Moody's downgrades McDermott to B2 from Ba3

Moody's Investors Service said it downgraded the senior unsecured notes and medium-term notes of McDermott Inc. to B2 from Ba3, affecting $316 million of securities. It confirmed the Ba3 issuer rating for J. Ray McDermott. Outlooks on both remain negative.

Moody's attributed the rating to continuing legal uncertainties combined with a continuing lack of liquidity, which has increased the refinancing risk associated with the $225 million senior unsecured notes due on March 15, 2002.

The negative outlook on both entities is due to unresolved asbestos and anti-trust litigation and the near-term financial challenges facing new management.

Moody's noted McDermott's parent McDermott International Inc. currently has $45 million of unencumbered cash on hand, which is substantially less than the $225 million needed to fully repay the 9.375% notes scheduled to mature on March 15, 2002. Furthermore, management is seeking to unwind the existing put/call arrangement between the two companies, effectively raising the amount of cash needed by McDermott International to $260-270 million.

Planned assets sales to cover the shortfall are subject to the successful outcome of court hearings, Moody's said.

Moody's downgrades Kvaerner to B3 from B1

Moody's Investors Service downgraded the long-term debt ratings of Kvaerner plc to B3 from B1 and kept the ratings on review for possible further downgrade, affecting 109 million pounds of debt.

Moody's said it is "concerned over the liquidity situation at Kvaerner ASA, the parent company of Kvaerner plc, and the heightened credit risks for the group.

"Kvaerner is facing higher liquidity needs caused by a deteriorating business performance and increased working capital needs, in particular in the group's US engineering & construction business, which may well aggravate in view of the ongoing difficult economic environment."

Moody's rates Appleton Paper's credit facility Ba3

Moody's Investors Service said it assigned a Ba3 rating to Appleton Papers Inc.'s proposed new $435 million credit facility. The outlook is stable.

The rating covers the proposed $75 million revolver due 2005, the $110 million term loan A due 2005, and the $250 million term loan B maturing 2006. All parts of the facility are senior guaranteed secured borrowings.

Moody's said the ratings reflect the company's high pro forma leverage, and the declining market for its carbonless paper products due to competing communication and printing technology that do not use multi-part business forms. It noted Appleton's carbonless paper products sales declined 8.8% in 2000, and 13.9% in the first half of 2001 compared with prior year periods - and Moody's believes the future decline could be faster than Appleton anticipates.

On the positive side, Moody's recognized the company's "leading market positions and technologies, long-term customer relationships, substantial integration in terms of buying logs, and good margins, particularly in its carbonless paper products." Also taken into account is the company's rapid deleveraging plan which foresees repaying the credit facility in three years.

Fitch Upgrades Tenet Healthcare To BBB

Fitch cited positive industry dynamics, a significant reduction of debt levels, robust cash flow, improved operating performance and balanced financial policies in its upgrade of Tenet

Healthcare Corp's senior unsecured debt to BBB from BB+ and senior subordinated notes to BBB- from BB-. Tenet's rating outlook is stable, according to Fitch.

The rating service pointed to a pricing environment that it considers to be "the most favorable in years" with regard to for-profit hospital providers. Fitch also noted that "demographic-related utilization increases," driven by the aging baby boom generation, mitigated in favor of the sector. Also factoring into the upgrade, Fitch noted, was a favorable legislative environment.

"After a period of dramatic growth through acquisitions, Tenet rationalized its assets over the past two years by shedding poorly performing and low-margin facilities. With its portfolio established, Tenet is better positioned to more aggressively capitalize on its market leverage when negotiating with managed care payors," the report stated.

Fitch also noted that Tenet, the second largest U.S. investor-owned healthcare services company, with annual revenues of about $12 bln, has kept labor and supply costs under control, and that the company's bad debt expense has leveled and begun to decrease.

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