Moody's downgrades Calpine to junk, still on review

Moody's Investors Service downgraded Calpine Corp.'s ratings to junk and kept them on review for further downgrade, affecting $11.6 billion of debt and preferreds. Among the ratings lowered, Moody's cut the senior unsecured rating to Ba1 from Baa3 and its convertible preferreds to Ba2 from Ba1.

Moody's said the ratings remain on review for further downgrade "pending arrangements to obtain additional financing."

The rating agency said it cut its assessment after "reviewing Calpine's near-term cash flow, liquidity sources and financial flexibility."

"A quick-growing capital intensive company, Calpine has acquired a significant debt burden in anticipation of later cash flow generation," Moody's commented. "The company must now, however, operate, carry out ongoing expansion and service this debt burden in the face of modest operating profits. Furthermore, the company's financial flexibility has been reduced as evidenced by investors' materially lowered earnings expectations and the company's resulting fallen stock price."

Noting the company is looking to raise $1.5 billion in bank facilities to replace its existing $400 million corporate revolver and $300 million letter of credit facilities and that it will likely need to refinance $878 million in zero coupon convertible bonds in April, Moody's said it believes "the company's current situation may reduce senior noteholders' debt service coverage for a longer period and increase the likelihood that the senior unsecured note holders will become effectively or structurally subordinated."

Over the coming months it anticipates Calpine's cash flow will be restricted, as is generally the case in the first and second quarters. But "throughout this time, Calpine will need to continue funding power plant construction expenditures as well as cover ongoing interest payments and preferred dividends on its significant debt and preferred burden," Moody's said.

Fitch puts Calpine on watch negative

Fitch on Friday placed its BBB- rating of the senior unsecured debt of Calpine Corp. on watch, negative. The action relates to an ongoing review of Calpine's liquidity and business prospects in the light of turbulent market conditions that have impacted the company's access to the capital markets, Fitch said. While the company's operating fundamentals are sound, the financial profile is aggressive, and is not consistent with the current market environment. Based on the company's strong asset portfolio and long-term contracts for a substantial portion of its current and future output, Fitch believes that if the rating is changed, the most likely outcome would be BB+ or BB.

While Calpine has a number of alternatives to address short-term financing requirements, Fitch said it will focus on the company's long-term plan for adjusting its capital structure to the new market environment. However, high financial leverage is somewhat mitigated by the relatively low cost and high efficiency of the company's generation fleet, ownership of gas and oil reserves valued on the balance sheet at less than their current value, and a meaningful level of contractual cover for future sales with credit-worthy counterparties, Fitch said.

The anticipated completion of the current phase of the company's capacity construction will result in reduced capital expenditures and increasing free cash flow over the next five years, providing an opportunity for management to reduce debt, Fitch noted. From a credit viewpoint, management's recent statements that it may curtail the aggressive development of power projects not currently under construction is a favorable sign.

S&P downgrades Global Crossing, Asia Global Crossing, keeps on negative watch

Standard & Poor's downgraded Global Crossing Ltd. its Global Crossing Holdings Ltd. and Frontier Corp. units and its 58.8% owned subsidiary Asia Global Crossing Ltd. All ratings remain on CreditWatch with negative implications. The $7.6 billion of debt affected includes: Global Crossing Ltd.'s preferred stock, cut to C from CCC-; Global Crossing Holdings Ltd.'s senior unsecured debt, cut to C from CCC, its $800 million 9.625% senior unsecured notes, cut to C from CCC, its senior secured bank loan, cut to CCC- from B-, its preferred stock, cut to C from CCC-; Frontier Corp.'s senior unsecured debt, cut to C from CCC, its preferred stock, cut to C from CCC-; and Asia Global Crossing Ltd.'s senior unsecured debt, cut to CCC- from CCC+.

S&P said its downgrade reflects "heightened concerns regarding the company's liquidity position and its ability to obtain an amended bank facility near term. In addition, Global Crossing's liquidity will be further compromised if Asia Global Crossing decides to draw down on the $400 million credit facility available from Global Crossing."

S&P said the company is unlikely to be able to obtain funding in the capital markets adding that "it appears the only alternative to maintaining the company's viability would be through a private equity investor."

That, S&P noted, "normally results in a restructuring of the company's capital structure."

Moody's downgrades Kmart to junk

Moody's Investors Service downgraded Kmart Corp. to junk from investment grade, affecting $4.7 billion of debt securities. Among the ratings downgraded are Kmart's senior unsecured debt and medium-term notes, cut to Ba2 from Baa3 and its lease certificates, cut to Ba3 from Ba1. The outlook is negative.

The rating agency said its action reflects "the decline in credit protection measures and the continuing challenge that the company faces in obtaining benefits from its turn-around initiatives and converting these benefits into substantial improvements in sales, profitability and cash flow generation."

It also said that on current performance "it may be some time" before internal performance and external market conditions improve enough for Kmart to achieve significant deleveraging.

Moody's said its outlook is negative because there is not sufficient evidence that the company's financial performance has bottomed and because the company's franchise and credit metrics may deteriorate further.

