Moody's rates Baytex exchange notes B3

Moody's Investors Service assigned a B3 rating to Baytex Energy's $180 million 9.625% senior subordinated exchange notes due 2010 and confirmed the company's existing ratings including its senior implied at B1. The outlook is stable.

Moody's said the ratings benefit from Baytex's significantly reduced leverage, a substantial lower risk multi-year development and exploitation drilling inventory and reduced exposure to severe periodic widening of Canadian heavy oil price discounts.

Restraints on the ratings are Baytex's conversion from public shareholder to public unit trust ownership; its expected payout of roughly 75% of cash flow as distributions to unit holders; the risk and heavy capital needs of a very short proven developed producing (PDP) reserve life; expected higher debt levels; an ongoing need for receptive markets for subsequent units offerings to sustain the capital program; and greater reliance on acquisitions for growth.

Moody's said the ratings reflect satisfactory 2002 and first quarter 2003 pro-forma volume, total unit cost and unit cash flow trends on reinvested capital; still strong support from up-cycle oil and gas prices; sound initial liquidity; pro-forma leverage on proven developed (PD) reserves comparable to year-end 2002 levels; and mitigation of much of Baytex's exposure to volatile Canadian heavy oil price discounts by hedging 70% of that exposure with an off-take contract with Frontier Oil.

While the ratings reflect Baytex' conversion to a unit trust, the rating outlook rides on its ability to balance heavy continuous capital outlays with heavy cash distributions within the context of volatile prices and drilling and acquisition risk basic to a depleting asset business in a mature sector, Moody's added. Capital spending flexibility is reduced by the pace of production decline and capital spending implicit in Baytex' low 37% proportion of reserves in the PDP category, very short pro-forma 3.8 year PDP reserve life, and below average pro-forma 6 year PD reserve life.

Moody's rates Flender notes B2

Moody's Investors Service assigned a provisional B2 rating to Flender Holding GmbH's proposed issue of €250 million senior notes due 2010. The outlook is stable.

Moody's said the rating reflects Flender's leadership position in the European mechanical and electrical power transmission market, specifically application-based systems, as well as its position as the worldwide leading producer of gear units for wind turbines; the experienced management team which has demonstrated its ability to successfully rationalize the business; the relatively stable nature of Flender's traditional power transmission and casting business; the positive trends in the wind energy sector; and Moody's expectation that Flender should maintain adequate liquidity given available cash balances, undrawn bank commitments and minimal mandatory debt amortization before 2006.

But Moody's said the rating also reflects: the high pro forma credit ratios projected for 2003 combined with certain off-balance sheet items and the projected impact of the wind gear box warranty claim on free cash flow for the next two years; the potential for unforeseen costs to be incurred as a result of the extended warranties given to customers; the commodity type nature of certain parts of Flender's traditional business combined with the expectation that Flender will face strong competition and consequent pressure on prices and margins in these segments; Moody's view that further improvements in profitability and cash flow will be harder to achieve; and the fact that the use of proceeds will primarily be used to fund a payment to shareholders and will not therefore be invested in the business.

The stable outlook reflects Moody's expectation that while the company is positioned at the lower end of its ratings category with no room for further debt beyond the new proposed €250 million issue, the company will continue to improve its profitability through both sales growth and margin improvements and that, following the payment of the bulk of the wind gear box retrofit costs in 2003 and 2004, the company will use free cash flow to reduce indebtedness.

S&P cuts Legacy Hotels

Standard & Poor's downgraded Legacy Hotels Real Estate Investment Trust including cutting its C$100 million floating-rate senior unsecured debentures series 3 due 2003, C$50 million 6.3% senior unsecured notes series 2A due 2003, C$50 million 6.65% senior unsecured notes series 2B due 2005, C$50 million 7.08% senior unsecured notes series 1D due 2008 and C$75 million 6.34% senior unsecured notes series 1C due 2004 to B+ from BB+. The outlook is negative.

S&P said the downgrade reflects Legacy's recent C$139.0 million acquisition of a hotel property in Seattle, Wash., with debt financing, the deteriorating operating performance of the trust, weakening credit ratios and poor financial liquidity.

The negative outlook reflects the uncertainty facing Legacy in the next 12 to 18 months and the current suspension of distributions to unitholders.

About 25% of Legacy's tangible assets are encumbered by mortgages and, therefore, S&P said it lowered the unsecured rating by one notch to distinguish between the long-term corporate credit rating and the senior unsecured debt rating.

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