S&P cuts AES

Standard & Poor's downgraded The AES Corp. including lowering its senior unsecured debt to BB- from BB, its subordinated debt to B from B+ and its trust preferreds to B- from B. The ratings were removed from CreditWatch with negative implications. The outlook is negative.

S&P said the downgrade was primarily due to the increasingly challenging environment AES is facing in managing businesses in Latin America.

"Specifically, political instability in Venezuela and Brazil has made refinancing current obligations more challenging than usual, which could limit distributions, and a weakening currency in Venezuela could also weaken dollar-denominated distributions from that country," S&P said.

In addition, Standard & Poor's believes that liquidity constraints at AES Gener SA (BBB-/Watch Neg) make significant distributions from that subsidiary unlikely.

While it is certainly plausible that AES will get cash out of these businesses and make up some potential shortfalls with upside from some of its more stable businesses, the company's increased risk profile in Latin America, given its current debt levels, results in a profile more in line with a BB- rating, S&P said.

S&P noted AES has improved its liquidity position since the beginning of the year.

In addition, AES is not in the trading business and therefore it has no trading liabilities and no issues arising from the recent FERC inquiries, S&P said.

The negative outlook reflects refinancing risk associated with debt maturities at the parent of $300 million in 2002 and $1.8 billion in 2003, given heightened uncertainty in the bank markets, S&P said.

S&P added that AES' ratings will likely stabilize once it renews its $850 million revolver and they could return to previous levels if it executes its plan to use proceeds from asset sales, potential capital market issuance and excess operating cash flows to fund the debt maturities and assist in refinancing the credit facility.

S&P puts L-3 on positive watch

Standard & Poor's put L-3 Communications Corp. on CreditWatch with positive implications including its BB long-term corporate credit rating and B+ subordinated debt.

L-3 Communications had approximately $2.2 billion in debt outstanding at March 31.

The action follows L-3's announcement it will issue 14 million shares of common stock (approximately $900 million proceeds based on L-3 Communications' recent share price and the exercise of a 1 million share over-allotment option) and $750 million in senior subordinated debt securities due 2012.

L-3 Communications had approximately $2.2 billion in debt outstanding at March 31, 2002.

The equity issuance will enable L-3 Communications to restore its capital structure after its recent $1.1 billion debt-financed acquisition of Raytheon Co.'s Aircraft Integration Systems division.

The $900 million proceeds from the equity issuance are to be used to repay debt, as well as for general corporate purposes, including potential acquisitions.

Proceeds from the debt issuance are to be used to refinance the $500 million senior subordinated bridge loan related to the acquisition and to repurchase or redeem the $225 million of outstanding 10 3/8% senior subordinated notes due 2007.

The company's debt to total capital will be reduced to below 50% proforma for the securities issuance, from almost 66% at March 31.

Moody's lowers Ntelos

Moody's Investors Service downgraded Ntelos Inc. ending a review begun in December 2001. The outlook is stable. Ratings affected include Ntelos' $325 million senior secured credit facilities, cut to B3 from B1, and its $280 million 13% senior notes due 2010, cut to Caa3 from B3.

Moody's said the reduction reflects Ntelos' "very high leverage" and the challenges it faces to increasing cash flow to reduce leverage.

Moody's said it believes Ntelos' assets and cash flows cannot support its debt obligations. The security and guarantee package is enough to support a B3 rating on the $325 million secured credit facility but recovery to senior note holders is likely to be impaired.

In addition, Ntelos has limited financial flexibility after it pays the next coupon in the 13% senior notes in August, funds for which are in escrow, Moody's said.

In order to maintain access to its revolver, the company will be required to meet leverage covenants contained in its credit facility that become rapidly more restrictive over the four quarters of 2003, Moody's noted.

More near term, liquidity is adequate as the revolver is largely undrawn and the company should be able to meet its covenant tests over the next few quarters. Additionally, NTELOS could gain additional liquidity from the sale of non-core assets, Moody's said.

S&P rates Riviera notes B+

Standard & Poor's assigned a B+ rating to Riviera Holdings Corp.'s proposed $210 million senior secured notes due 2010. The outlook remains negative.

S&P said the ratings reflect Riviera Holdings' narrow business focus, competitive market conditions, high debt levels, and potential investment opportunities.

These factors are mitigated by the Riviera Las Vegas' relatively stable performance over the past few years, improved performance in Black Hawk, and an expected strengthening of credit measures in the near-term more consistent with the rating, S&P added.

