S&P upgrades Michaels Stores

Standard & Poor's upgraded Michaels Stores Inc. including raising its $200 million senior unsecured bank loan due 2004 and $200 million 9.25% senior unsecured notes due 2009 to BB+ from BB. The outlook is stable.

S&P said the upgrade is based on Michaels Stores' improved operating performance and cash flow protection measures, which have benefited from better inventory management and a trend toward home-based activities.

EBITDA rose more than 25% to $354 million for the 12 months ended May 3, 2003.

Moreover, Michaels has been able to improve its cash flow protection measures while expanding its store base and significantly upgrading its infrastructure and inventory systems.

The ratings reflect the company's position as the only retailer in the arts and crafts industry with national scope, improving financial performance and credit protection measures, and adequate liquidity, S&P said. These strengths are partially offset by the company's participation in the competitive and fragmented crafts industry, and the challenges of improving inventory management and managing new store growth.

For the 12 months ended May 3, 2003, EBITDA coverage of interest approached 4x, compared with 3.3x the year before, while leverage declined, with total debt to EBITDA of 2.5x, compared with 3.0x in 2002, S&P added.

S&P rates Alliance Gaming loan BB-

Standard & Poor's assigned a BB- rating to Alliance Gaming Corp's proposed $100 million reducing five-year revolver and $275 million six-year term loan and confirmed its existing ratings including its corporate credit at BB-. The outlook is stable.

S&P said Alliance Gaming's ratings reflect its number-two position in the North American gaming equipment market and its growing base of successful gaming devices and game monitoring systems. This is offset by the company's small size, and the existence of a much larger and well-established competitor, International Game Technology.

On July 2, Alliance announced plans to divest two of its non-core assets, its German wall machine business, Bally Wulff, and its Louisiana and Nevada route businesses, VSI and United Coin. These two segments combined represented less than 20% of EBITDA for the 12 months ended June 30, 2003.

By divesting these two segments, Alliance Gaming will now be able to focus on its core division, Bally's Gaming and Systems. Assuming the successful close of both of these asset sales with most of the net proceeds used for debt reduction, debt leverage is expected to improve modestly.

Bally's Gaming and Systems has benefited from the introduction of new technology and new game themes during the last few years, S&P said.

Three industry trends have helped to spur demand for gaming equipment in the past few years. First, a shorter life cycle for gaming devices has been driven by consumer preferences for new machines. Second, the introduction of cashless technology, has spurred a healthy replacement market for gaming devices. Finally, the expansion of gaming continues to provide growth opportunities for the Bally's division. S&P said it expects that these trends will continue to serve as growth drivers in the intermediate term.

When calculated for the 12 months as of June 30, 2003, and pro forma for the transaction and considering net cash proceeds from asset sales to be applied towards debt reduction, S&P expects debt leverage to improve, with debt to EBITDA in the mid 2x area.

S&P said the proposed bank facility is rated the same as the corporate credit rating because the distressed enterprise value would not be sufficient to fully cover the facilities although there would likely be meaningful recovery of principal in the event of default or bankruptcy.

S&P says Collins & Aikman unchanged

Standard & Poor's said Collins & Aikman's ratings are unchanged including its corporate credit at B+ with a negative outlook after the announcement of new restructuring actions and the appointment of David Stockman its chairman to the additional position of chief executive officer.

S&P said it recognizes that these actions may benefit the company's longer-term financial results.

But it added that Collins & Aikman's current credit protection measures are weak and the prospects for a sustained recovery in its financial results remains unclear over the near term, given challenging conditions in the highly competitive automotive industry, uncertainty arising from the realignment of top management and lingering operational problems at certain Collins & Aikman facilities.

In addition, Collins & Aikman announced that its audit committee is investigating claims made by two former executives about certain transactions that may affect the company's financial results. S&P said it is concerned that the outcome of this investigation could have a negative effect on the company's financial flexibility.

S&P calls Range Resources redemption positive

Standard & Poor's said Range Resources Corp.'s ratings including its corporate credit at B+ with a stable outlook will not be affected by the company's announcement that it has completed the redemption of its senior subordinated notes due 2007.

But S&P added that the transaction positively affects the company's credit quality because it improves Range's debt profile by extending maturities, lowering the average cost of the company's long-term debt and increasing the amount of availability on the secured credit facility.

Though cash flow measures have improved somewhat, total debt (including trust-preferred securities) per barrel of oil equivalent remains at roughly $4.00, a level consistent with current ratings given the company's risk profile, S&P said.

S&P rates Vicar loan B+

Standard & Poor's assigned a B+ rating to Vicar Operating Inc.'s $146 million senior secured bank loan and confirmed its existing ratings including its subordinated debt at B-. The outlook remains positive.

S&P said the positive outlook reflects both the company's improving operating performance and measures taken to improve its capital structure.

Vicar's ratings reflect its improving but still relatively weak financial profile, S&P added. However, this weakness is mitigated by the company's position as the leading operator of animal hospitals and veterinary diagnostic laboratories.

Although all of the company's high-interest-rate debt and preferred stock has been repaid, and though total debt has been reduced with a combination of cash flow and proceeds from equity transactions, Vicar remains highly leveraged since its LBO in 2000, S&P noted. Anticipated funds from operations to lease-adjusted debt of about 18% and EBITDA interest coverage of approximately 2.6x are consistent with the rating, given the company's concentration in the veterinary field and the attendant exposure to industry developments.

S&P said that the loan is rated the same as the corporate credit rating because there is a strong likelihood of substantial recovery of principal in the event of default or bankruptcy.

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