S&P places Xerox's ratings on Watch Negative

Standard & Poor's placed Xerox Corp.'s ratings on CreditWatch with negative implications due to concerns about the renegotiation of its $7 billion revolver due October 2002. Ratings affected include Xerox and Xerox Canada Finance Inc.'s notes, credit facility and debentures rated BB, Xerox's convertibles subordinated debentures rated B+, Xerox's capital securities and convertibles trust preferreds rated B and Xerox Capital LLC's preferred shares at B.

S&P plans to monitor the progress of the bank negotiations before concluding its review.

The ratings reflect the company's good position in its industry and S&P's expectation of ongoing debt reductions. "Xerox has made progress in executing its turnaround program, including asset sales totaling more than $2 billion, significant cost-reduction and cash-conservation actions, and agreements to transition the majority of Xerox's equipment-financing business to third parties," the S&P release said.

Moody's downgrades Knowles Electronics

Moody's Investors Service downgraded Knowles Electronics Inc. and placed the ratings on negative outlook. Lowered ratings include its $25 million senior secured revolver due 2006, $50 million senior secured term A due 2006 and $150 million senior secured term B due 2007, all lowered to B3 from B1, its $153.2 million 13.125% senior subordinated notes due 2009 lowered to Caa2 from B3, its senior implied rating to B3 from B1 and its senior unsecured issuer rating to Caa1 from B2.

The downgrades are due to concerns over near-term liquidity position on news that the company is out of compliance with bank facility covenants and that it will not make an April 15 coupon payment on its notes until issues with the banks are resolved, Moody's said.

"Moody's ratings anticipate that the company will be able to negotiate a waiver and covenant amendment in the near-term which will allow it to subsequently make its missed coupon payment," Moody's said. "Additionally, Moody's expects that Knowles will maintain its leading market shares and will control costs, working capital and capital expenditures in order to sustain historically strong profitability and returns on assets, while improving cash flow."

Ratings also reflect high leverage, thin interest coverage, lack of retained cash flow, lower-than-expected sales in the hearing aid transducer segment and decreased sales in automotive components, the rating agency said.

Positive influences on the ratings include strong niche market positions and profitability and returns on assets, Moody's added.

Moody's rates NMHG notes B3, bank facility B1

Moody's Investors Service assigned a B3 rating to NMHG Holding Co.'s proposed $250 million of senior notes due 2009 and a B1 rating to its proposed $175 million senior secured revolving credit facility due 2005. The outlook is stable.

Moody's said the ratings reflect the highly cyclical nature of NMHG's business, sensitivity to economic activities and corporate capital spending, uneven financial performance and volatile cash flows, high debt leverage, sizable management fee and dividend payments to the parent company, and substantially constrained financial flexibility.

Positives include NMHG's strong market position in the global lift truck market, broad product offerings with strong brand recognition, its well-established dealership network, and recent cost-cutting and restructuring efforts.

The rating agency said NMHG's strongly cyclical business means its credit profile fluctuates considerably through the economic cycle, with a significant deterioration in the current downturn.

After the upcoming financing, pro forma debt will be $367 million, or 5.8 times adjusted 2001 EBITDA (or 22.6 times on an EBITA basis). NMHG also had $158 million of contingent liability at year-end 2001 from extending guarantees to assist its customers in obtaining equipment financing. On a pro forma basis, adjusted EBITDA and EBITA would cover interest expense 2 times and 0.5 times respectively, Moody's said.

S&P affirms Outsourcing Services' ratings; outlook changed

Standard & Poor's affirmed its ratings for Outsourcing Services Group Inc. and removed them from CreditWatch with negative implications but assigned a negative outlook. Ratings affected include Outsourcing Services' $70 million revolver due 2003 at B+, $105 million 10.875% senior subordinated notes due 2006 at CCC+ and the corporate credit rating of B.

The company recently received an amendment to its credit facility that loosened financial covenants and waived violations for the fourth quarter 2001, S&P said. Covenant defaults were a result of tough industry conditions and internal issues. At March 31, 2002, availability under the amended revolver increased by about $19 million.

Ratings reflect the company's high debt leverage due to an aggressive acquisition strategy. Positive reinforcement for the ratings comes from the company's solid position in the contract manufacturing industry, the rating agency said.

