Moody's rates Qwest loan Ba3, still on review

Moody's Investors Service assigned a Ba3 rating to Qwest Corp.'s $1.0 billion senior unsecured term loan bank facility maturing 2007 and kept Qwest's other ratings including parent Qwest Communications International (senior unsecured at Caa1), Qwest Corp. (senior unsecured at Ba3), Qwest Capital Funding (senior unsecured at Caa2) and Qwest Communications Corp. (senior unsecured at Caa1) on review for possible downgrade.

Proceeds from the term loan facility will be used to pay the principal on $1 billion of Qwest Corp. 7.625% 3-year notes maturing on June 9, 2003.

Moody's said the loan is rated Ba3 based on: the facility is senior unsecured and ranks pari passu with the company's other senior unsecured debt, rated Ba3; Qwest Corp.'s $7 billion debt load remains unchanged; and affirmative and negative covenants are similar to those for existing Qwest Corporation senior unsecured debt.

Moody's noted that Qwest Corp. has experienced access line losses for the past several quarters - a trend common among the ILECs. Moody's believes that the company's near-term access line growth will continue to be negative due to: weak macroeconomic factors; technology substitution; and the impact of UNE-P on competition. As a partial mitigant to UNE-P related access line and subsequent revenue losses, Moody's noted that Qwest has received permission to offer long-distance services in 12 of the states in its 14 state region - a significant milestone.

With approximately $7.0 billion of debt outstanding, just under 17 million local access lines, and a relatively stable source of cash flow, the company's rating is four notches higher than its parent. Given the level of cash flow coverage and asset coverage, Moody's believes Qwest Corp. bondholders are favorably positioned vis-a-vis other company bondholders.

All Qwest ratings will remain on review for downgrade until: audited financials are filed for all debt issuing legal entities; both SEC and Department of Justice investigations are resolved; contingent liabilities resulting from shareholder and stakeholder lawsuits can be reasonably assessed; and the company demonstrates that it can sustain sufficient free cash generation to service all its debt and generate a meaningful return on assets, Moody's added.

S&P cuts Jordan

Standard & Poor's downgraded Jordan Industries Inc. including cutting its $110 million revolving credit facility due 2006 to B- from B and $275 million 10.375% senior notes due 2007 to CCC- from B-. The ratings were removed from CreditWatch. The outlook is negative.

S&P said the senior unsecured rating was lowered three notches because of the downgrade of the corporate credit rating and the substantial amount of priority liabilities in the company's capital structure, including off-balance-sheet items and the liabilities of subsidiaries.

S&P said the downgrade reflects the poor operating performance caused by the long period of economic weakness and pricing pressures in several of its very competitive businesses, and limited financial flexibility.

For the year ended Dec. 31, 2002, EBITDA (operating lease adjusted) was relatively flat with 2001 following a decline of 14% from 2000, S&P said. In the latest quarter ended March 31, 2003 operating losses occurred in Jordan's Specialty Printing and Labeling, and Consumer and Industrial Products segments. The weak profitability is due to continued weak economy and significantly intensified pricing pressures in many of Jordan's key market segments. Market conditions are not expected to improve in the next few quarters.

As a result, total debt to EBITDA at the restricted subsidiaries is more than 15x and EBITDA to interest coverage, is 0.5x (operating lease adjusted) and may continue to erode in the near term, S&P said.

Liquidity is tight, S&P added. As of March 31, 2003, Jordan Industries Restricted Group had about $9 million in cash on the balance sheet and about $8 million in availability under the firm's asset-based bank credit facility. Jordan's ownership in its subsidiary, Kinetek Inc. may provide a potential source of liquidity. Liquidity was benefited by the purchase in 2002 of $119 million principal amount of its $214 million 11.75% senior subordinated debentures due 2009. The company purchased these bonds at a substantial discount and reduced net debt by about $90 million. About $95 million of these bonds are outstanding. More importantly, these bonds had their first cash interest payment in October 2002. The purchase lowered cash interest payments by $11 million annually.

