Moody's cuts Solutia

Moody's Investors Service downgraded Solutia Inc. and kept it on review for possible further downgrade, affecting $1.2 billion of debt. Ratings lowered include Solutia's senior unsecured notes and debentures, cut to B3 from Ba3, the senior secured notes, cut to B2 from Ba2, and secured credit facility, cut to B1 from Ba1

Moody's said the downgrade reflects Solutia's deteriorating liquidity position as the maturity date of its existing $800 million credit facility approaches. The downgrades do not reflect concerns over the future financial performance of the company's businesses, Moody's added.

The credit facility matures on August 13 but the refinancing must be in place by August 9 in order to avoid the loss of funds received from the $223 million secured note offering, Moody's said.

Solutia received less than $200 million from this offering, which was less than the company had anticipated.

Moody's said it is uncertain as to why the credit facility has not been refinanced; the continuing delay raises concern over the company's ability to refinance the facility within the next four weeks and the potential for disruption in Solutia's operating performance, if this issue is unresolved.

If the credit facility is refinanced, Moody's said it believes that the company's near-term financial performance should improve versus 2001 and that second quarter results will reflect increased demand in most businesses and especially in the company's Integrated Nylon segment.

Moody's said it anticipates that the company's full year financial performance should result in cash flow from operations as a percent of total debt in the range of 12-14%, and free cash flow of roughly $50 million. Moody's also believes that there will be a modest improvement in 2003 as the US economy slowly recovers. In addition, if the US dollar remains at or below current levels, Solutia should experience a moderate increase in earnings and cash flow versus Moody's current projections.

Fitch keeps Orbital Sciences on watch

Fitch Ratings said Orbital Sciences remains on Rating Watch Negative but added that credit quality could substantially improve if the company can get over near-term challenges. Fitch currently rates Orbital Sciences' senior secured bank debt at B+ and convertible subordinated notes at B-.

The negative watch reflects concerns about liquidity, specifically the $100 million in convertible subordinated notes due in October, and weak near-term cash flow from operations, estimated at negative $70 million in 2002, according to Fitch.

Other than these near-term concerns, Fitch said it believes Orbital Sciences' overall situation is solidifying due to the company's strong position in missile defense applications, improving satellite manufacturing performance, significant debt reduction and solid backlog.

Orbital Sciences has potentially valuable assets and technology, and credit quality could substantially improve if the company executes its operating plan and gets past the challenges it faces in the near term, Fitch said.

S&P assessing Mirant's credit rating

Standard & Poor's is assessing Mirant Corp.'s credit rating due to the company's decision to term out its $1.25 billion, 364-day revolving credit facility. S&P gives Mirant a BBB- corporate credit rating with a stable outlook.

Despite the term-out of the facility for one year, the company remains in negotiations with its lenders to refinance the term loan with a smaller facility on acceptable terms.

S&P said it would view Mirant's ability to obtain such a bank refinancing as positive. If Mirant is unable to come to acceptable terms for the refinancing of the term loan in the near term, S&P said it will look to Mirant to provide a sufficient and executable plan for maintaining its liquidity position and financial flexibility to support the current rating.

Moody's raises Omega Health outlook

Moody's Investors Service raised its outlook on Omega Healthcare Investors, Inc. to stable from negative and confirmed the company's senior debt at Caa1 and preferred stock at Ca.

Moody's said the revision reflects the recent repayment of the $125 million of senior notes that were due in June 2002.

Following this repayment, there are no debt maturities until December 2003, when the REIT's senior credit facility comes due, Moody's said.

Omega's earnings pressures have improved as more operators, such as Sun Healthcare and Mariner Healthcare, which comprise 33% of Omega's property portfolio, emerge from bankruptcy, Moody's added.

To the extent that cuts in government healthcare reimbursements put additional pressure on operators, Omega may be under renewed financial stress, Moody's said. Omega is not paying its common or preferred stock dividends, with the latter in arrears by over $25 million.

S&P raises Central Garden & Pet's outlook

Standard & Poor's raised Central Garden & Pet Co.'s rating outlook to stable from negative due to the extension of its credit facility through July 2004 and its progress toward transitioning to higher-margin branded product sales from distribution sales. At the same time, the company's corporate credit rating of BB-, senior secured bank loan rating of BB- and subordinated debt rating of B were affirmed.

Since the company increased its focus on branded products, operating performance increased to 9.9% for the 12 months ended March 30, 2002, compared to 7% for the same period the previous year and EBIDTA coverage of interest expense improved to 3.6 times from 2.5 times. Total debt to EBIDTA fro the 12 months ended March 30 was about 4.0 times compared to 5.2 times in the comparable period in 2001.

The ratings on Central Garden & Pet reflect the intense competition in the company's business segments, significant seasonality, and customer concentration, S&P said. These risks are somewhat offset by the company's broad assortment of garden and pet products.

S&P rates new Masonite bank loan BB

Standard & Poor's assigned a BB rating to Masonite International Corp.'s new credit facility.

Moody's rates Mobile Storage's loan Ba3; notes B2

Moody's Investors Service rates Mobile Storage Group Inc.'s $150 million five-year revolver at Ba3 and $160 million seven-year senior notes at B2. Proceeds from the new debt will be used to refinance debt incurred during the company's purchase in a June 200 leveraged buyout.

Furthermore, the company's senior implied rating was downgraded to B1 from Ba3 and unsecured issuer rating to B3 from B1. The rating outlook is stable.

The senior implied rating was adjusted because the company has higher leverage and lower tangible equity than was expected previously since the initial public offering was not completed, Moody's said.

