Moody's cuts Georgia-Pacific to junk

Moody's downgraded the senior unsecured debt ratings of Georgia-Pacific Corp. to Ba1 from Baa3, and cut the convertible preferreds to Ba1 from Baa3.

The ratings downgrade is based on high debt and a weak near term outlook for commodity products, which will impede the company's ability to reduce debt significantly near term, Moody's said.

Georgia-Pacific's cash generation has been significantly below expectations since the acquisition of Fort James in 2000, Moody's said. Combined with a very high level of debt of about $12.4 billion currently, excluding the convertibles, this has produced debt protection that is much weaker than previously envisioned and more consistent with the lower ratings.

Looking forward, a relatively weak outlook for commodity products will result in low cash flow in relation to debt and will inhibit meaningful debt reduction.

Moody's expects retained cash flow to total debt of between 12% to 13% in 2002, if prices for commodity products do not increase meaningfully during the year.

The downgrade considers the company's planned initial public offering of the consumer products and packaging business and the contemplated exchange of rated debt securities.

Moody's believes these actions, long term, may ultimately be positive for existing bondholders because of the lower level of debt and greater stability of earnings.

However, there is significant uncertainty surrounding the timing and completion of the spinoff, which is not likely to be completed until 2003 at the earliest.

In addition, Moody's believes that debt at consumer products and packaging, even after the IPO and spin-off, will still be quite high and that debt protection measurements will be consistent with the lower ratings.

Nonetheless, long term, if the spin is completed and the company is successful in reducing debt with cash-flow, the ratings could be improved.

S&P affirms Georgia-Pacific at BBB-

Standard & Poor's affirmed its BBB- and A-3 corporate credit ratings on Georgia-Pacific Corp. and the subsidiaries after Georgia-Pacific disclosed details regarding its plans to separate into two publicly-traded companies - a consumer products, packaging, and pulp and paper firm to be spun off from existing operations and the remaining building products and distribution firm. Georgia-Pacific has total debt of about $13 billion.

S&P said the affirmation is based on expectations that Georgia-Pacific will offer to exchange existing bonds for bonds of the new consumer products company, bonds issued by Fort James Corp. and its predecessors will be obligations of the consumer products company and become pari passu with that entity's other senior unsecured debt and that holders of industrial revenue bonds associated with the building materials business will have the opportunity to transition to the consumer products company.

Based on GP management's current financing plans and S&P's assessment of the business and financial risks associated with each of the two companies, S&P expects to assign a BBB- corporate credit rating to the consumer products company and a BB corporate credit rating to the building products company, each with a stable outlook.

Liquidity is adequate, with proceeds from the expected remarketing of the mandatorily convertible debt issue, free cash flow and meaningful availability under a multiyear credit facility available to meet near-term debt maturities.

The company is in compliance with financial covenants in its credit agreements. Covenants are tight, but are not expected to be violated.

Georgia-Pacific currently has accounts receivable facilities totaling $1.3 billion that terminate if its debt is rated below investment grade by both S&P and Moody's, which Moody's did on Wednesday. These facilities are expected to be extended if necessary prior to the separation. Post-separation financing is expected to be structured so that a triggering event is more remote.

Georgia-Pacific's commitment to a stronger financial profile is a key support to the ratings, S&P said. Cost improvements and gradually strengthening market conditions across many of the company's commodity businesses should facilitate higher free cash generation and debt reduction.

Fitch changes Xerox's outlook to negative

Fitch Ratings changed the rating outlook on Xerox Corp. and its subsidiaries to negative from stable due to ongoing negotiations with its bank group to refinance the $7 billion revolver due in Oct. 2002, the potential that core operating cash flow could limit access to the capital markets and the delay in filing its annual report. The BB senior unsecured debt ratings and the B+ convertible trust ratings are affirmed.

Fitch also noted Xerox's weakened credit protection measures, refinancing risk of the revolver, significant debt maturities for the next three years, the competitive nature of the printing industry, the necessity for constant new product introductions and overall weak economic conditions.

