Moody's rates Rockwood Specialties loan B1, notes B3

Moody's Investors Service rated Rockwood Specialties Group Inc.'s guaranteed $100 million senior secured revolver due 2009, guaranteed $100 million senior secured term loan A due 2009 and guaranteed $335 million senior secured term loan B due 2010 at B1, and guaranteed $375 million senior subordinated notes due 2011 at B3. The rating outlook is stable.

Security for the credit facility is substantially all of the assets of Rockwood and its international subsidiaries, with certain exceptions and a pledge of certain stock and intercompany debt. The senior subordinated notes will be guaranteed by each of the company's domestic subsidiaries on a senior subordinated basis.

Proceeds from the new financing will be used to refinance the company's existing debt obligations. As part of the financing, equity sponsors KKR will also contribute $25 million of equity capital and will own $70 million of senior discount notes of Rockwood Specialties International, Inc., with proceeds being downstreamed as equity to Rockwood.

Ratings reflect the company's high leverage with debt to LTM EBITDA of 5.4 times, weak coverage of interest expense, negative tangible net worth, competitiveness of the company's markets, the cyclicality of its construction end-market, the possibility for longer-term debt financed acquisitions, the likelihood of a protracted recovery in the company's semiconductor and electronics end-markets and the concern that the consolidated entity will only be able to achieve a modest amount of debt reduction over the next several years, even with anticipated increases in earnings and cash flow, Moody's said.

Ratings are supported by the company's various leading market positions, products with recognized brand names, the diversity of its customers and raw materials, barriers to entry including patents, customers relationships, and high-switching costs for certain products, good EBIT margins of 13.4% for the LTM ended March 31, recent improvements in the company's operating performance and support from equity sponsor KKR, Moody's added.

The B1 rating assigned to the senior secured credit facility reflects the benefits and limitations of the collateral, including the fact that a substantial portion of the company's assets and sales are outside of North America. Moody's believes that in a distress situation the collateral may not cover amounts outstanding under the credit facilities.

The B3 rating of the senior subordinated notes reflects the fact that the notes will be contractually subordinated to a significant amount of senior secured debt.

S&P puts CNH Global on CreditWatch with negative implications

Standard & Poor's placed its 'BB' corporate credit rating on CNH Global N.V. on CreditWatch with negative implications, following the same action on parent company, Fiat SpA.

The ratings on CNH and Fiat are closely aligned because of Fiat's strong liquidity support in the form of intracompany loans and bank loan guarantees, joint bank borrowings and large equity investment. In April 2003, CNH closed on a $2 billion debt-for-equity swap with Fiat in the form of convertible preferred stock, lowering CNH's annual interest by $100 million and increasing Fiat's ownership in CNH on a converted basis to 92%.

"We will review the details of Fiat's relaunch plan and CNH's rationalization and operating plans prior to arriving at a ratings decision. Ratings on CNH Global may or may not be lowered depending on the extent of a potential downgrade of Fiat's ratings," said Standard & Poor's credit analyst Daniel DiSenso.

S&P changes Allbritton Communications outlook to negative

Standard & Poor's revised its outlook on Allbritton Communications Corp. to negative from stable, because of a narrowing covenant cushion and a dividend policy that has not been eased to improve net cash flow. At the same time, all ratings, including the company's B+ corporate credit rating, were confirmed.

The change in outlook reflects that ongoing revenue softness could pressure compliance with a leverage covenant that becomes slightly more restrictive after Sept. 30, 2003, tightening to 6.75 times from 7 times. Slower than expected ad revenue growth, combined with tightening financial covenants, are eroding the company's covenant cushion. Television ad demand continues to be vulnerable to a weak economic outlook, the ABC-Network's lackluster primetime ratings, and election cycles. Furthermore, distributions to Allbritton's parent company have minimized the cash flow available for debt reduction, S&P explained.

Raitngs reflect high financial risk from debt-financed acquisitions, cash flow concentration from limited geographic and network diversity, and television advertising's mature growth rates.

Somewhat offsetting these factors is the good margin potential and discretionary cash flow generation inherent in the television broadcasting business, and station asset values, S&P added.

For the 12 months ended March 31, 2003, EBITDA coverage of interest expense was 1.9 times. Total debt to EBITDA was about 6.8 times at March 31, 2003.

S&P rates Hanover Compressor senior unsecured and subordinated debt at B

Standard & Poor's assigned its B preliminary senior unsecured debt rating, B preliminary subordinated debt rating, and B- preliminary preferred-stock rating to Hanover Compressor Co.'s $700 million shelf registration to sell debt securities, preferred and common stock, depositary shares, and other securities. The outlook for the company is negative.

Ratings reflect the company's participation in the capital-intensive oil and gas compression service industry, an aggressive growth strategy, and highly leveraged capital structure.

