Moody's rates Vivendi Universal Entertainment loan Ba2

Moody's Investors Service assigned a Ba2 rating to Vivendi Universal Entertainment LLLP's proposed $950 million senior secured term loan. The outlook is stable.

Moody's said the rating is based broadly on the company's ability to comfortably service its debt and the strong collateral support underlying the debt obligation, offset by the company's very complex ties to Vivendi Universal SA (Ba3 senior implied rating), including cross-default terms in the bank credit agreement and a high degree of event risk given the company's very public sale process.

Moody's said the ratings reflect Vivendi Universal Entertainment's relatively strong financial profile driven by the success of its mature businesses, including cable networks and network and cable television programming and film production and distribution, as well as additional investments in theme parks, resorts and other equity investments.

The ratings are further supported by Moody's expectation that Vivendi Universal Entertainment is likely to be sold over the near term at prices which cover the debt with a very sizable cushion.

However, the ratings are also meant to reflect the company's longer term credit risk should management decide not (or be unable) to sell the company. While capital investment in Vivendi Universal Entertainment's various business lines remains high, free cash flow from the company's major lines of business is expected to be ample enough to support projects as currently anticipated by management. In addition, Vivendi Universal Entertainment has strong market positions in its major lines of business, meaningful brand value and programming and film assets with good long term prospects.

Vivendi Universal Entertainment'a ratings are constrained by its relationship with Vivendi Universal, which limits the potential support for the bank facility, Moody's added. Vivendi Universal controls the liquidity for both entities, has the ability to upstream material cash distributions from Vivendi Universal Entertainment each year (albeit dependent on meeting certain financial covenants), can sell Vivendi Universal Entertainment assets which would then be released from the term loan's guaranties (with the important exception of the television and cable programming assets), and could trigger a default at Vivendi Universal Entertainment (should a default occur at Vivendi Universal).

Fitch comments on Cablevision spin-off

Fitch Ratings said Cablevision Systems Corp.'s announcement that it intends to spin off to its shareholders its DBS business, R/L DBS and its theater business Clearview Cinemas addresses a key over-hang of the credit and provides insight into the company's vision for its DBS investment.

Fitch rates CSC Holdings, Inc.'s senior unsecured debt at BB-, Cablevisions's senior subordinated debt at B+, preferred stock at B and bank facility at BB. The outlook is stable.

From Fitch's perspective the spin-off of the DBS business coupled with the $450 million of funding to the new entity provides a funding cap and eliminates the funding uncertainties surrounding the company's DBS investment. Moreover, the spin-off should provide the company's management the opportunity to focus on its core cable and entertainment businesses.

However the funding requirements and business model for Cablevision's offering of DBS service in the New York area remain unclear, Fitch said. Assuming no further asset sales, Cablevision's expected funding of the new entity and additional investment will be leveraging in the near term. Fitch anticipates that the investment will add about 0.5 times to the company's year-end 2003 debt-to-EBITDA leverage metric. However Fitch expects that the company's leverage through the subordinated notes will be less than 6.0x at year-end 2003.

While Fitch does acknowledge that the company's operating cash requirement will decrease markedly during 2003 and 2004, Fitch expects the additional leverage along with the uncertain cash needs associated with the DBS offering in the New York area should temper the company's ability to generate free cash flow during 2004.

Fitch's 2004 free cash flow expectations for the company are minimal. However Fitch does expect the company's credit protection metrics to continue to improve over the near term adjusted for the impact of the DBS announcement.

Moody's says Cablevision unchanged

Moody's Investors Service confirmed Cablevision Systems Corp.'s CSC Holdings subsidiary including its $3.7 billion senior unsecured notes and debentures at B1, $600 million senior subordinated notes at B2 and $1.5 billion redeemable exchangeable preferred stock at B3. The outlook is stable.

Moody's said the confirmation follows the company's announcement that its board has approved a proposed tax-free spin-off to shareholders of the developmental satellite business and the more mature Clearview Cinemas theatrical exhibition business.

While CSC's commitment to use its own balance sheet to provide up to $564 million of incremental capital to finance Rainbow DBS (the entity being spun-off) is a credit negative, the company's credit metrics are not materially weakened nor is its liquidity sufficiently threatened to warrant any rating changes at this time, Moody's said.