The company may need to obtain proceeds from asset sales, or get an equity infusion from its owners to prevent a default since its liquidity may erode further in the next 12-18 months if operations fail to improve, S&P said.

S&P cuts Kinetek

Standard & Poor's downgraded Kinetek Inc. including cutting its $270 million 10.75% senior notes due 2006 to CCC+ from B- and Kinetek Industries, Inc.'s $11 million 10% senior notes due 2007 and $15 million 5% senior notes due 2007 to B- from B+ and $35 million revolving credit facility to B+ from BB-. The outlook is stable.

S&P said the downgrade reflects the continued weak operating performance and deterioration in credit measures that are not expected to improve to levels commensurate with the previous ratings.

Kinetek's ratings are independent of its parent Jordan Industries Inc. because of its separate financial structure, including separate public debt and bank agreements that place extremely tight restrictions on the company's ability to incur additional indebtedness, create liens, make restricted payments, engage in affiliate transactions or mergers and consolidations, and make asset sales, S&P noted. In addition, Kinetek is a non-restricted subsidiary of Jordan Industries Inc. and there are no cross-defaults, nor any cross-guarantees with the parent's debt obligations.

Because of the long period of economic weakness, financial performance has been lackluster, S&P said. Credit protection measures have weakened and financial flexibility is limited. For the period ended March 31, 2003 total debt to EBITDA has swelled to 6.2x. EBITDA interest coverage has declined to about 1.3x.

Financial risk is expected to remain high for an extended period, reflecting the firm's heavy debt burden and thin cash flow protection. S&P said it expects debt to EBITDA to average in the 5x-6x area over the business cycle. Over time, EBITDA to interest coverage is expected to average in the modest 1.5x-2x range.

S&P upgrades Ziff Davis Media

Standard & Poor's upgraded Ziff Davis Media Inc. including raising its $100 million term loan A bank loan due 2006, $230 million term loan B bank loan due 2007 and $50 million revolving credit facility bank loan due 2006 to CCC from CCC- and assigned a CC rating to its $98 million 12% senior subordinated compounding notes due 2009. The ratings were removed from CreditWatch negative. The outlook is developing.

The rating actions reflect Ziff-Davis' reduction in debt levels and cash interest expense following its recapitalization in which the company exchanged $238 million (or 95%) of its 12% senior subordinated notes due 2010 for a combination of compounding notes, cash, warrants, and preferred stock and raised $80 million in new preferred stock from its controlling stockholder, S&P said.

The ratings on Ziff Davis also consider its position in the highly competitive computer magazine publishing industry and earnings concentration in a few key titles, S&P added. Competition is fierce with two other publishers, which together with Ziff Davis, account for the bulk of technology magazine industry revenues. Ziff Davis is highly dependent on its core title, PC Magazine, which holds a good market position and accounts for a significant percentage of overall EBITDA.

The company is reliant on volatile high-tech advertising demand, with about two-thirds of revenues derived from advertising sales, S&P said. Advertising revenues fell sharply from 2000 to 2002 due to a sharp 50% decline in advertising pages resulting from margin pressure on computer equipment manufacturers, industry consolidation, and competitive pricing.

EBITDA was $1.6 million for the seasonally weak three months ended March 31, 2003, versus an EBITDA loss of $5.9 million for the same period in 2002 due to cost reductions, S&P said. The company anticipates that consolidated EBITDA for the second quarter of 2003 will be in the range of $5.0 million to $7.0 million compared to a $0.5 million EBITDA loss in the second quarter of 2002 due to reduced operating expenses.

S&P said it expects that 2003 EBITDA improvement will be restrained by relatively flat technology advertising demand and fierce competition. Discretionary cash flow has been negative during the past two years, though improving profitability and reduced capital spending are narrowing cash flow deficits.

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