S&P cuts Alamosa, on watch

Standard & Poor's downgraded Alamosa Holdings Inc. and put it on CreditWatch negative including Alamosa Delaware Inc.'s $150 million notes due 2011, $250 million 12.5% senior unsecured notes due 2011 and $350 million senior discount notes due 2010, all cut to C from CCC-, and Alamosa Holdings LLC's $333 million senior secured credit facility, cut to CC from CCC+.

S&P said the action follows the company's announcement of its financial restructuring plan.

Because the consideration being offered by the company in exchange for the existing debt represents a discount to its accreted value, S&P said it would view completion of the deal as a distressed exchange and tantamount to a default on original debt issue terms. The company's intent to execute a prepackaged Chapter 11 reorganization in order to effect the exchange offer increases the distressed characteristics of the transaction.

Upon completion of the exchange offering, the corporate credit rating on Alamosa will be lowered to SD, denoting a selective default, and the senior unsecured debt ratings will be lowered to D. Subsequent to the selective default or bankruptcy filing, S&P said it expects to reassign the CCC+ corporate credit rating because of weak wireless business conditions, despite the planned $240 million debt reduction.

In conjunction with the restructuring, Alamosa is amending its affiliation agreement with Sprint PCS, which the company expects will yield about $15 million in annual cost savings and increase operating flexibility, S&P noted. Alamosa is also amending its bank facility to relax certain covenants in the near term. The revisions to both the Sprint PCS affiliation agreement and the senior credit facility are contingent on Alamosa's successful completion of its public debt restructuring plan.

Despite debt reduction and lower operating costs that will result following Alamosa's restructuring plan, as well as recent improvement in the company's operating and financial performance, the company could still be challenged in weathering intense competition and slowing industry growth, S&P said. Competitive pressure could increase as local number portability becomes effective during the next year.

S&P raises Knowles outlook

Standard & Poor's raised its outlook on Knowles Electronics Holdings Inc. to positive from negative and confirmed its ratings including its bank debt at CCC+ and subordinated notes at CCC-.

S&P said the outlook revision is primarily based on Knowles' recent refinancing of its bank facility and divestiture of three non-core businesses. Together, these actions have eliminated debt maturities until 2006 and bolstered near-term liquidity.

The ratings reflect the company's declining revenue base over the past few years, its limited cushion under bank covenants and its highly leveraged financial profile, S&P added. These are only partially offset by its solid niche market position and adequate near-term liquidity.

During the 12 months ended June 2003, Knowles had EBITDA coverage of interest of just 1.4x and operating lease-adjusted total debt-to-EBITDA of 6.5x, S&P said. Including its exchangeable preferred stock, which has debt-like characteristics but with noncash dividends, leverage is quite high, at more than 10x.

S&P cuts Cone Mills

Standard & Poor's downgraded Cone Mills Corp. including cutting its $100 million 8.125% debentures due 2005 to D from CCC+.

S&P said the downgrade follows Cone Mills' announcement that it has received an offer from WL Ross & Co. to purchase substantially all of the assets of the company. The transaction will require Cone Mills to file a voluntary petition for relief under Chapter 11 with the U.S. Bankruptcy Court over the next several days.

In addition, as a result of its deteriorating liquidity, the company failed to make a scheduled $4.1 million interest payment due Sept. 15 on its senior secured debentures. Cone Mills has a 30-day grace period before it is considered in default on its bond indebtedness. However, it is not expected that the proceeds of the asset sales will be sufficient to satisfy the company's secured debt position.

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