"Fitch continues to recognize the company's improving operational performance, strong, technologically competitive product line and business position, completed asset sales, execution of the cost restructuring program, and progress in exiting the financing business," the rating agency said. "Xerox continues to improve its core operations as core EBITDA for the fourth quarter of 2001 was approximately $420 million, compared to $61 million in the third quarter, mainly as a result of higher gross margins and a lower cost structure."

At March 30, 2002, the company had $4.7 billion in cash and about $17 billion in total debt. Debt maturities for the second quarter of 2002 are $1.3 billion and $1.5 billion for the second half of the year, according to Fitch.

S&P keeps Las Vegas Sands and Venetian on CreditWatch

Standard & Poor's said the ratings for Las Vegas Sands Inc. and its subsidiary Venetian Casino Resort LLC remain on CreditWatch with negative implications. Las Vegas Sands' ratings include the corporate credit rating of B, senior secured rating of B- and a subordinated debt rating of CCC+. Venetian ratings include the corporate credit rating of B, senior secured rating of B- and subordinated debt rating of CCC+.

The ratings were originally placed on CreditWatch on Sept. 24, 2001 due to anticipated problems in the gaming sector after the Sept. 11 terrorist attacks and the expectation that the Venetian's liquidity position would be tight.

The Venetian recently announced a tender offer for its $425 million 12.25% mortgage notes due 2004 and $97.5 million 14.25% senior subordinated notes due 2005. The tender is subject to the successful refinancing of existing debt with a proposed $375 million senior credit facility expected to be rated B+, $850 million second mortgage notes expected to be rated B- and $105 million secured mall loan facility.

"Standard & Poor's expects to affirm the corporate credit rating for both Las Vegas Sands Inc. and Venetian Casino Resort LLC with a stable outlook upon the successful refinancing," the rating agency said. It added that it expects the refinancing will improve the Venetian's financial flexibility by extending debt maturities, reducing amortization under the bank facility, and providing a financing mechanism for the Phase 1A hotel expansion.

Moody's confirms Duane Reade

Moody's Investors Service confirmed the ratings of Duane Reade, Inc. including its $236 million secured credit facility at Ba2, its $190 million 3.75% Cash to Zero senior convertible notes (CATZ) due

2022 at Ba3 and its $80 million 9.25% senior subordinated notes due 2008 at B2. The outlook continues to be positive.

Moody's said the confirmation is in response to the company's tender offer for all of the subordinated notes using proceeds from the upsized CATZ issue.

In spite of the significant upsizing of the CATZ issuance and the replacement of subordinated debt with senior debt, Moody's said it confirmed the ratings because of the materially lower coupon and the substantial lengthening of the company's maturity profile.

Moody's downgrades Primedia

Moody's Investors Service downgrades Primedia Inc., affecting $1.7 billion of debt. Ratings lowered include Primedia's $500 million of 8.875% senior notes due 2011, $250 million of 7.625% senior notes due 2008, $300 million of 8.5% senior notes due 2006 and $100 million of 10.25% senior notes due 2004, all cut to B3 from B1, and $125 million of 9.2% exchangeable preferred stock and $200 million of 10% exchangeable preferred stock and $250 million of 8.625% exchangeable preferred stock, all cut to Ca from Caa1. The outlook is negative.

Moody's said it lowered Primedia because deleveraging has been slower and smaller than it expected.

The company targeted $250 million in asset sales in order to initiate balance sheet repair, the rating agency noted. To date, the company has completed sales for gross proceeds of approximately $160 million. In addition to falling short of its divestiture goals, the impact of the sales that have occurred has not been significant enough to result in material de-leveraging, because the sale multiples the company has been able to achieve approximate the company's total debt and preferred leverage.

In addition Moody's said it believes the implied coverage provided to noteholders by the remaining underlying assets is modest and is likely to provide little incremental cushion above the company's current debt levels.

Limited visibility within the advertising market suggests that the operating environment remains challenging, Moody's added. Given this, revenue growth is not expected to drive cash flow growth in 2002.