Negative factors influencing the ratings include the company's leveraged financial condition, cyclical nature of the industry, small revenue base, small size of the company compared to potential competitors, expected rapid acquisition pace and necessity to adjust growth to available excess operating cash, Moody's said.

Positive factors influencing the ratings include historical strong cash flow generation characteristics and the expectation that margins will not decline as the company rolls up smaller competitors, Moody's said.

Pro-forma for completion of the proposed financing transaction, lease adjusted debt equaled an estimated 5.7 times EBITDAR and cash flow, as measured by EBITDA, covered interest expense and capital expenditures about 1.3 times for the 12 months ending March 2002.

Moody's rates Masonite's bank loan Ba2

Moody's Investors Service rates Masonite International Corp.'s proposed new amended and restated senior secured credit facility of up to $700 million in size at Ba2. The new loan consists of a $100 million revolver due in 2006, a $100 million term loan A due in 2006 and a term loan B of up to $500 million due in 2008. The rating outlook is stable.

Proceeds from the loan will be used to refinance an existing senior secured credit facility with a current balance of $478.6 million and to repay a $126 million subordinated seller note that had been issued during the time when Masonite and Premdor Inc. merged.

Ratings reflect challenges involved in combining the two companies, heavy debt taken on to finance the transaction, sales concentration to two big box home center retailers, challenges in repositioning the company to a consumer products company from a generic door company, narrow product line and cyclical nature of the industry, Moody's said.

Positive influences on the ratings include, historically solid financial ratios, benefits expected from the combination of the two companies and the repayment of debt resulting in improved pro forma ratios, Moody's said. Pro forma for the repayment of the subordinated seller note and for refunding of the company's existing term loan balances of $478.6 million, the company will have a 55.5% debt/capitalization ratio and a 3.10 times debt/EBITDA ratio. Pro forma ratios at the time of the transaction last August were 64.8% debt/capitalization and 4.07 times debt/EBITDA.

S&P cuts ICN outlook

Standard & Poor's lowered its outlook on ICN Pharmaceuticals Inc. to negative from stable and confirmed its senior secured bank loan at BB+ and subordinated debt at B+.

S&P said the action follows ICN's announcement of a significant decrease in earnings due to lower sales of its pharmaceutical products in the North American and Russian markets.

The company believes that sales will continue to be pressured well into 2003, S&P noted.

Furthermore, ICN may soon no longer benefit from the ribavirin royalties, as ICN is in the midst of a restructuring plan, S&P said. The restructuring provides for the completion of ICN's spin-off of its ownership share in subsidiary Ribapharm Inc. to shareholders in a tax-free distribution in the near future. Ribapharm holds the rights to the ribavirin royalty as well as to the U.S. R&D operations.

The loss of the internal R&D infrastructure will also likely mean that ICN will need to acquire additional products in order to fully leverage its large international sales force, S&P added.

Moody's raises Owens-Illinois outlook

Moody's Investors Service raised its outlook on Owens-Illinois Inc. to stable from negative, affecting $5 billion of debt. Moody's also confirmed the company's ratings including its senior unsecured debt at B3 and Owens-Brockway Glass Container Inc. and other subsidiaries' $100 million term loan maturing March 31, 2004 and $3 billion revolving senior secured credit facility maturing March

31, 2004 at B1 and $1 billion senior secured notes due 2009 at B2.

Moody's said the outlook revision is based on the anticipated stabilization of the company's operating performance and on the expectation that the company's liquidity should remain satisfactory over the medium term.

Moody's expects Owens-Illinois' liquidity should be adequate over the medium term and that management will maintain a financial policy geared towards an improvement of credit metrics through debt reduction.

The expected stabilization in operating performance in 2002 is a result of the company's strong position in the glass sector, its ability to pass on increases in energy, raw material and other costs over time and the absence of significant contracts coming up for renewal over the medium term, Moody's said.

Additionally, Owens-Illinois should be able to maintain increased pricing in 2002. Owens-Illinois' operating margins are among the highest in the packaging sector, thanks to the company's technological edge, its strong market shares in certain glass markets and the good dynamics sustaining glass as a packaging material, Moody's noted. In North America, glass is increasing its penetration in the largest end-market, beer.

Still, the company remains highly leveraged, and its free cash flow remains very weak relative to debt, Moody's said. 2001 free cash flow before asbestos payments and net of acquisitions and divestitures was only at $397 million relative to a year-end total debt level of $5.4 billion.

S&P rates Mobile Storage loan BB-, notes B

Standard & Poor's assigned a BB- rating to Mobile Storage Group Inc.'s proposed $150 million secured revolving credit facility maturing 2007 and a B rating to its planned $160 million senior unsecured notes due 2009. S&P also assigned a B+ corporate credit rating to parent company Mobile Services Group Inc. The outlook is stable.

S&P said the ratings replace those issued previously, including a BB corporate credit rating, in anticipation on an intended IPO. The IPO, whose proceeds were to be used to reduce debt, was postponed over the near to intermediate term.

S&P said Mobile Services' ratings reflect its modest scale of operations, small equity base, and relatively weak credit measures.

However, a respectable market share and efficient operations are positive features, S&P said.

Mobile Services has grown rapidly over the past several years, primarily through acquisitions financed with debt, which has resulted in relatively weak credit ratios, S&P said.

Privately held Mobile Services had intended to complete an initial public offering, utilizing proceeds to reduce debt. However, due to weak market conditions, the IPO was postponed for the near term. Instead, the company will replace its existing bank facility with a new one and issue public debt. As a result, the company's credit profile is expected to remain constrained over the near to intermediate term, S&P said.

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