The Las Vegas Riviera has been a relatively steady performer despite increased competition on the Las Vegas Strip and the property's disadvantaged northern location, S&P said. However, operating results during 2001 were significantly affected by the weak economy and the slowdown in visitors to Las Vegas as a result of the Sept. 11 attacks. EBITDA declined by more than 25%, to $21.5 million, compared to the prior-year, due to lower customer counts, a decrease in gaming volumes, and higher marketing expenses.

This trend continued into 2002, with first quarter EBITDA declining 27%, S&P said. With business slowly recovering to more normal levels and management's aggressive cost cutting efforts, results are expected to improve as 2002 progresses.

The company's Black Hawk property performed very well during 2001, generating $12.7 million in EBITDA, compared to $6.6 million in 2000, S&P noted. This trend continued during the quarter ended March 31, 2002, with EBITDA increasing 16% as the property continued to benefit from steady market growth, refined marketing programs, and an increase in market share.

Moody's raises Gruma outlook

Moody's Investors Service raised its outlook on Gruma SA to stable from negative. Ratings affected include Gruma SA's $250 million 7.625% senior unsecured notes due 2007 at Ba2 and Gruma Corp.'s $70 million senior unsecured credit facility at Ba1.

Moody's said the revised outlook reflects its expectation that Gruma will continue progress in strengthening credit measurements to levels more appropriate for the rating.

Over the past two years the company has acted to cut leverage, improved its debt profile by refinancing short and medium term debt with a $400 million committed credit facility, and shown a continued focus on additional debt reduction.

Operationally, the outlook incorporates Gruma's exit from its unprofitable bread business, cost reductions, price increases and strong performance at its U.S. subsidiary Gruma Corp., which more than offset lower Mexican corn flour volumes, Moody's said.

S&P ratings not affected by Mueller Group's amendment

Standard & Poor's announced that Mueller Group Inc.'s proposed amendment to its credit facility, if completed, will have no immediate impact on the company's ratings or outlook. The amendment would allow the company to replace existing senior secured term loans with a new term loan that carries a lower interest rate and reduced near-term amortization.

At March 31, total debt to EBITDA was 3.4 times and EBITDA to interest coverage was 2.8 times. "Over the business cycle, Standard & Poor's expects total debt to EBITDA around 4x, and EBITDA to interest coverage in the 2x-3x range," S&P said.

Moody's confirms Sunburst Hospitality's ratings

Moody's Investors Service confirmed Sunburst Hospitality Corp.'s ratings, which were placed on review for possible downgrade in response to expected credit deterioration resulting from Sept. 11, 2001. Confirmed ratings include, $180 million senior secured term due 2005 at Ba3, $20 million senior secured revolver due 2005 at Ba3, $35 million senior subordinated notes due 2007 at B2, senior implied at Ba3 and long-term senior unsecured at B1. The rating outlook is negative.

"The confirmation acknowledges that the company successfully achieved planned asset sales ahead of schedule and applied the proceeds towards the repayment of debt," Moody's said. In addition, the confirmation reflects the gradual improvement of the lodging industry since last year and favorable supply/demand conditions.

In 2001, the company sold 20 hotel properties for about $81 million. These proceeds were used to repay the company's $80 million senior secured term loan due 2002.

The negative outlook reflects higher than anticipated debt/EBIDTA. Initially, debt/EBIDTA was expected at 3.7 times by the end of 2002. However, at March 31, debt/EBIDTA was over 5 times. "The current rating is subject to Sunburst's ability to manage debt/EBITDA closer to 4.0x within the next 12-month period," Moody's added.

S&P rates Metaldyne notes B, loan BB-

Standard & Poor's assigned a B rating to Metaldyne Corp.'s proposed $300 million senior subordinated notes due 2012 and a BB- rating to its new $350 million senior secured term loan D. S&P also put the ratings on CreditWatch with positive implications, joining the BB- corporate credit rating which was put on positive watch on May 16.

S&P said Metaldyne is on positive watch because of its intention to sell a 66% stake in its wholly owned subsidiary TriMas Corp. for $840 million in cash and debt reductions.

Pro forma for the sale and new debt issues, Metaldyne's debt will total $780 million, S&P said.

Metaldyne intends to use proceeds from the sale to reduce debt and for other corporate purposes, which will improve the company's currently stretched financial profile, S&P said.

Pro forma for the transaction, total debt (including operating leases and sold accounts receivable) to EBITDA will decline to about 4.4 times from 5.3x, S&P said. At the same time, the sale would also somewhat weaken Metaldyne's business profile by reducing the company's product, customer, and end market diversity.

