S&P lowers Levi Strauss outlook

Standard & Poor's lowered its outlook on Levi Strauss & Co. to negative from stable and confirmed its ratings including its $650 million revolving credit facility at BB, $500 million senior secured term loan at BB- and senior unsecured debt at B.

S&P said the outlook revision follows the company's announcement that it will delay the filings of its third-quarter Form 10-Q with the SEC and will amend its financial statements for fiscal year 2001 and the third quarter of this year, fiscal 2003. The delay relates to an improper tax deduction for losses on plant closures that were mistakenly claimed twice on Levi Strauss' 1998 and 1999 tax returns. This resulted in the company overstating profits in 2001 and the most recent quarter.

Although the amount of the error, about $30 million, is not material, S&P said it finds the timing of the disclosure troublesome because the company just completed a new $1.15 billion bank refinancing at the end of September.

In the absence of any material adverse change to Levi Strauss' previously reported financial statements, Standard & Poor's does not expect the filing delay to have an immediate impact on Levi Strauss' ratings.

However, this development represents another in a series of challenges for the company.

S&P said it is very concerned about the impediment these events pose to the company as it seeks to execute a turnaround.

S&P said it will closely monitor the company's progress, and any further meaningful deviations from plan will prompt an immediate review or downgrade. Furthermore, any additional surprises or a lack of a prompt resolution of the audit review and audit will also result in rating review and/or downgrade.

Fitch cuts Interpool to junk, on watch

Fitch Ratings downgraded Interpool, Inc., including cutting its senior secured debt to BB+ from BBB, senior unsecured debt to BB from BBB- and preferred stock to B+ from BB+, and put it on Rating Watch Negative.

Fitch said the actions reflect its view that Interpool will be challenged to complete its 2002 10-K as well as its 10-Q's for the first and second quarter of 2003 by Oct. 31. The company may also be challenged to file its 10-Q for the third quarter of 2003 by its Nov. 14 deadline. Failure to generate any of these statements on a timely basis will result in the company requiring covenant waivers from its lenders for a third consecutive reporting period.

In addition, Interpool has continued to add additional secured financing as it has been unable to access unsecured debt or equity markets due to its delinquent filing status, Fitch said. This has eroded the company's unencumbered asset metrics to a level Fitch views as more akin to the current rating categories. Relief for these metrics is not imminent as the company will require unsecured debt and/or equity market access which in turn will require curing of the delinquent filing status.

Fitch believes that Interpool currently has significant cash reserves and cash flow relative to 12-month debt maturities. However, failure to file financial statements on a timely basis and receive covenant waivers from creditors could accelerate debt maturities and cause a liquidity shortfall before Dec. 31, 2003.

In Fitch's view, Interpool is operating in a favorable business environment that has shown strong utilization of both marine containers and chassis. In addition, downward pricing pressure for new marine containers has eased and suggests that lease rates for renewals have stabilized.

S&P cuts Interpool, on watch

Standard & Poor's downgraded Interpool Inc. including cutting its $150 million 7.35% notes due 2007 and $75 million 7.2% notes due 2007 to BB- from BB+ and Interpool Capital Trust's $75 million 9.875% capital securities to B+ from BB and put it on CreditWatch negative.

S&P said the downgrade and CreditWatch placement followed the company's announcement that its ongoing investigation regarding accounting issues has resulted in the resignation of its president; the continued delay of its restated 2000 and 2001, and 2002 and 2003 audited financial statements; and the opening of an informal investigation by the SEC regarding these matters.

Interpool continues to have strong market positions in chassis and marine cargo container leasing, as well as an adequate financial profile for a transportation equipment lessor, S&P noted.

Interpool's earnings and cash flow from marine cargo container leasing are somewhat more stable than those of most industry participants because it concentrates on multi-year term leases, rather than short-term "master leases," S&P said. As a result, its earnings have been less affected than its major competitors by the overcapacity along with weakness in global trade that most of the industry suffered from over the past few years. The trend began to reverse in mid-2002, and the industry has since benefited from strong demand and utilization rates have increased substantially.

Interpool's credit profile has been adequate for a transportation equipment leasing company, given its high percentage of long-term leases, which have resulted in strong and stable cash flow, S&P said. For 2002, the company expects to report a profit on revenues of approximately $320 million. The company also estimated equity at approximately $350 million at Dec. 31, 2002. In addition, the company had a relatively strong cash position of over $150 million at June 30, 2003.

S&P says DigitalNet unchanged

Standard & Poor's said DigitalNet Holdings, Inc.'s ratings are unchanged including its corporate credit at B+ with a positive outlook in response to the pricing of its initial public offering of 5 million shares of common stock at a price of $17.00 per share.

Although this transaction will improve DigitalNet's financial profile, the company already had a moderate debt burden for its rating, S&P said.

S&P said its positive outlook on DigitalNet reflects favorable market conditions and a growing contract backlog that should sustain operating results over the near-to-intermediate term.

S&P says Nortek unchanged

Standard & Poor's said Nortek Inc.'s ratings are unchanged including its corporate credit at B+ with a stable outlook in response to the announcement that it is exploring strategic alternatives for its windows, doors, and siding segment.

Significant proceeds could be realized by the divestiture of that operation, which reported sales and operating income of $504 million and $71 million, respectively, for 2002, S&P noted.

How sale proceeds would ultimately be redeployed is difficult to ascertain at this time, S&P added. Any meaningful debt reduction might only be temporary, awaiting acquisition opportunities, and thus not signal the adoption of less aggressive financial policies.

S&P says Mariner Health unchanged

Standard & Poor's said Mariner Health Care Inc.'s ratings are unchanged including its corporate credit at B+ with a stable outlook in response to the announcement that it has completed the expected sale of 19 skilled nursing facilities in Florida.

The facilities were sold for $86 million, and $52.5 million of cash proceeds were used to reduce outstanding bank term loan debt.

The anticipated effect of this transaction is an improvement in Mariner's currently low margins and a reduction in its exposure to significant patient liability risks in Florida, S&P said. However, the improvements will not be able to sufficiently mitigate other risks to warrant any rating action.

The company will continue to face challenges in Texas, which is a difficult state for nursing homes to operate in, as well as long-term reimbursement and patient-liability risks, S&P said.

S&P says Matria unchanged

Standard & Poor's said Matria Healthcare Inc. is unchanged including its corporate credit at B+ with a stable outlook following the company's acquisition of Options Unlimited.

Options Unlimited will expand Matria's disease management portfolio and case management capabilities.

The transaction is relatively small and will not have a material credit impact on the company, S&P noted. The Options Unlimited acquisition is consistent with the company's growth strategy.

Moody's rates Delhaize liquidity SGL-1

Moody's Investors Service assigned an SGL-1 speculative-grade liquidity rating to Delhaize America, Inc.

Moody's said the rating reflects its expectation that Delhaize America will have very good liquidity over the next 12 months. Moody's anticipates that the company will generate free cash flow in excess of normal capital expenditures, small required debt payments and cash dividends, if any.

Moody's also expects Delhaize America's use of its committed and uncommitted bank facilities to be modest and seasonal. Cushion under financial covenants appears sufficient.

While the intensifying competition from discounters like Wal-Mart and an especially soft economy in Delhaize America's key southeastern markets and Florida have pressured and will continue to pressure both comparable store sales growth and profitability, cash flow still benefits from the company's relatively high operating margin, a consequence of its 2001 acquisition of Hannaford. Cash flow has also been enhanced by the modest required current portion of long term debt - $25.2 million at the end of the second quarter - and by the payment of the current year's dividend in stock.

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