"Considering the company's prior difficulty in managing costs at its "turnaround titles" and its Internet unit, Moody's expects cash flow growth, and consequent de-leveraging, will be difficult," the rating agency said.

Moody's downgrades Sbarro

Moody's Investors Service downgraded Sbarro, Inc. including cutting its $255 million 11% senior unsecured notes due 2009 to B2 from Ba3. The outlook is negative.

Moody's said it lowered Sbarro because its revenue and comparable store sales declined relative to the industry and previous expectations which, combined with higher costs, appear likely to depress profitability and cash flow over the intermediate term.

The ratings reflect the company's financial leverage (especially adjusted for off balance sheet lease obligations) in relation to higher rated restaurant companies, intense quick-service competition at the company's price point, and inability to grow comparable store sales at the same pace as competitors, Moody's said.

Also affecting the rating is the seasonality of Sbarro's sales and cash flow (fourth quarter typically accounts for 40% of EBITDA) and that customer count has declined with reduced traffic at shopping malls and airports, Moody's said.

However, the company benefits from a well known brand name, a leading market position in the Italian category of the QSR segment and its attractive and difficult to replicate niche in areas with high pedestrian count and limited competition, Moody's added.

S&P rates Jorgensen notes B-

Standard & Poor's assigned a B- rating Earle M. Jorgensen Co.'s planned offering of $250 million senior secured notes due 2012 and confirmed its existing ratings. The outlook is stable.

S&P noted the proposed notes, although secured on a first-priority basis by substantially all of the company's existing and future acquired unencumbered property, plant and equipment, are effectively junior to the company's $200 million senior secured bank credit facility, which is secured by the more liquid assets, accounts receivable and inventory.

The ratings reflect Jorgensen's below average business position and its aggressive financial management, S&P said.

Although it provides value-added services on most of its products and benefits from broad geographic coverage, a diversified customer base and significant economies of scale in purchasing and marketing operations, S&P said Jorgensen suffers from operating in a highly competitive, fragmented and working capital-intensive sector.

For the fiscal year ended March. 31, 2002, Jorgensen's EBITDA to interest and total debt to EBITDA were weak at 1.4 times and 4.9x respectively, S&P said. It expects the measures to improve to about 2x and 4x, due to cost reductions and lower capital spending, with improved free cash flow applied towards debt reduction.

S&P downgrades some LDM ratings

Standard & Poor's downgraded some of LDM Technologies, Inc.'s ratings and put the company on CreditWatch with negative implications. Ratings lowered include LDM's $110 million 10.75% senior notes due 2007, cut to C from CCC. S&P confirmed the senior secured rating at B- and did not put it on CreditWatch.

S&P said the actions follow LDM's commencement of an exchange offer for the 10.75% notes. The exchange offer represents a deep discount to the face value of the existing notes, which S&P said it considers tantamount to a default. If the exchange offer is completed, the corporate credit rating will be lowered to SD and the subordinated debt rating will be lowered to D. Subsequently, the corporate credit rating will be raised back to B-, reflecting the company's somewhat reduced, but still heavy, debt burden. The new senior notes will be rated CCC+, reflecting their higher priority in the company's capital structure.

Fitch confirms IMC Global

Fitch Ratings confirmed IMC Global's ratings including its senior secured credit facility at BB+, senior unsecured notes with subsidiary guarantees at BB and senior unsecured notes without subsidiary guarantees at B+. Fitch also confirmed Phosphate Resource Partners senior notes at BB+. The outlook is stable for both.

Fitch said IMC Global's liquidity position has been substantially improved as a result of the sale of the salt business and certain chemical assets for $640 million made up of $600 million in cash and $40 million in equity.

The 2002 bond maturity of $300 million has been repaid and $180 million is in escrow to meet a 2003 bond maturity of $200 million, Fitch noted.

Looking forward, $450 million in debt matures in 2005, although the senior secured credit facility agreement matures early if the maturing 2005 debt is not refinanced by October of 2004.