According to S&P, revenues for 2001 rose 10% year-over-year, primarily because of the contribution from acquisitions made in 2000 and 2001. The company's operating margin (before depreciation and amortization) declined to 8.9% in 2001 from 10.1% the previous year due largely to higher material and labor costs. Credit measures weakened somewhat in 2001, with debt to EBITDA of 5.7 times and EBITDA interest coverage of 1.6x.

Fitch downgrades Western Resources

Fitch Ratings downgraded Western Resources senior unsecured debt to BB- from BB, its preferred stock to B+ from BB- and the trust preferred securities of Western Resources Capital Trust I and II to B+ from BB-. It also confirmed the company's senior secured debt at BB+. All ratings remain on Rating Watch Evolving.

Fitch said the revision better reflects its notching policy for below-investment-grade securities.

Fitch said the evolving watch is because of Western Resources' need to refinance $1.6 billion of debt from August 2002 through December 2003 and the uncertain outlook for the company's pending restructuring plan which, if implemented, could result in meaningful improvement to its financial condition.

Western Resources is proposing to divest all or part of its unregulated subsidiary Westar Industries and/or a public offering of its common stock, using the proceeds to repay debt with a targeted reduction of $1.2 billion.

However the plan requires regulatory approval and is subject to market risk and pricing contingencies, meaning the ability to execute is uncertain, Fitch said.

Moody's upgrades Shoppers Drug Mart

Moody's Investors Service upgraded Shoppers Drug Mart Corp. including raising its C$1.1 billion senior bank credit agreement to Ba1 from Ba3. The outlook is stable.

Moody's said the action reflects Shoppers Drug's significant improvement in leverage following an initial public offering and the rating agency's expectation of further improvement in credit ratios, as well as the company's strong national drug store franchise in Canada, leading market shares and upgraded technology and logistics.

Moody's said the stable outlook indicates it expects that relatively new management will successfully execute its strategies to grow revenues and profitability and that free cash flow will be invested in the business and in further debt reduction.

S&P rates NMHG notes B+, bank loan BB-

Standard & Poor's assigned a B+ rating to NMHG Holding Co.'s planned $250 million senior notes due 2008 and a BB- rating to its planned $130 million secured credit facility due 2005. The outlook is positive.

S&P said its ratings reflect NMHG's leading positions within cyclical and volatile markets, its aggressive financial profile, and fair financial flexibility.

The rating agency said larger forklift manufacturers are gaining market share from vendor consolidation, which is leading to national account opportunities.

Over the business cycle, the industry grows at GDP-like rates but it is both cyclical and volatile; demand for lift trucks has been quite weak during the past several quarters and volume is not expected to materially improve until 2003, S&P said.

Barriers to entry, including brand image, economies of scale, and a strong distribution network, are meaningful, the rating agency noted, but added that pricing pressures are constant, forcing participants to continuously improve their cost structures and develop new products to generate fair profitability measures.

S&P rates American Commercial notes CCC, cuts bank debt

Standard & Poor's assigned a CCC rating to the new notes to be issued by American Commercial Lines LLC in an exchange and downgraded its bank debt. The existing notes remain at D. Ratings affected include American Commercial's $535 million credit facility, cut to B from B+ and maintained on CreditWatch with negative implications, its new $120 million 11.25% senior notes due 2008 and $116.507 million 12% senior subordinated notes due 2008, both assigned a CCC rating.

The new notes will be issued in an exchange for the old ones as part of the company's acquisition by Danielson Holding Corp.

S&P said the acquisition will "modestly improve" American Commercial's weak capital structure.

The bank facility is rated higher than the company's expected B- corporate credit rating due to significant marine assets (barges and towboats), facilities and other assets securing the facility, S&P said.

S&P lowers Personnel Group

Standard & Poor's downgraded Personnel Group of America Inc., removed it from CreditWatch with negative implications and assigned a negative outlook.

Ratings affected include Personnel Group's $115 million 5.75% convertible subordinated notes due 2004, cut to CCC- from CCC+, and its $125 million revolving credit facility bank due 2002, cut to CCC+ from B.

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