Metaldyne's credit quality could improve modestly or remain the same depending on potential changes to management's business strategies and financial policies, S&P said. Metaldyne intends to aggressively pursue acquisitions to expand its positions in automotive-based components, assemblies, and modules.

S&P puts AirGate on watch

Standard & Poor's put AirGate PCS on CreditWatch with negative implications. Ratings affected include AirGate PCS' $300 million senior subordinated discount notes due 2009 and iPCS Inc.'s $152 million 14% discount notes due 2010, both at CCC, and iPCS Wireless Inc.'s $140 million senior secured bank loan due 2008 at B-.

S&P said it put AirGate PCS on watch because of concern the company could be challenged to meet the minimum subscriber covenant under the stand-alone senior secured credit facility of its wholly owned operating subsidiary iPCS Wireless Inc. for the quarter ending June 30, 2002.

iPCS has to add about 12,000 net subscribers in the current quarter to meet this covenant, but net subscriber additions through the end of May 2002 were running at a level significantly below the trajectory needed to meet the target, S&P said.

S&P added that it is concerned that covenants will likely be an ongoing issue for iPCS in the absence of any material amendment.

The minimum subscriber covenant requires iPCS to aggressively add about 30,000 net subscribers in both the third and fourth calendar quarters of 2002. Other critical covenants that iPCS has to meet in 2002 include maximum EBITDA loss and minimum revenue tests. Because of industry competition, the weak economy, increased overhead associated with the rollout of third generation services, and problems relating to sub-prime customers, AirGate may find it challenging to meet these covenants, S&P commented.

S&P takes Venetian off watch

Standard & Poor's removed Venetian Casino Resort LLC and parent Las Vegas Sands Inc. from CreditWatch with negative implications, confirmed its ratings and assigned a B- rating to its new $850 million of 11% mortgage notes due 2010 and a B+ rating to its $375 million senior credit facility. The outlook is stable.

The actions were previewed in an announcement by S&P on May 8.

S&P puts Parker Drilling on negative watch

Standard & Poor's placed its ratings on Parker Drilling Co. on negative watch following its announcement that it intends to bid for international land drilling contractor Australian Oil & Gas Corp. Ltd. of $108 million - $88 million in cash plus the assumption of about $20 million in debt.

Parker has stated that it intends to fund the cash acquisition price with equity, and S&P noted that AOG is the object of numerous takeover offers and no agreement has been reached between Parker and AOG.

S&P said it believes the acquisition, if consummated, ultimately could prove beneficial to Parker's credit quality by deleveraging it and strengthening it in its core business lines.

Nevertheless, S&P said it has concerns about the company's ability to execute the proposed equity financing. If Parker is able to issue sufficient common equity to ensure its financial profile is not adversely affected, S&P would affirm Parker's ratings.

If the transaction is financed with a high percentage of common equity, Parker's credit statistics would improve.

As of Dec. 31, Parker's total debt to total capitalization was about 59%, EBITDA interest coverage run-rate was about 2.1 times and total debt to EBITDA averaged 5.2 times.

S&P rates PCA notes B-

Standard & Poor's assigned a B- rating to PCA International Inc.'s proposed $160 million senior unsecured notes due in 2009. The notes are being offered in lieu of a previously planned $200 million issue of seven-year notes.

Pro forma for the transaction, PCA has $226 million total debt outstanding, including $30 million of parent company debt, S&P said.

The ratings on PCA reflect its participation in the highly competitive professional portrait photography industry, its dependence on Wal-Mart Stores Inc. for about 95% of its revenue, weak credit measures, and a highly leveraged capital structure, S&P said.

These risks are partially mitigated by PCA being the sole portrait photography provider for Wal-Mart, and its vertically integrated digital imaging and portrait processing system, S&P added.

S&P leaves Foster Wheeler on CreitWatch

Standard & Poor's announced that Foster Wheeler Ltd.'s B+ corporate credit rating remains on CreditWatch with negative implications despite the company's announcement that a term sheet for a $289.9 million credit facility was signed. The loan will mature in 2005 and consists of a revolver, term and letter of credit facility.

"The rating will remain on CreditWatch until the bank, lease, and account receivable facility negotiations are completed, and the company's financial flexibility assessed," said Standard & Poor's analyst Joel Levington.

In addition, S&P will review whether or not erosion of business position has occurred and the collateral package granted to senior bank lenders.

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