Moody's cuts Koppers

Moody's Investors Service downgraded Koppers Inc. included cutting its senior implied rating to B1 from Ba3, withdrew its B2 rating on Koppers' $175 million of 9.875% guaranteed senior subordinated notes due 2007 and confirmed its new $320 million of 9.875% senior secured notes due 2013 at B2. The outlook is stable.

Moody's said the downgrade reflects Koppers' increased leverage, interest expense and negative shareholders' equity following its recent recapitalization, as well as cash flow and earnings pressures in the current sluggish economic environment.

The recapitalization increased Koppers' debt by about $60 million, to around $350 million from $289 million as of June 30, 2003. Pro forma leverage will be 4.8x trailing 12 months EBITDA (and 5.5x when $21 million of annual rent payments are capitalized) and EBITDA to pro forma interest will be around 2.2 times. These credit ratios are approximately a full turn worse than historical ratios, Moody's said.

Koppers' profit margins are at their lowest in many years, albeit only slightly below long-term averages, Moody's said. Many of the industries that the company serves, such as aluminum smelting, steel making and electric utilities, are currently experiencing soft demand and reduced margins, which make it difficult for Koppers to maintain its own sales and margins. At the same time, the prices for some of Koppers' primary raw materials - e.g. coal tar and lumber - are being pressured.

Koppers' debt ratings also reflect the mature and cyclical markets that it serves and the high level of environmental risk associated with the carbon-based chemical materials that it produces, Moody's added.

However, its ratings and stable rating outlook are supported by Koppers' global and diverse end markets, its leading market position in many of its businesses, the stability provided by its reliance on multi-year sales contracts, the essential nature of its products, and its diversified raw material supply base. These strengths have made Koppers' financial performance very stable and profitable, with EBITDA to sales in a narrow band between 10-11% and EBIT to assets consistently around 10%.

Moody's cuts M-real to junk

Moody's Investors Service downgraded M-real Oy and its guaranteed subsidiary Metsa Group Financial Services Oy to junk including cutting its senior unsecured debt at Ba1 from Baa3. The outlook remains negative.

Moody's said the downgrade reflects M-real's poor operational performance given the persistently difficult market environment for the group's paper products and Moody's concerns about the company's weak financial profile, including challenges encountered with reducing its high debt balances at the trough of the paper cycle.

The ratings also reflect M-real's predominant focus on one rather cyclical paper segment - fine paper, which makes it more vulnerable to cyclical swings and adverse developments in this particular segment compared to more diversified peers, especially given the overcapacity situation notably in coated fine paper.

The continuing negative outlook reflects M-real's dependence on the outlook of its core paper markets as a driver for improved cash flow generation and debt reduction, including some uncertainty regarding the timing and extent of an industry upturn over the next 12 months. There is limited flexibility even at the Ba1 rating level to withstand a further deterioration in credit metrics for M-real, Moody's said.

Moody's cuts Desert Ridge

Moody's Investors Service downgraded Desert Ridge Resort, LLC's senior secured floating-rate notes due 2007 and 7.90% senior secured notes due 2007 to Ba3 from Ba1.

Moody's said the ratings are based on the reinsurance agreement provided by Royal Indemnity Co. whose insurance financial strength rating was downgraded by Moody's to Ba3 on Oct. 23.

S&P rates Development Bank of Kazakhstan bond BB+

Standard & Poor's assigned a BB+ rating to Development Bank of Kazakhstan's new $100 million eurobond due 2013.

The ratings on DBK reflect the bank's clearly defined and strategic public policy role for the government of the Republic of Kazakhstan (foreign currency BB+/stable) and its 100% state ownership, which ensure strong implicit government support, S&P said.

DBK is the primary vehicle in providing long-term credit to the non-extractive sectors of the Kazakh economy, one of the main strategic development targets of the government. The government is maintaining an arm's length relationship with DBK and does not guarantee the bank's obligations, although it keeps the bank well capitalized relative to the size of its business, S&P added.

The stable outlook reflects S&P's view that government support will remain strong, as demonstrated by the expected further increase of about $150 million in the bank's capital in 2004-2005.

Fitch rates Development Bank of Kazakhstan notes BB+

Fitch Ratings assigned a BB+ rating to Development Bank of Kazakhstan's $400 million euro medium-term note program and to its $100 million of fixed-rate notes maturing 2013.

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