Moody's noted that the proposed spin-off partially offsets the recent strengthening of CSC's liquidity profile, and also provides no value to CSC creditors despite the very substantial amount of capital that has been invested in these assets. Pro forma for the now planned $450 million capital contribution to Rainbow DBS on the spin date, and the incremental $114 million to be spent prior to the spin-off (which itself is additive to the $75 million, subsequently adjusted to $80 million, which management had previously indicated that it would spend in 2003 in an earlier SEC filing, and which also came after prior disclosures by management that no additional investments at all were contemplated in the 2003 plan), CSC will have spent about $900 million by Moody's estimates on the DBS venture.

Notwithstanding the long-acknowledged heightened business and financial risks associated with taking the next steps and engaging in the late stage commercial roll-out of a new competing DBS service, and the obvious benefits now afforded by the planned spin-off in terms of mitigating these risks, it is important to note that management had made very specific and repeated representations to Moody's that were additive to those made in public filings, very clearly delineating that any incremental funding to develop the DBS business would be done off-balance-sheet with partners and/or equity capital. Thus, while the spin-off indeed takes high-risk assets off-balance sheet, the significant incremental on-balance sheet investment had not previously been factored into the ratings, Moody's said.

Moody's also believes that the spin-off demonstrates at least a partial reversal of recent strategic (and deemed positive) directives by management, and a seemingly renewed willingness to use financial flexibility created by CSC's core cable business for non-core investments which require capital and provide little prospect for positive near-term returns.

S&P puts Tropical Sportswear on developing watch

Standard & Poor's put Tropical Sportswear International Corp. on CreditWatch developing including its $100 million 11% senior subordinated notes due 2008 at B and $110 million revolving credit facility due 2003 at BB.

S&P said the CreditWatch placement follows Tropical Sportswear's announcement that it has retained Merrill Lynch & Co. to act as financial advisor to explore strategic alternatives to maximize long-term shareholder value.

S&P changes OM Group watch to positive

Standard & Poor's changed its CreditWatch on OM Group Inc. to positive from negative including its $325 million senior secured revolving facility and $600 million term C loan due 2007 at B+ and $400 million 9.25% senior subordinated notes due 2011 at B-.

S&P said the watch revision follows the company's definitive agreement to sell its precious metals business to Umicore SA for about $752 million in cash.

The sale will substantially reduce the size of the company and will result in reevaluation of OM Group's business profile, S&P said. The combined sales of these businesses totaled $4.4 billion for 2002, with operating profit of $78 million. Consolidated OM Group sales for last year were $4.9 billion, and operating profit before writedowns and restructuring charges totaled $134 million.

The proposed sale, which is expected to close in the third quarter of 2003, is clearly a positive for credit quality, given that net proceeds of about $700 million have been earmarked for debt reduction, S&P said. The proposed transaction will enable OM Group to meet the terms and conditions of its revolving credit facility and term loan agreement with respect to asset sales before the Dec. 31, 2003, deadline.

Fitch confirms Valhi, Kronos

Fitch Ratings confirmed Valhi's unsecured rating of BB- and Kronos International Inc.'s senior secured rating of BB. The outlook remains stable.

Fitch said the confirmation reflects solid operating income from the titanium dioxide operations throughout 2002 into 2003. NL Industries' TiO2 business accounts for approximately 80% of Valhi's reported sales and EBITDA.

Companies throughout the TiO2 industry experienced severe price erosion for TiO2 pigments from 2001 into the first half of 2002, Fitch noted. During the second half of 2002 TiO2 prices started to stabilize and into 2003 prices have been on the rise.

Excluding the effects of foreign currency fluctuations, NL Industries reported a 6% increase in average selling prices for the three month period ending March 31, 2003 compared to the same period last year. Also, excluding the effects of foreign currency fluctuations, the company reported a 1% increase in TiO2 prices compared to the three month period ending December 31, 2002.

Even though reported EBITDA for both companies has been on a downward trend, they have maintained sufficient liquidity through cash balances and unused available credit lines. Valhi and its subsidiaries have no significant maturities until 2009, Fitch said.

Credit statistics for Valhi and Kronos International remain solid for the rating category with interest coverage of 3.5 times and 4.1x, respectively, for the trailing 12-month period ending March 31, 2003, Fitch noted. As reported Valhi's total debt at the end of the first quarter was approximately $631 million of which $349 million resides at Kronos International. Valhi and Kronos International had a leverage ratio of 4.0x and 3.6x, respectively, for the trailing 12-month period ending March 31, 2003.

