S&P puts Anteon on positive watch

Standard & Poor's put Anteon Corp. on CreditWatch with positive implications. Ratings affected include Anteon's $110 million six-year revolving credit facility and $60 million six-year term loan, both rated BB-, and its $120 million 12% senior subordinated notes due 2009, rated B-.

S&P said the positive watch reflects Anteon's improved financial profile and its expectations for continued improvement in profitability and cash flow.

S&P said it expects government-related business will remain substantial, as federal agency outsourcing continues to grow and new defense and security initiatives are implemented.

Operating margins could improve from current 7% levels over time with additional scale and operating synergies, S&P noted.

Anteon has also bolstered its capital structure by using the proceeds from its initial public offering and free cash flow to reduce debt levels, from the 5 times debt-to-EBITDA range to about 3 times, S&P said.

S&P keeps Foster Wheeler on negative watch

Standard & Poor's is keeping the B+ corporate credit rating for Foster Wheeler Ltd. on watch with negative implications, after the company recorded an added $46 million charge in the fourth quarter. Foster Wheeler said it will revise its 2002 forecast downward but its cash position at March 29 rose to $423 million from $224 million at yearend.

Foster Wheeler's independent auditor has given the firm a qualified audit opinion on 2001 financial statements, including "going concern" language, due to Foster Wheeler's continued negotiations to finalize a long-term amendment or waiver to its bank revolving credit facility, a lease and account receivable beyond April 30.

Should the company be unable to obtain waivers or long-term amended agreements beyond April 30, it is possible that creditors could accelerate payments, which could potentially lead to a default, S&P said.

However, should senior bank lenders pursue that strategy, their position in a default scenario would be pari passu to senior unsecured noteholders and other senior obligors.

As a result, S&P believes senior bank lenders have a meaningful economic interest to strengthen their position in the debt structure rather than pursue a debt acceleration scenario.

Moody's rates PCA notes Caa1

Moody's Investors Service assigned a Caa1 rating to PCA International's upcoming offering of $200 million senior unsecured notes due 2009. The outlook is stable.

Moody's said the ratings reflect PCA's very high leverage relative to operating cash flow, which will make it challenging for PCA to meaningfully reduce debt at current operating levels.

Moody's also noted that PCA will need to invest cash in growth for the medium to long term, has insufficient tangible asset coverage, indicating high potential for loss of principal in case of default, experiences high fourth-quarter seasonality, which could cause bank borrowings and vendor financing to increase during the first part of the year, and has suffered historical operating losses from the institutional business which PCA hopes to turn around in order to help achieve its financial objectives.

Positives include PCA's position as sole provider of in-store photography services to Wal-Mart, backed up by history of operations as well as a long-term license agreement, a pricing strategy which allows for satisfactory operating profitability while reducing the likelihood of a competitive threat, the improving profitability of the Wal-Mart business and the expectation of growth related to Wal-Mart's own expansion and store renewal programs, the rating agency said.

Moody's said the stable outlook reflects its view that PCA will continue to operate at current levels and should be able to finance its growth through operating cash flow.

However, financing growth will leave very little cash available for debt reduction, making it unlikely that leverage will fall significantly in the near term, Moody's added.

S&P downgrades Knowles

Standard & Poor's downgraded Knowles Electronics Holdings Inc. and put the company on CreditWatch with negative implications.

Ratings affected include Knowles' $250 million senior secured credit facility bank loan due 2007 and $153.2 million 13.125% senior subordinated notes due 2009, both cut to CCC+ from B-.

S&P downgrades Pueblo Xtra

Standard & Poor's downgraded Pueblo Xtra International Inc. The outlook is negative. Ratings affected include Pueblo Xtra's $177.3 million 9.5% senior notes due 2003, cut to CCC- from CCC and its $43 million revolving credit facility due 2003, cut to B from B+.

S&P said it cut Pueblo Xtra because of concern about the company's ability to refinance its bank facility which matures in February 2003 and $177 million of senior unsecured notes due August 2003.

Although Pueblo has demonstrated some improvement in sales and EBITDA in recent quarters, credit protection measures and liquidity remain weak as the company faces increased competition and weakened economic conditions in its markets, S&P said.

In addition, the company disclosed in its 10-Q dated Feb. 23 that due to declining sales and profitability, and working capital deficits, the company "may be unable to continue as a going concern for a reasonable period of time," S&P noted.

S&P cuts Reader's Digest outlook

Standard & Poor's lowered its outlook on Reader's Digest Association Inc. to negative from stable. The company's corporate credit rating is BB+.

S&P acts on Advantica

Standard & Poor's took various actions on Advantica Restaurant Group Inc. and removed it from CreditWatch with negative implications.

The corporate credit rating was cut to SD (selective default) from CC, the $592 million 11.25% senior notes due 2008 were cut to D from C and the $200 million bank credit facility due 2003 was confirmed at CCC+.

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