Moody's warns some retailers face glum outlook; others seen holding their own

Moody's Investors Service warned that lower-rated department store and specialty retailers face a "glum'' rating outlook over the next six-to-12 months. The ratings agency said that retailers who sell "discretionary'' merchandise (i.e., luxury goods or other nonessential items) could be among the most severely affected by the continuing economic weakness, as well as those retailers who are unable to quickly respond to changes in consumer demand patterns. Among those industry sectors likely to be hard-hit, Moody's said, are clothing stores, jewelry retailers and catalog and Internet retailers.

Analyst Marie Mendez cautioned that what was already expected to be a soft end of the year for the retailers will be worse because of the lingering effects on the economy of the Sept. 11 attacks. But Mendez also had some reassuring words for the retailers - that "the outlook isn't all bleak. Some retailers might actually show more robust performance in the short term, and their ratings could remain stable for the medium term if they have sufficient access to liquidity to sustain short-term swings."

Among the areas which could recover from previous weakness is sales of computers, digital devices, and cell phones, which could be boosted by "consumer interest in staying or getting connected to friends, family, and the larger world."

Also poised to do better are supermarkets stressing high-margin private-label products, such as A&P, drug stores like Rite Aid Corp., and, if consumers stay at home more for entertainment, video and television retailers, along with craft stores such as Jo-Ann Stores Inc. and Michaels Stores Inc., the Moody's report said.

Moody's downgrades Global Crossing senior unsecured to B2

Moody's Investors Service downgraded its ratings on Global Crossing Holdings Ltd., including cutting its senior unsecured rating to B2 from Ba2. Altogether $9.2 billion of debt and preferred securities were affected.

The downgrades also included Global Crossing Holdings' senior secured rating of B1, cut from Ba1, its preferred stock, cut to Caa1 from B1, Global Crossing Ltd.'s preferred stock, cut to Caa1 from B1 and Frontier Corp.'s senior unsecured rating, cut to B2 from Ba2.

All ratings remain on review for possible further downgrade.

Moody's said the downgrade reflects its "heightened concern regarding Global Crossing's recent financial guidance that contemplates a revenue ramp falling short of Moody's expectations. In our opinion the company's results may be yet further impacted by the general economic slowdown and, in particular, by the broad-based scaling back of enterprise and carrier telecom spending plans."

The rating agency added: "In light of the diminished EBITDA growth prospects, Moody's questions the ability of the company to remain in compliance with its bank covenants."

Moody's downgrades Air Canada to B3

Moody's Investors Service downgraded $800 million of Air Canada, Inc.'s debt securities including its long-term debt, which fell to B3 from B1.The outlook is negative.

The rating agency said the action completes a review begun on Sept. 14.

Air Canada's current ratings reflect "the company's weak financial condition, partially as a result of the stress of the acquisition of Canadian Airlines, which has been exacerbated by the ongoing weak economy and the sudden change in consumer sentiment following the terrorist attacks in the U.S. during September," Moody's said.

"Moody's anticipates that a continuation of losses will place strain on the company's debt protective measurements, financial flexibility and liquidity position, despite the C$100MM of government support already received," it added.

S&P places Ann Taylor on CreditWatch negative

Standard & Poor's placed its BB- corporate credit rating on Ann Taylor Inc., and its B subordinated debt rating on Ann Tayor Stores Corp., which is guaranteed by Ann Taylor Inc, on CreditWatch with negative implications.

The Creditwatch placement is based on "disappointing sales to date in 2001," the release said, adding that the company could continue to face difficulty given the "weak US economy."

The company's operating margin declined to 18.4% in the first half of 2001 from 20.7% in the same period in 2000, according to S&P.

Fitch downgrades Saks To BB, on negative watch

Fitch lowered its rating on Saks Inc.'s senior notes and bank facility to BB from BB+ and placed those ratings on Rating Watch Negative.

Approximately $1.4 billion of notes and bank debt were outstanding as of Aug. 4, 2001, according to S&P.

"In the past month, there has been a further weakening in Saks' traditional department store business and a steep, double-digit sales decline at the company's luxury retail business (Saks Fifth Avenue)," S&P said. It added: "The Saks Fifth Avenue business has been particularly hard hit, due to reduced spending by consumers for discretionary luxury items, and the retailer's presence in New York and other major markets dependent on tourism."

According to the ratings release, Saks' credit measures have softened, with EBITDAR coverage of interest plus rents declining to 2.0 times (x) and lease-adjusted debt (including off-balance sheet receivables) to EBITDAR increasing to 4.6x in the 12 months ended August 4, 2001.

S&P rates U.S. Steel new SQUIDS at BB

Standard & Poor's assigned a BB rating to United States Steel LLC's proposed offering of senior unsecured quarterly income debt securities due 2031, to be exchanged for outstanding USX securities.

The rating agency affirmed its BB corporate credit rating on United States Steel LLC's parent, United States Steel Corp. The outlook is negative.

S&P commented that the securities will be an obligation of US Steel once it is spun off from USX Corp.

The rating agency added: "Although the proposed capital structure does not indicate sufficient priority obligations that warrant rating the notes below the corporate credit rating of USS at this time, further review will be needed at the time of the spin-off, as the level nearly meets Standard & Poor's threshold for differentiating the notes from the corporate credit rating of USS."

S&P cuts Hawk outlook to stable

Standard & Poor's reduced its outlook on Hawk Corp. to stable from positive and affirmed its B+ ratings on the company, affecting about $100 million in rated debt and bank credit facilities.

S&P said the revision reflects its expectations that softening industry fundamentals will reduce the company's profitability and cash flow generation, which will curtail improvements to the credit profile and reduce financial flexibility in the short term. "The previous outlook had incorporated intermediate-term improvements in profitability and credit protection measures, resulting from a modest improvement in cash flow generation," it added.

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