $500 million senior secured revolving credit facility and new $175 million senior secured tranche A term loan and a BB- rating to its $250 million senior unsecured notes due 2012. Existing ratings were confirmed including the BB+ corporate credit rating. The outlook is stable.

S&P said SPX's ratings reflect its above-average business profile with products that generally enjoy leading or solid market positions, partially offset by a somewhat aggressive financial policy, and fair cash flow protection.

Operating performance in 2001 was strong, notwithstanding the economic downturn, S&P noted. Net income from continuing operations, excluding unusual items, increased by 26%, to $237 million, from 2000, and free cash flow generation totaled $342 million. Earnings for the first nine months of 2002, on a comparable basis excluding unusual items and goodwill amortization in 2001, rose about 25% year-over-year as operations benefited from large-scale acquisition synergies and cost-reduction initiatives.

Performance over the next one to two years should continue to benefit from cost reductions and gradual recovery of end markets, S&P added. EBITDA margins are expected to range between 15%-20%, with return on permanent capital averaging in the mid-teens percent area.

Balance sheet leverage and cash flow protection are satisfactory, S&P said. Netting excess cash balances against debt (cash in excess of $100 million), and including the present value of operating leases as debt, adjusted debt to EBITDA for 2002 is expected to be under 3x, and funds from operations to adjusted debt should be in the mid-20% area. Going forward, total debt to EBITDA is expected to range between 2.5x to 3.0x, and funds from operations to total debt should average between 20%-25%, appropriate levels for the ratings.

Moody's rates K&F notes B3, loan Ba3, cuts existing notes

Moody's Investors Service assigned a B3 rating to K&F Industries' proposed $250 million 9¾% senior secured notes due 2010 and a Ba3 rating to its new $30 million 41/2-year senior secured revolving credit facility and downgraded its $185 million 9¼% senior subordinated notes to B3 from B2. The outlook is stable.

The new ratings and the downgrade reflect the increased leverage resulting from K&F's plans to re-capitalize the company, increasing debt by $200 million (net) and distributing that amount to its two equity partners. K&F chairman and CEO Bernard Schwartz and Lehman Investors.

The ratings also consider the K&F's modest size with respect to its revenue and asset base, limited product line, the high proportion of intangible assets (45% of total assets as of September 2002), the majority of which is goodwill, and the negative net worth position, Moody's said.

Moody's also noted the minimal limitation in the senior subordinated note covenants which would otherwise preclude a future re-capitalization.

After the re-capitalization, pro forma total debt will increase to $449 million, with the addition of the new $250 million senior subordinated notes, along with $14 million of the new revolving credit facility. After retiring the existing senior secured facilities and the $200 million equity distribution, debt/EBITDA will increase from 2.3x as of September 2002 to pro-forma 4.3x, Moody's said. EBITDA coverage of interest will decline from 4.3x for the 12 months to September 2002 to pro forma 2.3x for the same period.

S&P rates Sovereign Specialty Chemicals loan BB-

Standard & Poor's rated Sovereign Specialty Chemicals Inc.'s $40 million term loan B maturing 2008 at BB- and affirmed the senior secured debt rating of BB- and subordinated debt rating of B-.

The term loan B will be used to repay a portion of the company's existing term loan A. The loan is secured by substantially all the assets of the company and its domestic subsidiaries, as well as the capital stock of the company and its domestic subsidiaries, and 66% of the stock of major foreign subsidiaries. This security package offers strong prospects for full recovery in a default scenario, according to S&P.

Ratings reflect the company's below-average business profile and very aggressive financial risk, S&P said. Offsetting this is the company's experienced management team and good niche market positions and technology.

Debt to EBITDA is almost 6 times and funds from operations to total debt is less than 10%. As for liquidity, the company had about $8 million in cash at Sept. 30 and a $50 million secured line of credit maturing in Dec. 2005, with availability of about $16 million. The company is in currently in the process of obtaining an amendment that would relax covenants through maturity. Ratings incorporate the expectation that the company will successfully amend its covenants and manage its refinancing issues, S&P said.

Moody's withdraws Compuware's ratings

Moody's Investors Service said it withdrew Compuware Corp.'s ratings including its bank facility at Ba1 at the request of the company.

Compuware terminated its revolver and so has no debt outstanding.

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