This is somewhat offset by the company's position as the largest participant in its industry and the ability to generate operating cash flows in excess of maintenance capital expenditure requirements throughout most of the business cycle, S&P said.

As of May 9, the company's liquidity consists of about $95 million of incremental borrowing capacity under its $350 million bank credit facility. Hanover's liquidity should be adequate for 2003 because the company does not plan to outspend cash flow and has no near-term debt maturities. However, the company will be highly vulnerable to refinancing risk in 2004 when the company faces the maturation of about $190 million of bank debt and $200 million of synthetic leases. To improve liquidity, a debt offering to refinance a portion of its debt maturing in 2004 is being contemplated.

The negative outlook reflects continued concerns regarding Hanover's ability to fortify its capital structure and the uncertainty surrounding the outcome of the SEC's formal investigation into the company's financial restatements, S&P said.

Fitch rates Meritage notes, revolver BB

Fitch Ratings rated Meritage Corp.'s senior unsecured debt, which includes $205 million in outstanding senior notes due 2011 as well as a $250 million revolver due Dec. 12 2005, at BB. The rating outlook is stable.

Ratings are based on the company's successful execution of its business model, conservative land policies and geographic and product line diversity.

Risk factors include the inherent cyclicality of the homebuilding industry, the company's aggressive, yet controlled growth strategy and Meritage's capitalization and size, Fitch said.

At the end of the first quarter, $110 million was available under the revolver.

S&P downgrades Corus Group

Standard & Poor's downgraded the long-term corporate credit, senior unsecured debt and bank loan ratings on Corus Group PLC and related entities to B from BB-, following a review. Furthermore, the B short-term corporate credit rating was confirmed and the long-term corporate credit rating was removed from CreditWatch, where it was placed on March 12. The outlook is negative.

However, the senior unsecured debt and bank loan ratings remain on CreditWatch with negative implications since the company is currently negotiating an extension to its €1.4 billion ($1.6 billion) committed bank debt facility and it is expected that any new bank lines would be granted security and rank senior to unsecured debt.

"Standard & Poor's expects European steel prices to fall in the second half of 2003 and it is likely, therefore, that Corus will only be able to generate funds from operations or free operational cash flows in line with what is expected of a 'B' rating category at best," said Standard & Poor's credit analyst Olivier Beroud. "Furthermore, the strength of the euro will only partly benefit Corus, as a large part of its operations are based in the Netherlands, and the expected fall in steel prices in Europe would have a direct and negative effect on the group's U.K. operations.

"Standard & Poor's is concerned about the group's ability to implement a further restructuring program, renegotiate its bank lines that mature in January 2004, and resolve the internal dispute that led the group abandoning the disposal of its aluminum unit," added Beroud. "We will meet with the management of Corus in the coming weeks to discuss these various issues in an effort to resolve the CreditWatch status."

S&P rates Yellow Pages Group BB

Standard & Poor's Ratings Services today said it placed its BB- long-term corporate credit rating on Yellow Pages Group Inc. on CreditWatch with positive implications.

"The CreditWatch placement follows the filing of a preliminary prospectus by the Yellow Pages Income Fund that will see the current private equity holders' spin off a portion of YPG via a publicly listed income fund," said S&P credit analyst Joe Morin.

Assuming the transaction is concluded, YPG will see its consolidated debt balance reduced to C$1.25 billion from about C$2.1 billion, with the proceeds of the public equity offering as well as an infusion of cash from the current private equity holders being used to reduce debt at the operating company level.

The debt will be held at a newly formed holding company, Yellow Pages Group Holdings Inc., which will be rated following the IPO. S&P said it expects to assign its BB+ long-term corporate credit rating to YPG Holdings, assuming the transaction closes as expected.

In addition, Standard & Poor's expects to assign its BB+ rating to the Montreal-based company's proposed C$1.25 billion senior unsecured credit facility.

The ratings on YPG Holdings reflect the company's leading market position as Canada's largest directory publisher; its strong brand equity and intellectual property ownership; its exclusivity arrangements with incumbent telecom operator Bell Canada; predictable revenue and EBITDA streams; and minimal capital expenditures, S&P said in a news release.

The proposed transaction will result in a significant reduction in leverage (debt to EBITDA) to about 3.5 times from about 6.25 times, with an improvement in debt service protection measures. The expected improvement in the company's financial risk profile drives the higher BB+ rating, S&P said. These strengths are mitigated by the company's limited operating experience as an independent company, the lower growth industry in which it operates, and potentially increasing competition in future.

S&P downgrades Empresa Nacional de Autopistas to BB+

Standard & Poor's downgraded Empresa Nacional de Autopistas S.A.'s long-term corporate credit rating to BB+ from AA+ and removed the rating from CreditWatch, where it was placed on May 30 following the announcement that a consortium led by Spanish construction company Sacyr-Vallehermoso had won a bid for the privatization of ENA. The outlook is positive.

