Moody's puts Lyondell, Equistar on review

Moody's Investors Service put Lyondell Chemical Co. and Equistar Chemicals LP on review for possible downgrade including Lyondell's senior secured bank credit facility and term loan at Ba3, senior secured notes and debentures at Ba3 and senior subordinated notes at B2 and Equistar's senior secured bank facility at Ba2 and senior unsecured notes and debentures at B1.

Moody's said the review was prompted continuing demand weakness in most of the two companies major end markets, lower than anticipated North American olefin capacity utilization rates and continuing global oversupply of propylene oxide. Moody's believes that these factors will prevent the companies from deleveraging in 2004 and reduce Lyondell's ability to deleverage in 2005.

While Moody's still believes that Lyondell will delever in 2005, the extent of deleveraging in 2005 and beyond is less certain due to the recent history of demand weakness and concerns over export volumes. In addition, Moody's believes that the slower than previously anticipated recovery in financial performance will force both companies to renegotiate the financial covenants in their respective bank agreements over the next six months.

Although Moody's believe that Equistar's financial profile will rebound faster than Lyondell's, Equistar has been placed under review due to Moody's belief that its credit profile is limited by the financial strength of Lyondell. Equistar is a limited partnership has been structured to generate cash for its owners and Lyondell is the managing partner and majority owner (70.5% ownership). Furthermore, Moody's believes that any free cash flow generation at Equistar over the next several years will be paid as a dividend to its parents rather than used to repay debt at Equistar.

S&P cuts Millennium Chemicals

Standard & Poor's downgraded Millennium Chemicals Inc. including cutting Millennium America Inc.'s $250 million 7.625% senior debentures due 2026, $450 million 9.25% notes due 2008, $500 million 7% senior notes due 2006, $125 million senior secured term loan due 2006 and $175 million senior secured revolving credit facility due 2006 to BB- from BB. The outlook is stable. The ratings were removed from CreditWatch where they were placed on Aug. 6 following the company's unanticipated announcement that it would restate its financial statements.

S&P said the action is in response to Millennium's sub-par financial profile and weaker-than-expected prospects for reducing its substantial debt burden over the next couple years.

S&P said it believes Millennium's businesses are likely to support a gradual trend of improvement to credit quality, but that this trend will unfold much more slowly than previously anticipated.

The restatement of financial reports revealed a substantially weaker balance sheet while recent operating results, lingering concerns related to the timing and strength of a rebound within the petrochemical sector, and subsequent guidance have suggested a diminished capacity to reduce debt over the next couple years, S&P added.

These concerns are counterbalanced by a strong commitment on the part of management to restore credit quality, the expected benefits of strategic management decisions that should improve future free cash flow generation, and Millennium's satisfactory liquidity position.

The ratings on Millennium reflect its average business risk profile and aggressive debt burden, mitigated somewhat by financial policies that strongly emphasize debt reduction as business conditions improve, S&P said. Still, a disappointing coating season for TiO2 and heightened uncertainty with respect to the timing and strength of the emerging petrochemical sector recovery are likely to result in more gradual debt reduction than previously planned.

Moody's puts Koppers on review, rates notes B2

Moody's Investors Service assigned a provisional (P)B2 rating to Koppers Inc.'s proposed $300 million of senior secured notes due 2013 and put the existing ratings on review for possible downgrade including its $175 million 9.875% guaranteed senior subordinated notes due 2007 at B2.

The note offering is part of a recapitalization being undertaken by Koppers. Proceeds will be used to redeem $175 million of senior subordinated notes, pay an $80 million shareholder dividend, repay bank term debt and pay related fees and expenses. The proposed refinancing will increase Koppers' leverage and interest expense, and leave it with negative $83 million of shareholders' equity, Moody's noted.

Koppers' ratings reflect the mature and cyclical markets that it serves, the high level of environmental risk associated with the carbon-based chemical materials that it produces and its high leverage and negative net worth, Moody's said. Many of the industries that Koppers serves, such as aluminum smelting, steel making, and electric utilities, are currently experiencing soft demand and reduced margins, which make it difficult for Koppers to maintain its own sales and margins.

At the same time, the prices for some of Koppers' primary raw materials, e.g. coal tar and lumber, are being pressured.