"Despite some signs of positive improvements, Kmart has yet to achieve a significant increase in sales," Moody's commented. "Although it is still early in the process, it is still uncertain whether operating changes are resonating sufficiently with customers to ensure a sustainable long term improvement in credit metrics."

Credit statistics have deteriorated, the rating agency added, noting EBITDA for the first nine months of the year declined by 12% to $700 million while interest expense rose 30% to $267 million.

S&P downgrades Nextel International

Standard & Poor's downgraded Nextel International Inc. and left the company's rating on CreditWatch with negative implications.

Among the ratings lowered, S&P cut Nextel International's $951.5 million 13% senior discount notes due 2007, its $300 million 13% senior discount notes due 2008 and its $650 million 12.75% senior notes due 2010 to C from CCC-.

Simonds Industries hires Credit Suisse First Boston

Simonds Industries Inc. announced it hired Credit Suisse First Boston to examine "alternative transactions to strengthen its balance sheet."

In a brief news release, Ray Martino, chief executive of the Fitchburg, Mass. company, "expressed confidence that the long term prospects for growth in revenue and profits would be enhanced by a new capital structure."

Moody's rates new Unisys notes Ba1

Moody's Investors Service assigned a Ba1 rating to Unisys Corp.'s new offering of senior unsecured notes. It also confirmed the existing senior unsecured debt. The outlook is stable.

Moody's said its rating reflects a positive outlook for the company's business-process outsourcing and network-management businesses. But the ratings are also limited by "ongoing macroeconomic challenges negatively impacting its systems integration business and by challenges to maintain its technological lead in IT hardware, given its relatively modest financial resources," Moody's added.

Financial leverage has been "significantly reduced" over the past several years and is moderate, Moody's commented. It anticipates Unisys will generate $70 million of cash flow from operations in the fourth quarter of 2001, and that the cash portion of a $250 million fourth quarter charge to reduce headcount by 8% will be manageably spread over 2002.

Fitch rates new Mandalay notes BB-, puts on negative outlook

Fitch assigned a BB- rating to Mandalay Resort Group's new issue of senior subordinated notes, confirmed the company's senior debt at BB+ and senior subordinated debt at BB- and cut the outlook to negative. The action resolves the Rating Watch Negative status assigned on Sept. 26, 2001.

Fitch said its ratings reflect Mandalay's "leading position on the Las Vegas strip, solid gaming assets in Illinois and Detroit and the company's ability to generate adequate free cash flow. Credit concerns include high debt levels as a result of major capital spending and share repurchase programs and a concentration of cash flow in Nevada."

The negative outlook reflects "potentially a weaker and more volatile level of earnings due to a prolonged economic downturn. While room rates (which MBG is particularly sensitive to) and occupancy levels have shown meaningful improvement since September, mid-week business reflects continued weakness and revenue per available room (RevPar) remains lower year over year."

Moody's upgrades Corrections Corp.

Moody's Investors Service upgraded Corrections Corp. of America, affecting $860 million of debt. Among the ratings raised were Corrections Corp.'s senior secured debt to B2 from B3, its senior unsecured debt to B3 from Caa1 and its preferred stock to Caa2, from Ca. The outlook is stable.

Moody's said the upgrade is based on the "improving financial profile" of Corrections Corp., including "its strengthened ability to maintain its leadership position in the correctional property development, ownership and management businesses, its continued improvement in operating results, and the improvement in its financial profile."

The rating agency noted that a key factor in the upgrade is Correction Corp.'s completion of an amendment and restatement of its senior credit facility. Included in the changes, the facility due Jan. 1, 2002 was replaced with a term loan of the same amount due Dec. 31, 2002, coinciding with the maturity of other loans under the senior credit facility.

In addition, Corrections Corp. is permitted to pay regular dividends on its preferred stock, including dividends that had been in arrears. On Dec. 13, the company's directors declared a dividend on the series A preferred stock for Oct. 1, 2001 through Dec. 31, 2001 and for all five quarterly dividends currently unpaid and in arrears.

Moody's puts Captain D's on review for downgrade

Moody's Investors Service put Captain D's Inc. on review for possible downgrade, including its $135 million secured bank facility due Dec. 31, 2001 rated B2.

Moody's said its review is a result of concerns about the company's liquidity position arising from the imminent maturity of its bank facility.

"We had expected that the company would already have refinanced the bank loan, or made arrangements to extend the maturity, before the middle of December," the rating agency commented.

Moody's downgrade Desa, still on review

Moody's Investors Service downgraded Desa International, Inc. and kept the ratings on review for further downgrade. Ratings affected include Desa's $169.5 million senior secured bank credit facility, lowered to Caa2 from B2, and its $130 million of 9.875% senior subordinated notes due 2007, lowered to C from Caa1.

Moody's said the ratings will remain on review for possible further downgrade because the waivers received from its banks have expired.

The rating agency began its review on July 16, 2001 because of the company's weak fiscal first quarter ended June 2, 2001, accompanied by negative interest coverage and significant ongoing debt amortization requirements.

Moody's described Desa's liquidity as "constrained" and said: "The company has a clear reliance on external sources of funding, which are closed off to it at the current time."