The downgrade reflects ENA's new ownership structure and the expected addition of €1.2 billion of debt at Newco, the parent and acquisition vehicle, S&P said.

"While there is some ring fencing between ENA and Newco, particularly with respect to certain features of the Spanish legal system and highway regulatory framework, effective investment-grade level protection of existing ENA bondholders still has to be demonstrated," said Standard & Poor's credit analyst Jean-François Veron.

Prior to the acquisition, liquidity is expected to be adequate due to proceeds from a recent €193 million bond issue. After the acquisition, liquidity will be further reinforced by loans to be made available at the concessionaires' level as part of a financing package related to the acquisition.

"The positive outlook reflects the potential for ENA's new owners to implement measures that better separate ENA's credit quality from that of Newco," Mr. Veron said.

Moody's rates Orbital Sciences notes B2

Moody's Investors Service rated Orbital Sciences Corp.'s $135 million senior notes due 2011 at B2 and assigned a B1 senior implied rating to the company. The ratings outlook is stable.

Proceeds from the note sale combined with cash on hand will be used to refinance the $135 million of 12% second priority secured notes due 2006.

Furthermore, as part of its recapitalization plan, the company has obtained a commitment for a $50 million four-year senior secured credit facility, not rated, which could potentially increase to $75 million, that will replace a $35 million secured facility.

Ratings reflect the more stable business profile the company has achieved after winding down its investments and operating relationships with certain satellite services operations, the favorable outlook for defense spending especially for missile defense, and the company's good contracted backlog position, Moody's said.

Constraining the ratings is the company's weak operating margins and returns, and history of cash consumption, Moody's added.

S&P revises Fisher Scientific outlook to negative

Standard & Poor's revised the ratings outlook on Fisher Scientific International Inc. to negative from stable, following Fisher's agreement to purchase Perbio AB for $727 million. The corporate credit rating was affirmed at BB.

The debt-financed acquisition pressures the company's credit measures and makes full use of Fisher's debt capacity at the current rating level. If there is any additional significant debt-financed transactions or weakening of operating performance it could lead to a downgrade, S&P explained.

Ratings reflect the company's improving cash flows and strengthened financial profile but these factors are offset by the company's substantial debt burden related to its acquisitions.

If the acquisition is financed completely with debt, lease-adjusted total debt to EBITDA will increase to 4.5 times from 3.4 times and funds from operations to total debt will fall to about 16% from 23%. These measures are expected to improve, given Fisher's ability to repay borrowing with ample free cash flow, which is expected to rise to $120 million in 2003.

As of March 31, the company's $175 million revolver was largely undrawn, while cash balances totaled $44 million. The $225 million receivables securitization special purpose entity, which tends to decline to zero by quarter's end, provides funding up to a fixed percentage of receivables and is continuously replenished as receivables are collected.

Moody's revises Fisher Scientific's outlook to stable

Moody's Investors Service revised Fisher Scientific International Inc.'s rating outlook to stable from positive following the announced acquisition of Perbio Science AB for approximately $714 million in cash. All ratings were confirmed, including the Ba3 rating on the $175 million guaranteed senior secured revolver due Feb. 21, 2008, the B1 rating on the $150 million 7.125% senior notes due Dec. 15, 2005 and the B2 rating on the $350 million 8.125% senior subordinated global notes due May 1, 2012.

Ratings reflect the company's strong and improving financial performance, supported by substantial recurring revenues, its track record in successfully integrating acquisitions, its market position, and the rapidity with which it is likely to reduce its debt, Moody's said.

The company's improving financial performance, which had been putting upward pressure on the ratings, will offset its assumption of significant new debt and acquisition integration risks, Moody's added.

EBITDA to Interest is expected to rise to above 4 times by the end of 2003 and EBITDA is expected to grow at a rate in the mid-teens over the next two years.

S&P puts Fiat SpA on CreditWatch with negative implications

Standard & Poor's placed Fiat SpA's BB+ long-term corporate credit rating on CreditWatch with negative implications due to an increased likelihood that the cash-draining Fiat Auto division will remain in the group. S&P confirmed the B short-term corporate credit and commercial paper ratings on Fiat and related entities.

Following management's announcement that it will increase its efforts to improve the profitability and efficiency of Fiat Auto over the medium term, S&P credit analyst Virginie Casin stated: "Standard & Poor's believes this plan reduces the likelihood that Fiat will lower its participation in Fiat Auto as early as 2004."

In earlier statements this year, S&P had warned that "should Fiat Auto remain in the group beyond 2004, Standard & Poor's would be extremely skeptical about the likelihood of positive free cash flows before 2006, and would have serious concerns about the sustainability of the current ratings."

Previously, the rating agency believed that Fiat would exercise its put option to General Motors Corp. or reduce its stake in Fiat Auto through other means.

At March 31, the auto group had €28.9 billion ($33.1 billion) of total on-balance-sheet financial debt.

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