The ratings are supported by Koppers' global and diverse end markets, its leading market position in many of its businesses, the stability provided by its reliance on multi-year sales contracts, the essential nature of its products and its diversified raw material supply base, Moody's said. These strengths have made Koppers' financial performance very stable and profitable, with EBITDA to sales in a narrow band between 10-11% and EBIT to assets consistently around 10%.

Koppers' pro forma leverage will be 5.4x trailing 12 months EBITDA (and nearly 5.9x when $21 million of annual rent payments are capitalized) and EBITDA to pro forma interest will be around 2.1 times. All of these credit ratios are more than a full turn worse than historical ratios, Moody's said.

Moody's rates Triton PCS liquidity SGL-2

Moody's Investors Service assigned an SGL-2 Speculative-Grade Liquidity rating to Triton PCS, Inc.

Moody's said the SGL-2 rating considers Triton PCS's ample cash position and significant covenant cushion under its new undrawn $100 million revolving credit facility.

The SGL rating is constrained by the breakeven to slightly negative free cash flow generation of the company currently.

In the first half of 2003, Triton PCS generated $71.2 million of cash from operations and spent $45.7 million on capital expenditures and another $28.3 million on spectrum acquisitions. Moody's does not anticipate any further spectrum purchases by Triton, but capital expenditures will increase near term as the company overlays more of its territory with GSM network. Consequently, Moody's does not expect Triton PCS to generate sustained free cash flow until 2004, when capital spending is expected to subside and cash from operations to increase.

S&P cuts G+G

Standard & Poor's downgraded G+G Retail Inc. including cutting its $107 million 11% senior notes due 2006 to B from B+ and $30 million secured revolving credit facility due 2004 to BB- from BB. The outlook is negative.

S&P said the action reflects G+G's weak operating performance through the first half of 2003, deteriorating cash flow protection measures and S&P's expectations that the company will be challenged to improve results due to the difficult retail environment and intense competition in the teen apparel segment.

G+G reported a sharp decline in same-store sales, with this measure falling 13.8% during the first half of 2003, S&P noted. Lower average selling price, increased markdowns to clear inventory, and a poorly received merchandising mix that emphasized basics contributed to the company's weak operating performance.

As a result, EBITDA declined to about $25 million for the 12 months ended Aug. 2, 2003, from $40 million the year before, resulting in a significant deterioration of credit protection measures. EBITDA interest coverage declined to about 1.0x for the 12 months ended Aug. 2, 2003, from 1.5x for full-year 2002 and total debt to EBITDA increased to 8.7x from 5.7x for the same periods, S&P said.

Given the intense competition and highly promotional environment in apparel retailing, the company will be challenged to overcome this weak performance in the second half of the year. As such, S&P expects G+G's credit protection measures to remain under pressure.

S&P to cut Rayovac after Remington acquisition, rates notes B-

Standard & Poor's said it will downgrade Rayovac Corp.'s senior secured and corporate credit ratings to B+ from BB- after it completes its acquisition of Remington Products Co. LLC.

The CCC subordinated debt rating of Remington Products Co. LLC and its wholly owned subsidiary Remington Capital Corp. will be raised to B- on closing as the debt will be assumed by Rayovac.

Until the transaction closes, Rayovac will remain on CreditWatch with negative implications and Remington on CreditWatch with positive implications.

S&P also assigned a B- rating to Rayovac's proposed $300 million senior subordinated debt maturing 2013.

The downgrade will reflect Rayovac's more aggressive financial policy and weaker credit protection measures pro forma for the transaction, S&P said. Also, there is a significant degree of integration risk, as Remington will represent Rayovac's first acquisition outside the battery industry.

Partially offsetting the increased financial and integration risks is the broadening of Rayovac's product portfolio, S&P added. Rayovac has stated its intention to grow externally and has made a number of acquisitions within the battery market over the past several years to accomplish this goal. The company's most recent acquisition was Varta AG's consumer battery business in October 2002, which expanded Rayovac's global presence significantly and made the company the third-largest battery manufacturer in the world.

The addition of Remington, which generated $365 million of annual revenues and a 13% EBITDA margin in 2002, will provide Rayovac with a significant presence in the electrical personal care market, as Remington holds the No. 2 position in men's dry shavers in North America, S&P said. In addition, the company will benefit from cost-saving opportunities, largely in the areas of shared distribution, and the reduction of certain overhead expenses.

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