Moody's downgrades Wolverine Tube

Moody's Investors Service downgraded Wolverine Tube, Inc., with ratings lowered including Wolverine's $150 million of 7.375% guaranteed senior notes due 2008 to Ba2 from Ba1 and its $200 million senior unsecured revolving credit facility to Ba2 from Ba1. The outlook is negative.

Moody's said it took the action because of weakening financial results, a consequence of the slowing global economy, decreased shipments and volume-related manufacturing inefficiencies. These factors made Wolverin's debt protection measures weak for its rating category, Moody's said.

The rating agency "does not foresee developments that will lead to a meaningful turnaround in Wolverine's near-term financial performance."

The negative outlook reflects Moody's expectation of "continued weak demand for Wolverine's products and resulting margin compression."

There is also liquidity uncertainty because the company's revolving credit facility matures on April 30, 2002, Moody's said. It noted that adding a senior secured tranche could result in the senior notes being rated lower than the bank debt.

Moody's puts United Defense on review for upgrade

Moody's Investors Service put the ratings of United Defense Industries, Inc. on review for possible upgrade, including its $600 million senior secured term loan rated B1 and its $200 million senior secured revolving credit facility rated B1. The outlook remains positive.

The review follows United Defense's initial public offering raising $400 million of which the company expects to receive $163.4 million.

Moody's said its review will look at the extent to which debt is reduced following the IPO. The rating agency will also look at operational performance and the market opportunities for the company's principal products and programs given its dependence on ongoing Congressional approval and Department of Defense funding for both production and development contracts.

Moody's will also look at United Defense's concentration in particular programs. For the first nine months of 2001, Moody's said, Bradley Fighting Vehicle production made up 21% of revenues and the Crusader self-propelled howitzer development program was 20%.

S&P downgrades Fedders

Standard & Poor's downgraded Fedders North America Inc. and Fedders Corp. and removed the company's ratings from CreditWatch. The outlook is negative. Among the $176 million of debt affected is Fedders' senior secured bank loan, lowered to BB- from BB, and its subordinated notes, cut to B- from B.

S&P said the downgrade reflects Fedders' "weakened operating and financial performance during fiscal 2001. The company's earnings declined substantially year over year due to the slowdown in demand for room air conditioners, pricing pressures, unfavorable product mix, intense competition, and lower production volume at certain plants. Standard & Poor's believes that earnings weakness, combined with the soft industry, will result in weak financial ratios over the near term. While the company is dealing with the operational shortfalls through a restructuring plan, management may be challenged to improve profit margins while maintaining market share."

S&P cuts Oglebay Norton outlook to negative

Standard & Poor's lowered its outlook on Oglebay Norton Co. to negative from stable and confirmed the existing ratings, including the senior secured bank loan at B+ and the subordinated debt at B-.

S&P said its revision is the result of "heightened concerns regarding the persistence of the economic recession and its negative impact on Oglebay's key end markets, which could stress the company's already weak financial profile."

S&P said Oglebay Norton has a "below-average business position" and aggressive debt levels.

S&P raises ContiGroup outlook

Standard & Poor's raised its outlook on ContiGroup Cos. Inc. to positive from stable and confirmed the BB- corporate credit and senior unsecured debt ratings.

S&P said the revision recognizes the company's ongoing improvement in its financial profile.

"Operating performance in the firm's three major meat businesses has resulted in meaningful improvement in profitability and cash flow measures," S&P commented.

S&P lowers IT Group, still on watch

Standard & Poor's downgraded IT Group Inc. and kept its ratings on CreditWatch with negative implications. Ratings affected include IT Group's bank debt, cut to B from B+, its senior subordinated notes due 2009, cut to CCC+ from B- and Ohm Corp.'s convertible subordinated debentures due 2006, cut to CCC+ from B-.

S&P said the downgrade follows IT's announcement it will not be in compliance with the year-end 2001 financial covenants of its senior secured credit agreement. Previously, IT was expected to be in compliance for the fourth quarter and the year.

"The worsening liquidity situation stems mainly from continued weak operating environment, ineffective project execution, and failure to reduce high debt levels," S&P said.

While the firm has acted to reduce costs, sell non-core assets, access additional sources of capital, and better manage its working capital, S&P said "considerable uncertainties remain whether those efforts will be successful in restoring profitability and financial flexibility and providing a cushion to meet debt service requirements in 2002."

S&P downgrades Simonds Industries

Standard & Poor's downgraded Simonds Industries Inc., including lowering its $100 million of 10.25% senior notes due 2008 to C from CCC-. It also put the ratings on CreditWatch with negative implications.

S&P downgrades Anthony Crane

Standard & Poor's downgraded Anthony Crane and put the ratings on CreditWatch with negative implications.

Ratings affected include Anthony Crane Rental LP's $155 million 10.375% senior notes due 2008, Anthony Crane Holdings Capital Corp.'s $48 million of 13.375% senior discount debentures due 2009 both lowered to CCC+ from B- and Anthony Crane Rental's bank debt, cut to B from B+, and its second priority lien bank debt, cut to B- from B.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.