S&P rates LodgeNet notes B-

Standard & Poor's assigned a B- rating to LodgeNet Entertainment Corp.'s proposed $185 million senior subordinated notes due 2013 and confirmed its existing ratings including its corporate credit at B+. The outlook remains stable.

The refinancing does not materially change LodgeNet's credit profile, although it modestly improves its maturity structure by deferring the maturity of virtually all of its bonds, S&P said. The transaction also automatically pushes out the maturity of LodgeNet's bank loan by two years to Aug. 29, 2008. In addition, the company is amending its bank agreement to relax and defer the scheduled tightening of its total leverage test, which should help it maintain covenant compliance and borrowing access under its revolving credit facility.

The ratings reflect LodgeNet's high leverage, its historically negative discretionary cash flow, weak lodging demand, and the limited long-term growth potential of this market niche, S&P said. These concerns are balanced by its good market position, solid margins, improving - although still negative - discretionary cash flow, and the relative stability provided by long-term contracts.

LodgeNet's revenue and EBITDA growth remain restrained by low hotel occupancy rates. Even so, its growing base of rooms served and increased penetration of its more profitable digital system continue to drive small but steady increases. These factors should allow for continued modest profit growth, notwithstanding the soft lodging environment and uncertain prospects for near-term improvement.

EBITDA and margins have also suffered slightly from bringing its TV-Internet business back in-house following the August 2002 dissolution of its InnMedia joint venture, which is now operating near breakeven. LodgeNet's decision to curtail capital expenditures in late 2002 and early March 2003 has reduced borrowing requirements and pressure on credit measures. Credit measures, pro forma for the refinancing, remain comfortable for the rating with debt to EBITDA of about 4.5x and EBITDA coverage of interest expense of about 2.4x, S&P said. Key credit measures should improve gradually over time due to LodgeNet's steadily growing EBITDA and reduced reliance on debt to fund growth. Even so, the proposed relaxation of its maximum total leverage covenant, from 4.5x to 5.0x with gradual step-downs, is essential to avoiding covenant violations.

Moody's rates Kindercare loan Ba3

Moody's Investors Service assigned a Ba3 rating to Kindercare Learning Centers' $125 million senior secured revolving credit facility and confirmed its existing ratings including its $50 million senior secured term loan B at Ba3 and $300 million senior subordinated notes at B3. The outlook is stable.

Moody's said the ratings reflect Kindercare's high leverage, competitive environment, and the challenging economic environment as well as diversified revenue base and its position as the largest childcare provider in the U.S. The company franchise has been reasonably stable and has been in demand as evidenced by the company's historical ability to raise rates faster than inflation.

The ratings also reflect the company's high leverage, challenging occupancy trends, and the ongoing impact of a difficult economic environment. Of these, the economy is the largest concern because the weaker the economy the more difficult it becomes to raise rates in order to offset occupancy declines, Moody's said. Additionally, the weak economy may lead more families to consider other childcare alternatives.

The stable outlook reflects the belief that the company's performance should be reasonably stable under most scenarios.

For projected FYE 2003 total debt to EBITDA is estimated at 4.3x and senior debt to EBITDA is projected at 2.45x, Moody's said. Pro forma EBITDA coverage of interest is estimated at 3.1x while pro forma EBITDA less capital expenditures over interest is only around 1.1x.

Fitch rates Tenneco notes B

Fitch Ratings assigned a B rating to Tenneco Automotive Inc.'s proposed $300 million senior secured notes with silent second lien due 2013 and confirmed its senior secured bank debt at B+ and subordinated debt at B-. The outlook is negative.

Fitch said the debt maturity profile and liquidity are expected to improve with the transaction.

Operationally, Tenneco's North American OEM operation has been performing well, aided by new program additions and greater exposure to light trucks, which have had build rate gains in 2002 and also into the first part of 2003, Fitch noted. In addition, restructuring activities, cost cutting and containment, and working capital reduction efforts have all contributed to operating profitability gains for North American OEM operations and slight debt reduction.

However, European operations continue to lag in profitability with sub-par EBIT contribution.

Tenneco's after-market operations, have shown significant revenue declines in recent periods, particularly in North America.

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