S&P cuts Panavision

Standard & Poor's downgraded Panavision Inc. including cutting PX Escrow Corp.'s $150 million 9.625% senior subordinated discount notes due 2006 to CC from CCC. The outlook is negative.

S&P said the action follows Panavision's postponement of its planned $20 million senior secured revolving credit facility and $275 million senior secured note issue.

S&P said the postponed debt offerings were critical to alleviating its concerns about the company's capital and maturity structure. Panavision's current financial profile is not sustainable and the company will need to amend its capital structure to improve liquidity and substantially defer near-term debt maturities by March 31, 2004 to avoid a default.

Panavision continues to maintain a dominant position in its core business of renting cameras to the feature film and film-based television industries and a solid position in supplying cameras for independent films and commercials. However, these strengths are overshadowed by its high financial risk stemming from its weak discretionary cash flow, limited liquidity and considerable near-term debt maturities, S&P said.

Panavision's debt to EBITDA ratio of about 5.4x remains high given its weak cash flow.

Moody's cuts Denny's 2008 notes, lowers outlook

Moody's Investors Service downgraded Denny's Corp.'s $379 million 11.25% senior notes due 2008 to Caa3 from Caa2 and confirmed its other ratings including its $120 million 12.75% senior notes due 2007 at Caa1. The outlook was lowered to negative from stable.

Moody's said it cut the 2008 notes because it believes this class of debt would suffer a material loss following a hypothetical default given the structural subordination of the 2008 notes relative to the 2007 notes.

The outlook revision was prompted by Moody's expectation that weaker sales and higher costs will continue to pressure operating margins over the medium-term, the company's constrained liquidity position because of weak operating cash flow and pressured borrowing facility covenants and Denny's increasingly leveraged financial condition as the company covers its free cash flow deficit by utilizing the borrowing facility to fund cash interest payments.

Moody's believes the ratings will remain pressured unless Denny's demonstrates the ability to increase revenue and cash flow, reverse declining comparable store sales and improve its liquidity position.

However, strengths of the company are the well known "Denny's" trade name, the concentration of domestic restaurants in fast-growing regions, and the company's ownership of about 250 stores. The use of franchisees to develop most new Denny's restaurants and then pay high-margin royalties afterward also improves margins, Moody's added.

The Caa1 rating on the 2007 senior unsecured notes (jointly issued by the intermediate holding company Denny's Holdings, Inc. and the parent holding company Denny's Corp.) considers that these notes are effectively subordinated to the $125 million secured bank facility, $33 million of capital leases, and $5 million of other secured debt as well as structurally subordinated to $47 million of trade accounts payable at the operating level. In a default scenario, the indenture requires the trustee to completely repay the 2007 noteholders before any excess cash is distributed for benefit of the 2008 notes.

The Caa3 rating on the 2008 senior unsecured notes (issued by the parent holding company Denny's Corp.) considers that these are effectively subordinated to significant amounts of senior debt. In a default scenario, this class of debt likely would recover materially less than the 2007 notes.

S&P rates Haights Cross notes CCC+, loan B-

Standard & Poor's assigned a B- rating to Haights Cross Communications Inc.'s subsidiary Haights Cross Operating Co.'s $100 million second priority senior secured loan due 2008 and a CCC+ rating to the company's $140 million 11.75% senior notes due 2011. The outlook is stable.

S&P said the $100 million senior secured loan is secured by a second lien position on the company's assets, which puts the holders in a better position than unsecured creditors but S&P still believes recovery values for these bondholders in a hypothetical bankruptcy may be impaired by the potential claims of the first-lien holders and the second-priority status of the security interest.

The ratings reflect the company's high debt leverage, recently soft operating performance, and an uncertain near-term outlook for higher EBITDA.

Ratings also consider Haights Cross' portfolio of supplemental educational and library publishing businesses. The majority of Haights Cross' operations have experienced good internal expansion from 2000 to 2002. However, most of the company's school supplemental businesses participate in very competitive markets in which product quality and marketing are important contributors to success, and competitors are far larger and better-financed entities, S&P said. Haights Cross is investing heavily to develop new products and is increasing marketing spending for growth.

In addition, S&P said it believes that larger, less leveraged players may have greater strength in product development and marketing, particularly in the educational materials business, which is experiencing a degree of technological change.

EBITDA (after amortization of prepublication costs and adjusted to exclude restructuring charges and a nonrecurring management incentive plan) declined 11% in the first half of 2003 reflecting the effect of the sluggish economy on retail audiobook sales, the loss of a significant distributor in its audiobook rental business, and soft sales of older titles at its Chelsea House library book publishing unit, which has been underperfoming since 2000. Management cannot predict whether these trends will affect its financial performance for the remainder of the year.

Financial risk is high, S&P said. Pro forma debt and debt-like preferred stock to EBITDA was 8.4x for the 12 months ended June 30, 2003. Pro forma EBITDA coverage of interest expense and debt-like preferred dividends was roughly 1.0x for the same period. Coverage of pro forma cash interest expense was 1.8x, reflecting the pay-in-kind dividend provision of the series B senior preferred stock.

Moody's cuts Milacron

Moody's Investors Service downgraded Milacron Inc. including cutting its $115 million 8.375% senior unsecured notes due March 2004 and Milacron Capital Holdings BV's €115 million 7.625% senior unsecured notes due April 2005 to Caa1 from B and Milacron's $75 million senior secured revolving credit facility due March 15, 2004 to B3 from B1. The outlook is negative.

Moody's said the downgrade was in response to its escalating concerns about prolonged weakness within Milacron's key end markets together with the resultant negative impact on the company's operating cash flow performance and its efforts to refinance more than $300 million of upcoming March 2004 and April 2005 debt maturities.

The rating downgrades reflect that Milacron's total current liquidity (cash plus unused availability) has declined by in excess of $20 million versus estimates provided during the preceding quarter, Moody's said.

The weaker-than-expected cash flow performance was primarily brought about by the failure of Milacron's end market demand to improve at the anticipated rate. For the 12 months ended June 30, 2003 Milacron realized approximately breakeven EBIT (after adding back restructuring charge adjustments), with the company's operations therefore failing to generate any coverage of cash interest costs.

The company's trailing 12 month total debt/EBITDAR leverage (including off-balance-sheet leases and securitizations, but excluding pension obligations) exceeded 10x.

Milacron faces a growing challenge with regard to refinancing the upcoming 2004 and 2005 principal maturities of all the company's funded debt obligations, Moody's said.

Management has indicated that plastics industry capacity utilization must rise by almost 5%, to about 84%, before customer capital investments would be likely to increase materially. Considerable uncertainty still remains regarding the timing of an industry recovery.

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