In addition the outlook for phosphate fertilizer margins is improving and for continued strength in potash fertilizer margins, Fitch said.

Moody's cuts Crompton to junk

Moody's Investors Service downgraded Crompton Corp., affecting $1.2 billion of debt including its senior notes and debentures which were lowered to Ba1 from Baa3. The outlook is negative.

Moody's said the action follows a review of Crompton's ratings in response to a continued weak operating environment for the chemicals sector, the potential timing and impact of proposed asset sales and the degree of asset security presented by the company's new bank credit facility.

Through a series of acquisitions, Crompton has developed a broadly diversified portfolio of specialty chemicals and products, many with leading market positions, Moody's said.

But debt balances have risen over the past five years and despite management's efforts to improve profitability and reduce debt levels through asset sales, Crompton's financial metrics have fallen short of investment grade levels, Moody's added. It said the Ba1 ratings anticipate management will continue its focus on debt reduction.

Moody's downgrades Falcon Productions

Moody's Investors Service downgraded Falcon Products, Inc. including lowering its $30 million senior secured revolving term facility due 2005 and $44 million senior secured amortizing term facility due 2005 to B3 from B1 and its $100 million 11 3/8% senior subordinated notes due 2009 to Caa2 from B3. The outlook is negative.

Moody's said the downgraded reflects Falcon's continuing weak sales performance, its deteriorating cash flow from operations, its reduced liquidity and its continuing experience of periodic material restructuring charges.

Thus far the consolidation of Falcon with Shelby Williams' operations, acquired in 1999, has not been able to offset negative results from continuing sluggishness in its core operating markets, Moody's said.

In conjunction with this fall in revenue the company's gross margin performance has likewise suffered, in no small measure as a function of the absence of meaningful recovery in the sectors which Falcon is most dependent upon such as hospitality and commercial furniture & accessories, the rating agency added.

Despite meaningful gains in restaurant and education activity, operational cash flow continues to reduce year over year such that the company has recently failed to meet covenant compliance levels and has needed to approach its bank group for modification of its covenants, Moody's noted. EBITA of $21.0 million, (EBITDA of $28.5 million) for the LTM 2/2/02 caused coverage of interest from operations to be marginal. Should this trend continue with approximately $16-17 million in annual interest expense, $5-6 million in annual cap-ex and $11.5 million in 2002 current maturities, business reinvestment and operating flexibility for Falcon could prove problematic.

Moody's rates Earle M Jorgensen notes B2

Moody's Investors Service assigned a B2 rating to Earle M. Jorgensen Co.'s proposed $250 million offering of senior secured notes due 2012 and confirmed the existing debt, although it will withdraw them at the conclusion of the new financing. The outlook is stable.

Moody's said its ratings reflect Jorgensen's high leverage, thin margins and interest coverage, and its dependence on cyclical industrial end-use markets.

Repurchases of terminated employees' ESOP shares are a recurring use of cash and impede the accumulation of book equity, Moody's noted. In addition, in fiscal year 2003, free cash flow may be pressured by lingering softness in the North American economy and steel markets, increased investment in working capital, and higher-than-usual capital expenditures related to completing the automation of its large Chicago distribution center.

Positives include the company's broad network of metal service centers, its diverse mix of customers, the relatively higher gross margins associated with its core bar and tubular products and the counter-cyclical nature of its cash flow, which, during periods of weak metal demand, allows it to generate cash from inventory liquidation, Moody's said.

Moody's added that it assigned a stable outlook because of Jorgensen's financial stability and the potential for revenue and operating cash flow to expand as the economy and metal markets recover, offset by high debt levels. Moody's noted that in the absence of a significant reduction in debt the probability of EMJ's ratings being upgraded is limited by its thin margins, which are typical for metal distributors, modest interest coverage and the recurring payments for share repurchases.

S&P rates Chittenden capital securities BB+

Standard & Poor's assigned a BB+ rating to Chittenden Capital Trust I's $125 million of capital securities.

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